Innovative Legislation is Necessary to Address Terrorist & Criminal Use of Cryptocurrency

The Department of Justice recently prosecuted a teenager from Manassas, Virginia, for attempting to provide material support to the Islamic State in Iraq and the Levant. The Department revealed that the teen had posted instructions on social media explaining how to use the cryptocurrency Bitcoin to support terrorist operations. United States law enforcement and intelligence organizations are increasingly concerned, and rightfully so, with how they are going to address the growing problems presented by terrorist and criminal use of cryptocurrency to launder money and otherwise support illicit operations. These organizations are specifically troubled by how difficult it is to monitor cryptocurrency systems, which largely stems from the fact that many cryptocurrencies are constructed on Block Chain technology. Block Chain technology, in the context of cryptocurrency, is a Distributed Ledger System that stores data in registers among many different computer systems using cryptography as a complimentary security protocol. The transfer of cryptocurrency using this decentralized system does not require an intermediary, such a bank or other financial institution, which increases its potential application for financing of illicit activities. These unique aspects of this game-changing technology make it very difficult for investigators to gather the information they need under the current law. Regulations and policy guidance built on the old authorities have left new companies fumbling through the dark, trying to abide by vague, strict, unfair, unforgiving, and expensive regulatory recordkeeping and reporting regimes. The outdated law that federal agencies depend upon for their authority not only ties their hands from coming up with new and innovative ways to address the obstacles posed by this new technology but also negatively affects the technology industry itself by stifling innovation. This paper asserts that new and inventive legislation, not just revised regulation, is required to address this crucial area of concern for national security while also balancing the importance of fostering and encouraging innovation in this groundbreaking technology. This paper recommends that Congress legislate now to create a collaborative environment where private entities are incentivized to voluntarily share information with federal agencies in order to address this growing concern. The legislation should solidify, in law, protections and immunities for the private entities that participate while also establishing a realistic but attractive incentive structure. This sort of legislation is not a wholly new concept, as Congress has successfully passed similar legislation in the past to create an information-sharing environment for the various cyber threats postured to damage the government and private industry equally. Ultimately, Congress should choose to reinvigorate the forward-thinking provisions found in the Cybersecurity Act of 2015 by particularizing its information-sharing scheme to cryptocurrency specific financial information and restructuring the Act’s immunity and incentives schemes. This will provide the industry with the flexibility it needs to grow and develop while providing law enforcement the information it requires to protect the security and the people of the United States.