The Strictest Crypto Anonymity Laws in the US

With digitalization creeping ever further into the financial sector, cryptocurrency has continued to grow in popularity. Offering unique security benefits due to blockchain technology, vastly changing value landscapes, and a level of anonymity not offered by fiat currency, many are looking to crypto as the future. This has led to many countries looking at new ways to regulate it.

In the US, this is no different, but the level of anonymity that crypto offers in the country is changing. As laws have evolved to regulate the growing popularity of cryptocurrency, the anonymity once provided by it has been stripped bare and is no longer a defining trait.

We’ve outlined the strictest crypto laws passed in the US that have stripped crypto of its unique ability to allow users to transact anonymously. 

The Bank Secrecy Act (BSA)

The Bank Secrecy Act (BSA) is easily the most comprehensive and strictest law relating to financial transactions in the US. Passed in 1970, it has an extensive reach into financial dealings and has been amended as needed to extend this reach to evolving infrastructures, including an amendment to regulate cryptocurrencies.

One of the BSA’s most prominent provisions is the requirement that all financial institutions, from banks to crypto exchanges, implement watertight anti-money laundering (AML) and know-your-customer (KYC) policies.

Both require all financial transactions to be tied to a physical and verifiable person. This is done by obtaining and verifying a person’s details, such as social security number and physical address, so that every transaction can be traced back should it be tied to anything illicit.  

The Patriot Act (PA)

The Patriot Act, passed in 2001, works hand in hand with the BSA. Granting further reach to the BSA, the act was established to better create a link between the customer information stored by institutes and law enforcement agencies.

This link, meant to aid in the investigation and persecution of financial crimes, has worked well and allowed enforcement to obtain warrants and subpoenas that require institutes to reveal the people behind certain transactions. The act has been extended to include cryptocurrency transactions as well.

Because of the act, crypto exchanges are mandated to hand over customer information to law enforcement if a deal is flagged as illicit or tied to a crime. 

The BSA Travel Rule

The BSA Travel Rule is an amendment to the BSA, which was legislated by the Financial Crimes Enforcement Network (FinCEN), a division operated by the Treasury Department. Passed in 1996, the amendment requires all financial institutions to link personal data to a transaction if it exceeds $3,000 to fight money laundering and the financing of terrorists.

While there has been speculation as to whether this amendment can be levied against crypto transactions because they do not qualify to be recorded in fiat currency as $3,000 or more, clarification came in 2020.

That year, FinCEN officially included virtual currency transactions under the Travel Rule. This means that all crypto transactions that have a converted fiat currency value of $3,000 or more are subject to the rule and must have personal information about the sender and receiver attached to it. 

Financial Crimes Enforcement Network Guidance

The FinCEN guidance, which provides legislative support and clarification, was updated in 2019 to clarify confusion surrounding the regulation of Virtual Asset Service Providers (VASPs) and virtual currency exchanges.

The update of the guidelines clarified that, under the BSA, all crypto exchanges or companies that deal with cryptocurrencies are seen as money services and fall under the BSA’s reach. The amendment also stipulated that all companies operating using crypto must be registered and provide proper reporting and recordkeeping of all activities.

Additional Legislation

The above laws are the main contenders in securing crypto transactions in the US and ensuring that virtual currencies aren’t used for illicit purposes. However, many states have also introduced various laws to combat the use of crypto in crimes, which strip the currencies of their ability to be anonymous.

Among the most extensive are the New York BitLicense Act (2015), the Wyoming Blockchain Laws (2019), and the California Consumer Financial Protection Law (2020). New laws are also set to be introduced, such as the Virtual Currency Tax Fairness Act, which will require transactions over $10,000 to be reported to the IRS and will institute some exemptions that affect not just the anonymity of crypto but also possibly creating tax complications. 

Effect on Anonymity

Each of the laws outlined above has profoundly impacted the ability of crypto transactions to remain anonymous. While this was once a hallmark of using crypto, users of virtual currencies in the US can no longer enjoy this aspect and have previously been caught off-guard by transactions traced back to them.

More than this, losing anonymity has had indirect consequences for many businesses that use crypto. For example, online crypto casinos, frequented by those wishing to keep their gambling private, are now required to record user details, meaning some players might rather see how casinos.com reviews the best PayPal casinos and use one instead.

Crypto exchanges have also been affected, with many US citizens attempting to use international exchanges, which are not subject to US laws, rather than local options. Doing this comes with the risk of finding an exchange that is not adequately overseen, which could lead to losses through theft or scams.

So, while the laws above have made large strides in regulating crypto and have offered significant clarification in an industry that was murky at best, the full impact of their reach is still to be seen. Should the loss of anonymity be too much for Americans to bear, it could lead to lower crypto use, which could have further consequences later on.