A version of the Terrorist Finance Prevention Act (TFPA) has been attached to a must-pass intelligence authorization bill in the Senate. The TFPA requires the President to implement significant secondary sanctions against individuals in the crypto space involved with terrorist financing. These sanctions could apply to regulated financial institutions, such as custodial exchanges, and non-custodial entities referred to as "foreign digital asset transaction facilitators."
The sanctions are limited to foreign persons and cannot be applied to U.S. persons engaged in non-custodial activities like mining, relaying, or software development within the cryptocurrency ecosystem. Additionally, there must be evidence that the sanctioned individuals "knowingly" facilitated "significant" transactions with terrorists.
Despite these limitations, several aspects of the TFPA raise concerns. One issue is potential liability for Americans using decentralized networks without intent to transact with sanctioned entities. For instance, if a foreign Bitcoin miner who is sanctioned processes an American's transaction, the American could be held liable even without knowledge or intent.
To address this concern, it is suggested that an intent standard should be necessary for finding Americans culpable under this law. An American should only be liable if they knowingly and willfully transact with a sanctioned person.
Another concern is that the bill creates new sanction authorities beyond those under the International Emergency Economic Powers Act (IEEPA). IEEPA includes statutory carve-outs known as Berman Amendments that protect First Amendment rights related to information transactions. Without similar carve-outs in TFPA, there could be constitutional challenges regarding over-application of sanctions laws.
Lastly, TFPA mandates presidential action against anyone fitting its definitions and transacting with terrorists, allowing only limited national security exceptions. Existing sanctions authority under IEEPA is permissive rather than mandatory, providing discretion to avoid overzealous application of sanctions laws in contexts where other considerations are present.
Even with proposed improvements, it remains unclear why additional sanctioning power is needed beyond what IEEPA already provides. Without these changes, innocent Americans using and developing cryptocurrency technologies may face unintended consequences.
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