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It’s time to have the conversation: Is the Bank Secrecy Act unconstitutional?

Beyond the speech and privacy issues, the BSA is a sweeping delegation of law making power

Today we’re publishing another report on the Bank Secrecy Act (BSA) entitled “Broad, Ambiguous, or Delegated: Constitutional Infirmities of the Bank Secrecy Act.

In our 2019 report, “Electronic Cash, Decentralized Exchange, and the Constitution,” we argued that any application of the BSA’s surveillance obligations to software developers would violate the First and Fourth Amendment rights of Americans. We reiterated those arguments in our recent comment on the proposed broker rule. This new report, however, looks at the BSA from another constitutional angle: the Supreme Court’s current approach towards overbroad laws and the delegation of sweeping powers to the administrative state.

As per the title, the report argues that the Bank Secrecy Act is either (A) so broad as to criminalize everyday life, (B) so ambiguous as to make uncertain its application to millions of Americans, or (C) spared from being so broad or so ambiguous by the exercise of legislative authority delegated by Congress to the Treasury Department. Each of these alternative interpretations of the Bank Secrecy Act raises substantial constitutional concerns. In the end we find that it’s (C) unconstitutionally delegated, but how do we get there and what does that mean?


The BSA allows the Secretary of the Treasury to demand transaction surveillance and reports of personal information from a category of entities defined as “financial institutions.” Originally that category primarily consisted of insured banks, but over the years it has significantly expanded. The statute, however, doesn’t set much of a limit to what should and should not fit in the category and offers sweeping powers for the Secretary to expand the range of obligated persons as well as to arbitrarily exempt persons from obligations altogether. What that means in practice is that the executive branch, rather than elected members of Congress, has unbounded authority to decide who will and will not be obligated to engage in a mass financial surveillance program.

One of the most flexible aspects of the statute that comes up often in the context of crypto is the definition of “money transmitter,” a subtype of financial institution. That definition includes anyone “engaged as a business in the transmission of funds.” Based purely on a plain reading of that text, the category can include anyone who moves money, even if it is their own money in the course of their own business. If you pay your employees you could conceivably be covered. If you get paid for your work, you could be covered as well.

While that interpretation might seem wildly broad, it has indeed been the stated interpretation of regulators in the space. In past rulemakings, the Treasury Department has freely admitted that “[t]he definition of ‘financial institution’ in sections 5312(a)(2) and (c)(1) is extremely broad.” And the absurd consequences of such a broad law have been mitigated, ad hoc, in a long list of administrative rulings and guidance documents that selectively exempt some and not others according to a non-statutory facts and circumstances test. As FinCEN has said in response to regulatory comments:

FinCEN agrees that the breadth of the definition of money transmitter proposed in [this rulemaking] requires limitation to avoid both unnecessary burden and the extension of the Bank Secrecy Act to businesses whose money transmission activities either do not involve significant intermediation or are ancillary to the completion of other transactions.

Breadth on its own raises profound questions of constitutionality, but as our report outlines the fixes for that breadth, by either (A) finding the statute ambiguous and narrowly interpreting it or by (B) narrowing the statute using delegated authority from Congress, are equally problematic.


As our report argues, the breadth of the BSA results in highly arbitrary enforcement and the consequence of this is a kind of ambiguity over who will and who will not end up on the wrong side of an unlicensed money transmission prosecution (a federal felony with swift and severe penalties). That ambiguity raises real questions of fairness and the rule of law. But, that unfortunate outcome does not mean that the statute itself is ambiguous, it’s just broad and selectively implemented at the discretion of the regulator.

This freedom to interpret and reinterpret the law as best suits the current administration is exactly the kind of administrative discretion that the Supreme Court has recently started limiting using the so-called major questions doctrine and associated limitations on Chevron deference to agency interpretation. In a series of recent cases the Court has seen fit to strike down rules when agencies have “assert[ed] highly consequential power beyond what Congress could reasonably be understood to have granted.”

Our report looks at the BSA in light of Chevron, the major questions doctrine, and also in light of the preferred modes of statutory interpretation favored by the current justices. While there are reasons to hope for a finding that the agency has vastly outstripped its authority, we don’t believe that to be clearly the case. Our analysis of the BSA leads to a somewhat different conclusion: the law is broad and Congress likely intended it to be so. The text itself is not ambiguous, and the only thing that saves it from effectively criminalizing everyday life is the fact that Congress also delegated all the power to define, expand, and limit its scope to the Secretary.


That brings us to “delegation.” While the major questions doctrine and the narrowing of Chevron deference have been in the spotlight lately, the current Court has also expressed strong interest in another route toward cabining the authority of the administrative state: the nondelegation doctrine. In a nutshell, that doctrine says that Congress can’t simply hand its lawmaking power to the executive branch and hope for the best; it can only assign to the executive gap-filling and fact-finding authority, and it must pass legislation specific-enough so that we can be sure the administration is exercising that limited authority appropriately.

The BSA, however, is a massive and unbounded delegation of authority. We find that the entirety of the BSA can be applied and implemented or not applied and not implemented based on the sole discretion of the Secretary of Treasury. That unbounded discretion is not a delegation of mere gap-filling authority, it’s Congress passing the buck on a massive surveillance law. As we write:

If all that saves the BSA’s definition of financial institution from unconstitutional breadth is the executive branch’s delegated power to rewrite the statute, then that delegation itself is likely unconstitutional.

Broad, Ambiguous, or Delegated: Constitutional Infirmities of the Bank Secrecy ActGo to text →

Over the years we’ve applauded the Treasury Department for its wise and reasonable usage of that delegated authority. FinCEN’s 2019 virtual currency guidance, in particular, placed reasonable limits on who in the crypto space was obligated to do surveillance. Increasingly, however, we worry that this unbridled authority may be abused to wage a war against crypto. For that reason, as well as a principled belief in the rule of law and our constitutional separation of powers, it’s time to question the validity of that delegation, and the Constitutional propriety of the Bank Secrecy Act itself. Congress and Congress alone, not the President, nor the unelected officials at Treasury, should have the final word on who is and is not a regulated financial institution and who must, thereby, surveil and report on the activities of their fellow Americans.