Earlier this week, the word “cryptocurrency” made it to the text of one of the United States government’s most consequential strategic documents: the Trump administration’s budget proposal for the 2021 fiscal year. However, the budget does little to enhance blockchain-powered innovation, as it included no additional taxpayer dollars in funding.
The premise for mentioning digital currencies was, in fact, quite the contrary: the need to step up measures against financial crimes. To that effect, the White House is proposing to bring the U.S. Secret Service — the agency tasked with both protecting the nation’s leaders as well as safeguarding its financial and payments system, and which has been part of the Department of Homeland Security since 2003 — back to its traditional home, the Treasury Department. This way, the administration contends, the Treasury will be better equipped to fight the “crimes of tomorrow.”
Combined with other recent policy moves, such as the proposed allocation of funds to build the Financial Crimes Enforcement Network's “Virtual Currency and Cyber Threat Mitigation Program” and Treasury Secretary Steven Mnuchin’s announcement of “significant new requirements” for cryptocurrency, the budget proposal attests to the current administration’s resolve to treat digital money as a security threat above all else.
The politics of presidential budget proposals
The formal federal budget process begins with the president collecting funding requests and their justifications from executive agencies. Based on this input, the head of the U.S. government’s executive branch develops a budget proposal for the next fiscal year that he or she is legally required to submit to Congress no later than the first Monday of February. The 2021 fiscal year will begin in October 2020.
Although it is Congress that has the final say over federal spending, the presidential budget effectively sets the tone of the discussion and delineates the levels of funding for various expense areas that the legislature has to contend with. Legal scholars have observed that including requests on the proposal is a powerful means of securing appropriations for domestic programs and activities.
Finally, the need for Congress to obtain the president’s signature on the ultimate budget bill puts the executive branch in the bargaining position where it can leverage veto threat to ensure that sufficient share of the president’s demands are met. In sum, not only does the presidential budget proposal reflect the administration’s policy preferences and goals, but it also foreshadows measures that are highly likely to materialize.
Beefing up the Treasury
The part of President Trump’s budget proposal that uneased the digital currency space concerns the Department of the Treasury. The $4.8 trillion plan stipulates $15.7 billion in base funding for Treasury programs, including $2.4 billion set aside for the Secret Service, an agency that would be transferred from the Department of Homeland Security. The 2.2% increase in the revenue department’s backing stands in contrast with proposed cuts to other agencies’ budgets, including the State Department and the Commerce Department.
The rationale for the reform is “to streamline Treasury’s operations, bolster Treasury’s national security and law enforcement capacity, enhance the taxpayer experience, and lower the deficit,” while the Secret Service’s transfer is supposed to produce new efficiencies in combatting the increasingly interconnected “financial and electronic crimes” as well as the financing of terrorism and adversarial regimes deemed rogue.
As specialized Capitol Hill publication Roll Call reported upon reviewing an internal Secret Service memo, the agency expects that the transfer would be instrumental in bolstering the Treasury’s efforts to combat cybersecurity threats. The same report also suggests that Treasury Secretary Mnuchin has been personally involved in drafting the legislation and made media appearances touting bipartisan support for the move, which the administration had allegedly mustered in the Senate.
The initiative appeared in the budget proposal even though a conclusion was already reached earlier in January by a working group consisting of officials from several executive agencies. The group’s report stated that the relocation of the Secret Service could weaken the DHS and potentially lead to eventual peeling of the department’s other constituent agencies.
If Congress approves the transfer between the two departments, the Secret Service will join another agency with a similar mission of fighting financial crime within the Treasury: the Financial Crimes Enforcement Network, or FinCEN. In its own congressional budget justification for fiscal 2021, the latter bureau requested to allocate three employees and $819,000 for what is called the Virtual Currency and Cyber Threat Mitigation Program. Apparently, the administration is planning to have both agencies involved in policing cryptocurrency operations.
More requirements to come
The Secret Service’s original mission from the moment it was founded in 1865 has been to combat counterfeiting of the U.S. dollar, and it formally remains the only office explicitly tasked with the protection of the national currency. Deploying the agency with such a mission against “electronic financial crimes” suggests that President Trump remains true to the sentiment he expressed in a series of anti-crypto tweets last summer, in which he expressly pitted cryptocurrencies against the dollar, whose dominance in the global financial system he pledged to preserve.
Coming on the heels of a wave of publicity surrounding Trump’s budget proposal, yet another announcement left little doubt concerning the administration’s mounting scrutiny of digital money. Speaking before the Senate Finance Committee last Wednesday, Treasury Secretary Mnuchin revealed that his department was preparing unspecified “significant new requirements” to make sure that “cryptocurrencies aren’t used for the equivalent of old Swiss secret number bank accounts.”
Clearly, Trump’s White House is no longer oblivious of the burgeoning digital finance ecosystem. But this recognition seems to be not of the favorable nature. In top executive officials’ rhetoric, cryptocurrency only deserves mention within the context of cybercrime, and the recent policy moves appear to be informed by this rather narrow focus.
In line with his business-like approach to both public administration and international affairs, President Trump and his executive team are placing a particular emphasis on optimizing domestic revenue streams and undercutting those of their international adversaries. Both goals are hardly compatible with the existence of a borderless financial system outside the U.S. financial authorities’ control.
The case for a better oversight
Some observers in the crypto industry, however, admit that the proposed reform could be driven by legitimate concerns over increasingly sophisticated financial crimes that governments face globally. Nathan Catania, a partner at global digital asset policy and regulatory firm XReg Consulting, told Cointelegraph:
“The U.S., as many other governments, does not see crypto as criminal, but as a weapon that can be used by criminals. I would argue that the main focus is not on crypto itself being a security threat, but that this is a product of technological advancements in recent years allowing cybercrime to become a greater threat to society in general.”
Michael Poutre, founder of the blockchain-focused hedge fund Terraform Capital, has a unique insight into the workings of the U.S. Secret Service. In the 1990s, prior to the start of his career in digital finance, Poutre volunteered and interned with the agency. Poutre welcomes the proposed changes from an efficiency perspective and thinks that the specific focus on cryptocurrency is a form of recognition on behalf of the U.S. government. Poutre told Cointelegraph:
“The Secret Service is the logical entity to police this space, and they have over 150 years of experience in these matters. This move makes sense. [...] Moreover, this signals that the U.S. government understands and acknowledges that digital currencies are not only not going away, but that the field is growing.”
Poutre added that moving back under the Treasure would rid the Secret Service from “a tremendous amount of red tape and bureaucracy” that was characteristic to the work of many Homeland Security divisions. The new arrangement, he contended, would usher increased speed and effectiveness of anti-financial crime operations. Besides, it’s only logical that anything concerning money — digital or fiat — should be under the roof of the Treasury Department.
According to Poutre, crypto investors would stand to benefit from professionalized digital finance law enforcement — after all, if someone gets defrauded of their digital assets, they would prefer to rely on someone who understands what happened rather than a confused local police officer.