Coincenter: Is the Bank Secrecy Act an Unconstitutional Delegation of Power?

The Bank Secrecy Act (BSA), enacted in 1970, authorizes the Treasury Department to monitor financial transactions in order to combat money laundering, tax evasion, and other financial crimes. However, serious questions have been raised about whether aspects of the BSA are unconstitutional.

Keypoints

A recent Coin Center report argues the Bank Secrecy Act is unconstitutionally broad, ambiguous, or an improper delegation of legislative power.
The BSA’s sweeping definition of “financial institution” criminalizes everyday financial activities, raising constitutional questions around due process and fair notice.
The BSA’s reliance on regulatory exemptions to narrow its scope violates separation of powers by delegating unlimited authority to Treasury, potentially violating the nondelegation doctrine.
The Coin Center report worries the BSA’s broad surveillance powers could be abused against cryptocurrencies, despite Treasury exercising its authority judiciously so far.
Citing recent Supreme Court rulings limiting agency power, the report suggests the Court may find the BSA unconstitutional if challenged.
The Coin Center report argues Congress should clarify definitions and obligations in the BSA rather than delegating these decisions entirely to the Treasury Department.
The report contends the BSA’s lack of precise statutory language and overreliance on executive agencies to define the scope violates constitutional principles around due process, separation of powers, and the nondelegation doctrine.

A recent report by Coincenter argues the BSA is unconstitutionally broad, ambiguous, or an improper delegation of legislative authority. The BSA’s definition of “financial institution” could potentially apply to anyone transmitting money as a business, like paying employees or freelancers.

This sweeping scope has been narrowed through regulatory exemptions, but raises concerns about giving unelected officials total discretion over who must comply with surveillance.

It’s time to have the conversation: Is the Bank Secrecy Act unconstitutional?
Beyond the speech and privacy issues, the BSA is a sweeping delegation of law making power. Today we’re publishing a new report explaining in detail why that’s a problem.

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— Peter Van Valkenburgh (@valkenburgh) November 15, 2023

The report suggests this virtually unlimited authority delegated from Congress to the Treasury Department violates the nondelegation doctrine, which says Congress cannot hand its legislative powers to the executive branch. The BSA’s broad language criminalizing everyday financial activities also raises questions around due process and fair notice of illegal conduct.

While Treasury has exercised its powers judiciously so far, the report worries these broad surveillance powers could be abused against new technologies like cryptocurrency. This highlights deeper issues around the BSA’s lack of precise statutory language and overreliance on executive agencies defining the scope of obligation.

Given recent Supreme Court interest in limiting agency authority and requiring explicit Congressional mandates, a constitutional challenge to the BSA may find a receptive audience. The Court could rule that Congress must clarify definitions and compliance obligations in the law, rather than delegating these decisions wholesale to the Treasury Department.

Ultimately, elected representatives may need to amend the BSA to ensure it passes constitutional muster. Drawing a more precise boundary between legal and illegal financial activity would bolster rule of law and preserve proper separation of powers between the legislative and executive branches.