The Bank Secrecy Act, known as the Currency and Foreign Transactions Reporting Act, was enacted to prevent financial crimes like money laundering and terrorist financing, but in recent years, the rise of cryptocurrency has challenged traditional financial systems and raised questions about the application of the Bank Secrecy Act in this new industry. 

With the Biden administration recently announcing plans to build a new regulatory framework for cryptocurrency, it is more important than ever to understand the interplay between the Bank Secrecy Act and cryptocurrency. 

Background on the Bank Secrecy Act

Originally passed in 1970 by President Nixon, the Bank Secrecy Act was an attempt to reduce the frequency of financial crime. The act requires institutions such as banks to report significant transactions they’ve made to government authorities to weed out any suspicious activity. This includes transactions such as large cash deposits, wire transfers, and international transactions. 

The act has gone through several amendments to help keep regulations up to date. Since 1970, the financial industry has gone through many major changes such as the repeal of Glass-Steagall in 1999 and The Dodd-Frank Act in 2010. 

The impact of cryptocurrency on the Bank Secrecy Act

Without a doubt, cryptocurrency has been one of the biggest changes to the financial industry since the Bank Secrecy Act first began. Blockchain technology has created a new way for investors to save their assets on a decentralized network that is separate from any local currency.

This advent in finance has redefined how many people around the world view money with its unique rise in popularity. In only a little over a decade, bitcoin alone has already surpassed a trillion dollars in value leading to an entirely new distribution of wealth. 

With so much new liquidity being created by bitcoin and other altcoins, it’s no surprise that financial crime has followed. The ability to use the blockchain to assist in money laundering and the sale of illegal products boomed in the early 2010s with websites like the Silk Road. 

More recently, financial crime has taken on even larger stakes with Ponzi schemes like FTX becoming more abundant and available to consumers. With public interest in cryptocurrency reaching an all-time high in 2021, it has been inevitable that the Bank Secrecy Act would eventually need to be amended to include blockchain-based assets and providers. 

Biden's new regulatory framework for cryptocurrency

As we covered before, the regulatory framework being created by President Biden’s administration is being developed to help provide a safer environment for investors. This includes stronger regulations around stablecoins and the people that operate them. 

One key aspect of the framework is that it mentions President Biden will re-evaluate the Bank Secrecy Act to see how it can apply to web3 industries after a tremendous amount of projects and businesses failed in 2022. The industry was rife with issues following its explosion in 2021 and calls for more scrutiny are at an all-time high with that trend still carrying over into 2023. 

The future of cryptocurrency regulation

Following rumors that the SEC wants to ban retail staking, investors are both worried and annoyed at the Biden Administration's attempts to strangle crypto; but their concerns might be misguided. 

The Bank Secrecy Act goes well beyond identifying money laundering. It is also focused on preventing terrorist financing. The U.S. The Department of Justice has made it clear that they are aware of the blockchain and how it is used to assist in major criminal activity that some agitated investors might not be considering. 

While it’s true that regulations on a decentralized network exhibit a strong misunderstanding of the technology, President Biden’s framework and re-evaluations of the Bank Secrecy Act are being explored to prevent much larger issues and could have prevented the FTX collapse.