To guard against insider trading and financial conflicts, members of Congress and federal officials must file regular reports on their assets -- including stocks, bonds and derivatives.
Yet there’s no explicit mention in the disclosure requirements about bitcoin and the other cryptocurrencies that are drawing intense interest from investors and confounding regulators worldwide.
It’s a gray area that highlights how digital currencies have have left governments racing to catch up with rapid changes in finance. It’s also one that’s generating concern from ethics specialists as lawmakers and U.S. agencies weigh how to regulate the emerging market.
“Whether a member of Congress has holdings of bitcoin is relevant to our understanding of where someone’s interests might lie,” said Alex Howard, deputy director of the Sunlight Foundation, an advocacy group for government transparency.
The result is an informal arrangement on disclosure. Bitcoin isn’t yet listed in the rules given to members of Congress and federal officials. But when lawmakers and officials seek the counsel of the Office of Government Ethics, which governs executive branch employees, or congressional ethics committees, they’re being advised to disclose bitcoin holdings of more than $1,000, according to congressional aides and officials.
Public Trust
Representative Louise Slaughter, who sponsored a 2012 law called the Stock Act, which requires disclosure of trades in assets including stocks, bonds and derivatives, said she believes the law as written also applies to bitcoin. Still, she advocates rewriting rules to make it explicit.
The Stock Act was written “so the public could trust that members of Congress weren’t personally profiting from the office they hold,” Slaughter, a New York Democrat, said in a statement. “No one should be able to get around this law, including members who invest in digital currencies.”
Part of the initial appeal of bitcoin was the idea it could replace cash, granting users anonymity and freedom from government interference to make everyday transactions. As its price has risen, bitcoin and similar cryptocurrencies are being hoarded as investments. The U.S. government has already grappled with how to apply money laundering and tax statutes to bitcoin and lawmakers and officials could act this year.
Bitcoin Regulation
Officials around the world are examining broader questions of how to police bitcoin. European governments are seeking global bitcoin regulation amid mounting alarm that it’s being used by money launderers, drug traffickers and terrorists.
The U.S. Congress is looking to address the legal framework for cryptocurrency. The 11-member Congressional Blockchain Caucus was formed last year “to help policy makers implement smart regulatory approaches to the issues raised by blockchain-based technologies and networks," according to the group’s website.
Caucus chairmen Jared Polis, a Colorado Democrat, and David Schweikert, an Arizona Republican, in September introduced the Cryptocurrency Tax Fairness Act of 2017. It would would exempt bitcoin transactions of less than $600 from tax reporting requirements. The bill, which the House declined to add as an amendment to tax overhaul legislation that passed in December, is designed to ease bitcoin’s use as a currency, something that would tend to increase its value.
No Holdings
Schweikert and Polis don’t have any holdings in bitcoin, according to spokeswomen for both lawmakers. Ashley Sylvester, a spokeswoman for Schweikert, said in an email that the “decision was purposeful because he had an interest in the regulatory sphere of bitcoin and thought it would be inappropriate to invest.”
Polis, one of the wealthiest members of Congress and a venture capitalist, said he plans to start a discussion with the Securities and Exchange Commission about an effective rule to make sure members of Congress and their top staff report cryptocurrency holdings.
“Members of Congress should absolutely be required to disclose their bitcoin holdings, as to avoid any conflict of interests,” Polis said. “The public deserves transparency.”
Elizabeth Horton, a spokeswoman for the Office of Government Ethics, declined to comment when asked about her agency’s approach to bitcoin.
Classifying Cryptocurrency
Former OGE head Walter Shaub, now at Campaign Legal Center, which seeks stricter laws governing money in politics, said that most responsible way to classify bitcoin would be as an asset, like gold bars held for investment. That would mean filers would have to disclose holdings of more than $1000, or income from the asset of more than $200. A second option would be to treat bitcoin like a "cash account" which must be reported if it holds more than $5000.
“The third way, which I view as irresponsible, would be to treat bitcoin as akin to paper or metal money stored in a desk drawer or safety deposit box that is not held for investment purposes,” Shaub said. Cash stored in this way does not have to be reported.
Jim Harper, executive vice president at the Competitive Enterprise Institute, a libertarian-leaning research group, and former global policy counsel for the Bitcoin Foundation, which promotes the digital coins, said cryptocurrencies are increasingly being held as investments and are best disclosed as assets.
“If bitcoin were just purely a currency there is an argument that you wouldn’t have to report it,” he said. With the IRS treating virtual currency as property for tax purposes, he added, “the spirit of transparency would require disclosure.”
Bitcoin Rules
Harper said that even if bitcoin were determined to be a currency, then the congressional ethics committees should consider covering currency speculation.
"If a member of Congress were speculating in yuan, for instance, and sat on the Foreign Affairs Committee, golly, you would want to know that," he said.
American financial regulators haven’t laid out an comprehensive strategy for overseeing cryptocurrencies and multiple agencies have asserted a role in policing them. Those factors are complicating things for enthusiasts and critics alike.
The U.S. Commodity Futures Trading Commission declared in 2015 that it would treat bitcoin as a commodity and is overseeing trading of related futures contracts on exchanges run by CME Group Inc. and Cboe Global Markets Inc.
Meanwhile, at the SEC, Chairman Jay Clayton has warned that initial coin offerings -- which are also backed by the blockchain ledger technology that underpins bitcoin -- are probably rife with fraud.
Federal Reserve Chair nominee Jerome Powell has said bitcoin isn’t big enough to affect monetary policy, and the Financial Stability Oversight Board, the U.S. government’s chief watchdog for financial system threats, said that digital currencies’ “current impact on financial stability is likely very limited.” Still, virtual currencies that can be converted into traditional currency are property for tax purposes, according to a 2014 IRS rule.
Source: https://www.bloomberg.com
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