Disclosure rules for cryptocurrencies like Bitcoin are seriously lagging at the state and federal level. Without a standardized ethics framework to monitor public officials’ cryptocurrency transactions, potential conflicts of interest and even bribery can arise and remain undetected.
The Office of Government Ethics regulations require high-level government employees to disclose “any interest in property. . . having a fair market value in excess of $1,000.”
This regulation has a low threshold and covers a wide array of assets to facilitate federal officials’ disclosure of any financial interest which presents a conflict of interest for the public official. Strangely, though, cryptocurrency has not been included as an asset which requires disclosure.
Although each Bitcoin transaction is recorded on a public ledger called Blockchain, all Bitcoin users create an arbitrary username that isn’t linked to a traceable identity. Blockchain doesn’t use any central banks, and instead every person with the software verifies transactions.
So while Blockchain securely prevents double-spending or counterfeiting of Bitcoins, it also shields the identity of Bitcoin owners and users.
The Commodity Futures Trading Commission monitors all cryptocurrency trades and markets. Despite that, the Treasury Department’s FinCEN (Financial Crimes Enforcement Network) has expressed concern that cryptocurrency such as Bitcoin is attractive to criminals because of the ease of navigation, little or no transaction fees, accessibility, and anonymity.
The Federal Reserve has no authority to regulate or oversee cryptocurrency because it is not issued by a banking organization. So absent further regulations and a proper classification, cryptocurrency will continue to allow for anonymous dealings outside the purview of federal ethics officials who review employees’ financial disclosure forms.
States, too, are divided on how to classify cryptocurrency. New York regulates with the “BitLicense” program. California has also moved toward regulating cryptocurrency. But the Texas Department of Banking in 2014 decided that cryptocurrency would not be regulated as legal tender. These different approaches make it more difficult to pinpoint how the ethics and compliance community should treat the innovative asset.
The goal of financial disclosure is to increase transparency so that ethics officials, and the public, can recognize if a federal employee owns assets that could cause a conflict of interest with the employee’s official duties. But federal employees do not have to disclose ownership of this asset. Thus, without the Office of Government Ethics properly classifying cryptocurrency as a reportable asset, ethics officials remain unaware of employees who have a potential conflict of interest with their work.
The same thing can happen at the state level.
Similarly, the federal criminal statute against bribery of public officials prohibits a public official from offering, giving, seeking, or receiving “anything of value” with intent to influence. Financial disclosure reports permit ethics officials to discover substantial changes in high-ranking government officials’ assets that may have come from unethical sources.
The financial disclosure itself often acts as a prophylactic to government corruption. But again, current ethics regulations for financial disclosure leave cryptocurrency off the grid.
Requiring federal and state level employees to disclose Bitcoin holdings and interests will help prevent conflicts of interest and better reveal when public servants are serving not the public but their own financial interests.
Samantha Ezgar is a rising 2L at Georgetown Law.