In the latest episode of Unchained, Peter Van Valkenburgh, director of research at Coin Center, expressed concerns about the U.S. Treasury potentially misusing the Bank Secrecy Act against crypto developers. Van Valkenburgh highlighted how the Internal Revenue Service’s (IRS) proposed broker rule for tax reporting in the crypto sector could impinge on user privacy and security, and he questioned the constitutionality of such measures.
The IRS’s broker rule, intended for third-party tax reporting in crypto, has drawn significant attention from the community. Van Valkenburgh noted, “The rule would include all kinds of people, including those who merely publish software,” expanding the definition of a broker beyond traditional financial organizations. He argued that such a rule would be unconstitutional from a First Amendment perspective, as it constitutes compelled speech.
Coin Center has been advocating for clearer standards from the IRS so entities like Coinbase or Kraken can comply more easily with tax obligations. Van Valkenburgh suggested that most crypto users eventually cash out through centralized exchanges, making third-party reporting evident. He emphasized the importance of maintaining constitutional rights while enforcing tax laws, arguing for more effective tax investigations rather than overstepping First Amendment and Fourth Amendment rights.
Additionally, Van Valkenburgh discussed the Bank Secrecy Act, expressing concerns about its broad authority granted to the Secretary of the Treasury. He believes the Act’s delegation of power to decide who is considered a financial institution is overly broad and potentially unconstitutional under the non-delegation doctrine. Coin Center’s recent research paper on this topic argues that legislative authority should remain vested in Congress, not in unelected officials within the executive branch.
Coin Center is taking active steps to address these issues, including working with Congress to create safe harbors for software developers and appealing the dismissal of their lawsuit against the Treasury Department over OFAC sanctions on Tornado Cash smart contracts.
