The Bank Secrecy Act Regime Threatens Trump’s Crypto Progress

Donald Trump campaigned to become the first “crypto president,” and the early stages of his new administration have been much better for the crypto industry than the previous administration. Between the Biden era Securities and Exchange Commission and federal banking regulators, industry participants were constantly exposed to high compliance risk and kept mostly on the financial market sidelines.

On January 23, President Trump started delivering on his promise. He signed an executive order to “promote United States leadership in digital assets and financial technology while protecting economic liberty.” Among other items, the administration’s official policy is to protect and promote “the ability of individual citizens and private-sector entities” to “transact with other persons without unlawful censorship and to maintain self-custody of digital assets.”

Unfortunately, this portion of the executive order seems to have been pushed aside lately for shiny objects, like last Friday’s crypto summit and the creation of a digital asset reserve fund.

That’s all fine for now, and the administration deserves enormous credit for reversing course on the outwardly hostile approach to crypto of the previous administration. But the reserve fund does nothing to address the single largest roadblock for crypto: The financial surveillance regime that the United States has created for the financial industry.

BSA Regime Threatens P2P Transactions

This regime is exactly why people can no longer “transact with other persons” without censorship, so it is a great sign that the January executive order acknowledges the issue. But it is critical that the administration works with Congress to fix it, and so far there are very few signs of any such effort.

For those unfamiliar, the existing financial surveillance regime is built on the Bank Secrecy Act of 1970. The regime is outdated, poorly designed, costly, and rests on shaky legal grounds. It’s also clearly ineffective.

In 2023, for example, the regime resulted in approximately 300,000 financial institutions filing close to 30 million BSA reports. From all those reports, “approximately 1,575 cases referred for prosecution involved BSA filings.” Separately, the IRS “opened about 372 investigations as a result of BSA filings.”

One problem is that bankers, brokers, and car dealers are not law enforcement professionals. Yet, the government forces them, under threat of…