Tag Financial

If you’ve sent or received money to or from somebody in Mexico, law-enforcement agencies have probably tracked your transactions.

In fact, if you’ve sent money across American borders at all, Big Brother is likely watching. In what began as an Arizona-led effort before going nationwide, a not-so-independent nonprofit organization has been indiscriminately compiling sensitive financial information and making it available to law-enforcement agencies across the country.

Last year, Sen. Ron Wyden (D–Ore.) revealed that “Homeland Security Investigations used a form of subpoena power to order two companies to turn over every money transfer over $500, to and from California, Arizona, New Mexico, Texas and Mexico. This data was shared with hundreds of federal, state and local government agencies, who can search it without any court oversight, through a non-profit created by the Arizona Attorney General.”

His office subsequently discovered the surveillance was worse than originally believed.

“The program included far more states and foreign nations than the government disclosed in briefings,” Wyden’s office announced this week. The government demanded data from many other companies, including Euronet (RIA Envia), MoneyGram and Viamericas, and “included records for transfers of $500 or more between any U.S. state and 22 foreign nations and one U.S. territory.” Agencies demanding data included not just the Department of Homeland Security (DHS) and Arizona, but also the FBI and Drug Enforcement Administration (DEA) under the Department of Justice.

The American Civil Liberties Union (ACLU) also dug for information and has published more than 200 documents revealing details of the program which fed a vast database of sensitive data.

“The database, run by an organization called the Transaction Record Analysis Center (TRAC), contained 145 million records of people’s financial transactions as of 2021, and we have reason to believe it’s still growing,” reports the ACLU.

The surveillance dates to 2006, when Arizona’s attorney general sought details from Western Union about money transfers to and from the Mexican state of Sonora. That led to a legal battle settled in 2010 when “Western Union agreed to turn over records of all money transfers exceeding $500 to or from the Southwest border states and to or from Mexico for the next four years,” notes the ACLU.

TRAC was established in 2014 as a nominally independent repository for intercepted financial records. While supposedly a separate organization, it was originally funded by Western Union and under the control of the Arizona attorney general’s office.

That agreement expired in 2019, at which time DHS took over funding TRAC and joined the arrangement to compel financial disclosures with customs summonses, a type of subpoena badly abused by this mass application. By this time many companies were being forced to surrender data on private transactions for perusal by a large number of law enforcement agencies.

Ironically, while the original 2006 effort targeting transactions between Americans and Sonora had been rejected by Arizona courts as “overbroad,” that didn’t prevent the surveillance operation from growing vastly broader. In addition to federal subpoena power, Arizona continued to gather money transfer records using the same authority originally rejected by the courts under much narrower circumstances.

Once compiled by TRAC, the extensive collection of financial records was available to a wide array of local, state, federal, and military law-enforcement agencies.

“The database of people’s money transfer records grew from 75 million records from 14 money service businesses in 2017 to 145 million records from 28 different companies in 2021,” reports the ACLU. “By 2021, 12,000 individuals from 600 law enforcement agencies had been provided with direct log-in access to the database.”

Rather than investigations of past crimes, many demands for financial records could best be described as speculative fishing expeditions. A June 2021 subpoena from the Arizona attorney general’s office demanded data “relating to each send and receive transaction of $500 and greater, sent to or from the states of Arizona, California, New Mexico, Texas and to or from the country of Mexico, on a bi-weekly schedule as each such period becomes available, beginning with July 1, 2021 and ending with June 30, 2022.”

While many of the demands originated with Arizona authorities, TRAC board minutes from 2021 report that the organization “has provided or is currently providing assistance to the Financial Crimes Task Force, the Special Operations Division of DEA, and has been assisting with complicit agent investigations in PA, FL, OH, OK, CO, and CA. TRAC is in discussion with FBI in Boston, MA and is collaborating in a sex trafficking investigation in Camden, NJ.”

The surveillance operation has tried to stay current with evolving financial technology. Among the 28 money service businesses surrendering data to TRAC as of 2021 were four Bitcoin ATM companies.

A decade after Edward Snowden revealed mass interception of communications by the National Security Agency, it’s obvious that government officials are still very comfortable with bulk surveillance. Without trying to narrow their focus to specific suspects or crimes, they hoover up the details of our financial relationships. Coupled with recent efforts to extend such surveillance to cryptocurrencies, which were explicitly developed to enable private, permissionless transactions, they clearly want everything involving money under their scrutiny and control.

Wyden has asked the DHS inspector general to look into the financial surveillance operation and “investigate the program’s origins, how the program operated, and whether the program was consistent with agency policy, statutory law, and the Constitution.” More recently, he also asked the Justice Department’s inspector general to “examine the role that DOJ-component agencies, including the FBI and DEA, have played in forcing companies to turn over customer data to TRAC and the querying and use of TRAC data by DOJ component agencies.”

That’s a nice start, but it’s not enough. Whether or not federal officials conclude that other federal officials were wrong to violate Americans’ financial privacy, government agencies should not be permitted to engage in bulk surveillance, period. TRAC and related operations should be shut down, as well as any other operation that engages in similar abuses.

Beyond politically connected scammers and frothy valuations, the attractiveness of cryptocurrencies lies in their potential for doing what cash does, but across distances. When governments inflate money, people turn to other stores of value, including crypto. When politicians and their financial-sector accomplices block transactions of which they disapprove, people look for alternative means of doing deals without permission, crypto among them. So, when officials talk of stripping privacy and autonomy from cryptocurrencies such as bitcoin, you know they would do the same to cash if they could.

“Rogue nations, oligarchs, drug lords, and human traffickers are using digital assets to launder billions in stolen funds, evade sanctions, and finance terrorism,” Sen. Elizabeth Warren (D–Mass.) huffed this week. “The crypto industry should follow common-sense rules like banks, brokers, and Western Union, and this legislation would ensure the same standards apply across similar financial transactions. The bipartisan bill will help close crypto money laundering loopholes and strengthen enforcement to better safeguard U.S. national security.”

The bipartisan bill to which Warren refers sports the tendentious moniker, Digital Asset Anti-Money Laundering Act of 2022. Stripped of grandiose claims, it attempts to extend the financial surveillance state cooked up by drug warriors and anti-terrorism fearmongers to cryptocurrencies. Warren and company picked an opportune moment to do just that, while the public is occupied with a headline-grabbing financial scandal that taints crypto’s already sketchy reputation.

In fact, Sam Bankman-Fried’s shenanigans at FTX, perhaps concealed by generous political donations, look old-school, including mingling personal and corporate funds in ways that would have raised red flags long before digital tokens. But they cast further shade over a crypto sector that had yet to gain acceptance by the American mainstream. After years of breathy warnings that cryptocurrency is shady, and speculative values detached from reality, many people are prepared to believe the worst.

“Crypto is an interesting technology that had one terrible piece of bad luck: its standard-bearer, bitcoin, went up in value 10,000x over a few years,” wide-ranging commentator Scott Alexander wrote earlier this month. “When something goes up in value 10,000x, it’s hard to think of it in any other context. Whatever it was before, now it’s ‘that thing which went up in value 10,000x’.”

Alexander points out that, despite the shellacking the crypto sector is taking in the press and from politicians, it remains popular in countries where it’s used for its intended purpose as a store of value and a means of exchange in defiance of authoritarian controls. “Vietnam uses crypto because it’s terrible at banks,” he notes. “There’s a history of the government forcing banks to make terrible loans, and then those banks collapsing.” In socialist Venezuela, “cryptocurrency provides a hard-to-ban alternative which has caught on among Venezuelan hustlers and small businessmen.”

This played out in Turkey when the government got serious about turning the lira into toilet paper and people bought gold, foreign currency, and bitcoin. Bitcoin also became a means for Canadian protesters to work around government attempts to financially isolate their protest movement.

“Of course a technology centered around avoiding governance and banking failures will be centered in the countries with the most governance and banking failures!” Alexander adds.

But any technology that can be used by good people can also be used by bad people. That’s as true of window curtains as it is of crypto (or cash). The same privacy sought by a family going through evening routines might serve a terrorist building bombs, just as businesses and activists evading a hostile state might use the same currency that purchases bomb parts. Politicians love playing up potential abuses.

“Following the September 11, 2001 terrorist attacks, our government enacted meaningful reforms that helped the banks cut off bad actors’ from America’s financial system. Applying these similar policies to cryptocurrency exchanges will prevent digital assets from being abused to finance illegal activities without limiting law-abiding American citizens’ access,” insists Sen. Roger Marshall (R–Kan.), co-sponsor of the Digital Asset Anti-Money Laundering Act of 2022.

When politicians hold up the post-9/11 panic that supercharged the surveillance state as their model, take them seriously. The legacy of that time is widely recognized as an over-powerful government that intrudes into Americans’ lives, subjecting our activities and communications to monitoring and diminishing our liberty. With their bill, Warren, Marshall, and company want to extend that surveillance to financial technology that was explicitly developed to empower individual liberty and privacy.

“The bill first seeks to classify self‐​hosted wallets as money service businesses,” cautions the Cato Institute’s Nicholas Anthony. “For those unfamiliar, self‐​hosted wallets are merely the digital equivalent of a wallet in your pocket or purse. … Where much of the financial surveillance in the United States depends on what’s known as the third‐​party doctrine, self‐​hosted wallets offer individuals protection from government surveillance and censorship. Yet Senator Warren’s bill would put an end to that protection.”

The bill, says Anthony, would “classify cryptocurrency miners, validators, and network participants as money service businesses.” It “also sets its sights on cryptocurrency mixers” who “offer individuals the opportunity to enhance their privacy when using cryptocurrencies on public blockchains.”

In fact, the bill’s language specifies that “the Secretary of the Treasury shall promulgate a rule that prohibits financial institutions from … handling, using, or transacting business with digital asset mixers, privacy coins, and other anonymity-enhancing technologies.”

Senators Warren and Marshall talk about “terrorism” and “drug lords,” but their clear goal (whether or not its within their reach, which is another matter) is to strip crypto of its ability to be used privately and without permission in the same way we use cash. Their objections to digital money also apply to banknotes and coins. Ultimately, it’s not crypto they fear, but our liberty to earn, purchase, save, and donate without being impoverished, scrutinized, or stopped by government officials.

Bitcoin and other digital tokens have their flaws, but they’re an attempt to fulfill a widespread desire for reliable stores of value and means of exchange independent of control. And while all such forms of money are vulnerable to fraud and theft, that’s already illegal. The Digital Asset Anti-Money Laundering Act of 2022 doesn’t even attempt to address such crimes, instead, it’s an attack on financial privacy and liberty. For all the reasons politicians are coming after crypto, you can bet that cash is next.