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FinCEN’s New Rule Is About to Wall Off the Poor from Our Financial System Forever

The Financial Crime Enforcement Network’s (FinCEN) rules already prohibit financial institutions from opening accounts for homeless, unhoused and refugee populations who don’t have physical mailing addresses. Now, FinCEN has proposed a new rule that would prohibit those who are fortunate enough to have accounts from even sending money to these people, if that money is a virtual currency.

The rule would also prohibit financial institutions from sending money to smart contracts designed to eliminate the costly middlemen responsible for financial exclusion to begin with. Worse yet, FinCEN is trying to sneak the rule into law over the holiday season, giving the public only 15 days to respond. The rule itself forever walls off our financial system from those who need it most, and short circuiting the public comment process erodes the confidence Americans have placed in FinCEN.

Late Friday afternoon, apparently at the personal direction of the outgoing Treasury Secretary, FinCEN rushed to publish a proposed rule creating a new reporting requirement for financial institutions. The proposed rule is problematic in several respects, but one stands out from the rest: It would require customers who wish to send virtual currency from their financial institution to a recipient to report the name and physical address of the recipient. If the customer cannot report the recipient’s address, the financial institution must reject the transaction.

FinCEN tries to justify this rule by likening it to the venerable Currency Transaction Report (CTR), which has applied to cash and coin (paper and metal) transactions for decades. Historians of the CTR know better.

To be sure, the CTR has long required financial institutions to report their own customer’s information to FinCEN, but the CTR has never required reporting information about the recipient. In spite of this, FinCEN takes the baffling position that the proposed rule is “consistent with existing requirements.”

Twenty-five percent of the U.S. population is currently unbanked or underbanked. Sadly, existing requirements do indeed prohibit financial institutions from opening accounts for homeless people, refugees and others in this 25% who do not have enough money to afford a mailing address.

Existing requirements do, however, permit them to receive money from those who can afford to pay account maintenance fees and live in neighborhoods that attract physical branches. The proposed rule would go beyond existing requirements to literally outlaw people sending money to the less fortunate using their financial institutions.

The proposed rule does not just reserve today’s financial system for the wealthy. It also seeks to wall off tomorrow’s financial system from the poor. Beyond just prohibiting transactions with humans without home addresses, the proposed rule would prohibit financial institutions from sending virtual currency to smart contracts, which have no name or physical location to begin with.

Smart contracts are a swiftly-advancing technology created specifically to eliminate the need for risky, expensive middlemen. The need to use these middlemen is what keeps the poor out of today’s financial system. The proposed rule would choke the flow of resources to this technology, ensuring that tomorrow’s financial system will be just as exclusionary as today’s.

FinCEN is required by law to ask the public what we think about the proposed rule, and to give us enough time for a meaningful response. The government almost always gives us at least 30 days to do so, and oftentimes 60 days or even longer for important matters.

Instead, in order to jam through this rule with minimal public input, FinCEN is providing only 15 days over the holiday season for the public to consider the rule’s consequences, even though they know it is vulnerable to challenge. This is unprecedented, and patently inappropriate for such a dramatic departure from existing law.

Kraken will fight to stop this. You can help. Read the Notice of Proposed Rulemaking here and submit a response as soon as you can. We will be submitting ours, too.