U.S. Treasury Sued Over Alleged Financial Spying / Yellen Voices Opinion on Crypto and 401(k) - Dual News Brief

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U.S. Treasury Sued Over Alleged Financial Spying

D.C. based blockchain advocacy group, Coin Center, is suing the U.S. Treasury Department for allegedly providing an unconstitutional provision within the infamous 'infrastructure bill' requiring that "digital asset transactions worth more than $10,000 be reported to the Internal Revenue Service" [Wright, T. President Biden signs infrastructure bill into law, mandating broker reporting requirements. (Accessed June 11, 2022)].

More specifically, "Coin Center filed suit in federal district court against the Treasury Department in a facial constitutional challenge to the amendment of Section 6050I of the Tax Code that was part of the Infrastructure Investment and Jobs Act passed last summer" [Brito, J. and Van Valkenburgh, P. Coin Center has filed a court challenge against the Treasury Dept. over unconstitutional financial surveillance. (Accessed June 11, 2022)].

According to Coin Center:

Our suit leads with two major claims: (1) forcing ordinary people to collect highly intrusive information about other ordinary people, and report it to the government without a warrant, is unconstitutional under the Fourth Amendment; and (2) demanding that politically active organizations create and report lists of their donors’ names and identifying information to the government is unconstitutional under the First Amendment.

[Id].

The first claim within this lawsuit is particularly interesting as it distinguishes between 'third party' reporting participation and direct participation in the absence of a bank or other financial intermediary. In this regard, Coin Center advances:

The 6050I provision, however, isn’t even aimed at collecting information from “third parties”; it demands that the persons directly participating in a transaction occurring without banks or other intermediaries report about themselves and the people they are paying or who are paying them. As we’ve argued before, if there’s no third party to a transaction then there’s no third-party doctrine to obviate the need for warrants. If the government wants us to report directly about ourselves and the people with whom we transact, it should prove before a judge that it has reasonable suspicion warranting a search of our private papers.

[Id].

The second claim in the lawsuit is likewise interesting as it deals with privacy concerns and free speech. In this regard, Coin Center maintains:

In the 1950s Alabama demanded that civil liberties organizations like the NAACP report lists of their members. In a critical victory for civil rights, the Supreme Court found that the government cannot force these organizations to keep and report such lists. The Court reasoned that people would be afraid to join these organizations, to contribute to them, and to speak out on the important issues for which they advocate, if their names were immediately reported to a potentially corrupt policing authority. These privacy harms have come to be known as a “chilling effect” on First Amendment rights, and laws that chill speech in this way are generally unconstitutional. The 6050I provision may require civil liberties groups, Coin Center included, to list and report this supporter information and would enable the government to monitor an even wider range of expressive activity. It would substantially chill political association and therefore is unconstitutional.

[Id].

Please note that Coin Center is seeking support from the cryptocurrency community in that they "...are considering adding additional co-plaintiffs to this suit, so if you might fit this description and are interested, please get in touch" [Sarkar, A. Coin Center takes US Treasury to court over alleged financial spying. (Accessed June 11, 2022)].

Yellen Voices Opinion on Crypto and 401(k)


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On Thursday, June 9, 2022, at a New York Times organized event, Janet Yellen (U.S. Treasury Secretary) "said that crytocurrency assets are a “very risky” choice to include in the retirement plans of average savers, and that it would be reasonable for Congress to address the danger" [Condon, C. Yellen Says Crypto Is ‘Very Risky’ Option for Retirement Savers. (Accessed June 11, 2022)].

In response to a question concerning the announcement by Fidelity Investments to add a cryptocurrency option to 401(k) retirement plans, Yellen said: "It’s not something that I would recommend to most people who are saving for their retirement. To me it’s very risky investment" [Attlee, D. Yellen doubts crypto’s place in 401(k), says Congress could regulate. (Accessed June 11, 2022)]. And regarding Congressional action, she added: "I’m not saying I recommend it, but that to my mind would be a reasonable thing" [Condon. Supra].

What is clear in this area is the uncertainty present on allowing inclusion of cryptocurrency in tax-favored workplace retirement accounts.

According to the Employee Retirement Income Security Act of 1974 (ERISA), individuals making decisions about the plan serve as fiduciaries. It is well-settled law that fiduciaries must act exclusively in the best interest of the plan participants and beneficiaries....ERISA does not dictate which specific types of investment options must be included in a 401(k). Rather, the law instructs fiduciaries to show the care, skill, prudence, and diligence that a prudent person would exercise when choosing an investment option to minimize the risk of large losses. The focus is on the process, rather than the investment returns.

[Fisher Phillips. 6 Things Employers Need to Know Before Offering Cryptocurrency in 401(k)s. (Accessed June 11, 2022)].

In April, Fidelity announced that it would allow 401(k) retirement saving account holders to directly invest in Bitcoin (BTC). The United States Department of Labor (DOL) responded with a compliance report, threatening legal action. Meanwhile, senators Elizabeth Warren of Massachusetts and Tina Smith of Minnesota requested the firm to provide answers on how they are planning to address risks laid out by the DOL.

[Attlee. Supra].

In response thereto, Senator Tommy Tuberville (R-AL) has proposed a “Financial Freedom Act” to allow investors to add cryptocurrency to their 401(k) retirement savings plan [See, Nagoda, K. Take that Sen. Warren! Sen. Tuberville Introduces the Financial Freedom Act - News Brief. (Accessed June 11, 2022)] which has a companion bill introduced in the House of Representatives by Congressman Byron Donalds (R-FL) [See, Nagoda, K. Financial Freedom Act Companion Bill Introduced in the House of Representatives - News Brief. (Accessed June 11, 2022)].

And in adding to the uncertainty in this area, the proposed Lummis-Gillibrand 'Responsible Financial Innovation Act' proposes further study on the issue (having the effect of 'kicking the can down the road' another 10 months):

SEC. 207. ANALYSIS OF RETIREMENT INVESTING IN DIGITAL ASSETS.
(a) Not later than March 1, 2023, the Comptroller General of the United States shall conduct a study and provide a report to the entities specified by subsection (b) regarding the following issues relating to retirement investing in digital assets:
(i) Potential benefits to diversification and return of the retirement portfolio of an investor;
(ii) Appropriate asset allocations, including amongst other alternative investments;
(iii) Consumer education, financial literacy and investment adviser training relating to digital assets;
(iv) Risk;
(v) Legal and operational barriers to effective retirement investing in digital assets; and
15 (vi) Any other topic determined to be material by the Comptroller General relating to retirement investing in digital assets.

[Lummis, C. and Gillibrand, K. Lummis-Gillibrand Responsible Financial Innovation Act. (Accessed June 11, 2022)].

Clarity on this issue is needed sooner than later, and Yellen's remarks do not help the present status quo.

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I do not think that pensioners should rely on the state and government agencies, wanting to get their pension in crypto, it can be a parallel, non-intersecting path through the Hive.

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