Get your tickets for the 2023 Coin Center Annual Dinner – April 26 in Austin, TX

Coin Center files second comment in FinCEN rulemaking challenging its authority to make the surveillance rule

The authority FinCEN cites for having the power to make this rule change is completely specious

Today is the final day to file a comment in FinCEN’s midnight rulemaking. If that gives you a twinge of deja vu, it should. January 4th was originally listed as the final day for receiving comments, both on the official notice in the Federal Register as well as the Regulations.gov website—that is until they secretly changed it to the 7th. To be clear, this isn’t some generous extension, it is simply more chaos stemming from a rushed procedure and palpable disregard for meaningful public feedback.

Also today, Coin Center is submitting a second comment letter. In it, we further detail the rushed process that has led to this deadline confusion and that shows so much contempt for meaningful public feedback. We show that many commenters, including some very prominent ones, relied on FinCEN’s misleading public notice to their detriment, receiving effectively only 12 days to comment and not the promised 15. We also, however, make some new substantive arguments about statutory authority that haven’t, to our knowledge, been raised in other comments. As we write in our second comment:

Upon further review conducted throughout the meager period of time allowed within this rushed rulemaking process, we believe that the Treasury Department does not have the statutory authority to promulgate this regulation.

To quickly review administrative law, the Treasury Department, as a division of the executive branch, is not constitutionally empowered to make laws. We sometimes call the rules that are made by executive agencies “laws,” but they are not laws; they are rules that support and implement the laws that are actually passed by Congress. So, for example, this proposed rule (if it were to be finalized) would become part of the pages of regulations that implement the policies articulated in the Bank Secrecy Act, a law passed by Congress in the 1970s and subsequently amended several times. It is the Bank Secrecy Act that is the actual “law,” and while that law does afford the Treasury some power to fill gaps in precisely how they enforce that law, it does not give them carte blanche to do whatever they see fit to stop money laundering. As we detail in our second comment, we believe, it also doesn’t give them the authority to subject cryptocurrency exchanges to extraordinary reporting and recordkeeping obligations, as the midnight rulemaking seeks to do.

The problem we’ve identified with this new rulemaking is that it seems to be justified by a parenthetical statement in the text of the BSA itself, rather than being justified by an actual delegation of power from Congress to the Secretary. It might also be justified by the Secretary’s “general powers” under the BSA but, to the extent that’s all that undergirds its authority, that would suggest that the Treasury is assuming too much about those general powers. If those powers are not limited by some actual principle in the text of the Bank Secrecy Act itself, then they are legislative powers and, again, the executive is not allowed to legislate under our separation of powers and constitutional strictures.

What does this all mean in context? The rulemaking already has severe procedural deficiencies under the Administrative Procedure Act, as we outlined in our first comment. It also may prescribe unconstitutional warrantless searches and seizures in contravention of our Fourth Amendment rights, and it may force the identification of donors to nonprofits in contravention of our First Amendment rights to assemble anonymously. These arguments, too, are fleshed out in our first comment. Today’s supplemental comment adds one more deficiency to this administrative embarrassment that may supersede all the others: it may be completely ungrounded in any actual authority from Congress. Any one of these deficiencies might be countenanced, and the rule (should it be made final) might survive, but altogether these repeated failures give us real hope that we can convince the Secretary to slow down or even stop this messy process or else face strong challenges in the courts.