While at first I merely looked at it technically, seeing it as a disproportional silly measure by regulators who don't understand blockchain technology, over the past weeks I have learnt that it could also be viewed as part of a larger debate on the human right to privacy. People sent me more information on this matter including this dissertation (link: M. Wesseling: mustread!).
The dissertation outlines how a similar measure in the banking domain (the travel rule) was first rejected in US congress, to be adopted within weeks after the 9/11 attack. The dissertation also shows the mechanism of depolitization: making something a technical 'thingy' in order to avoid the true political debate on public interests that need to be balanced.
State vs citizens: police versus privacy
What is at stake here is a political debate on the degree of surveillance measures that a society needs to prevent criminality versus the degree of human privacy and freedom that people need to live a dignified live in which they can communicate freely and are innocent until proven guilty (and not the other around).
Let's have a close look at the two fundamental public policy issues at stake:
The human right to privacy in a digital age
Under UN Resolution RESOLUTION 28/16 (the right to privacy in the digital age), article 8.2 of the European Convention on Human Rights and the EU Court decision on data retention (ECLI:EU:C:2016:970) the EU understanding on mass surveillance of personal data of innocent persons is that it may very well constitute a violation of the right to privacy in cases where it is disproportional and no sufficient safeguards are in place.
However, the human right to privacy is often not taken into account when developing anti-terrorist policies. Scientific evaluations of the implementation of such policies outline that social side effects, such as excessive reporting of transactions and privacy of citizens, (often) remain underexposed in public discussions. Similarly a recent dissertation in the Netherlands clarifies that, when applying the EU Court of Justice criteria to the European Anti-Money Laundering Directive, 17 infringements of human rights can be identified.
Upcoming FATF-proposal to prevent fraud/crime/terrorism and apply broad rules to virtual assets
This is exactly what is at stake with a recommendation that is phrased in paragraph 7b of an interpretative note for Recommendation 15 of the FATF.It requires all private sector entities to register and submit the names of the parties participating in a virtual asset transfer to all counterparts in the value chain. This is not based on suspicion of criminal behaviour but required as a standard data export for all use cases and customers transferring virtual assets.
The virtual assets are defined as all non-regulated digital representations of value which may be transferred or held:
‘..countries should consider virtual assets as “property,” “proceeds,” “funds”, “funds or other assets,” or other “corresponding value”.
As such the rule effectively requires private sector market players to develop a messaging system (and adapt internal systems) to make sure future blockchain applications also functions as a structure of mass surveillance. However, any law enforcement official may obtain the relevant information on a case-by-case basis with a proper legal warrant at the individual organisation involved in a virtual asset transfer. The proposed rule constitutes an unnecessary measure that brings personal data of innocent people into the public domain, without any further proper guarantees for its treatment.
The rule has met with very heavy push back during a private sector consultation (in Spring 2019) due to its incompatibility with privacy laws and its unclear definition. The FATF members did not take this into account. Therefore, in the Netherlands, the NGO Privacy First joined the initiative of a group of virtual asset service providers (VBNL) to urgently request the Dutch Ministry of Finance to not approve the proposal. This has not lead to any further response.
What disturbs me in the process, is that the private sector has effectively formulated an adapted wording which would balance the two public policy interest more properly (see the redacted statement in the graphic below). But FATF-officials and governments appear to ignore it.
The public policy train moves on towards the G-20, without due process / democratic controls in place
Right now, the process underway is one in which we will see all kind of news reports about the G20 Ministers of Finance discussing and deciding on virtual assets. We will see the FATF adopting its rule in their 16-20 June meeting. And then the G-20 heads of state adopting it in Osaka. There will be many news bulletins and spins outlining how important and good these steps are. And the FATF will be complimented for their laudable work in this area. But don't be fooled by the spinning.
It is important to note that there has not been a sufficient and proper political debate on the balance between human rights and anti-terrorism measures. And as we already have Human Right Treaties in place outlining that mass surveillance and retaining of data of innocent people are a human right infringement, we can only conclude that our Ministries of Finance and Governments are about to make a historical and major mistake that violate their own commitments to privacy. There is no reason to boast about that.
Are all governments and private sector players benevolent forever?
What is lacking is the fundamental helicopter view on the relation between states and their people. For this I refer to yesterdays blog post, outlining the fundamental considerations that led Phil Zimmerman to develop encryption tool Pretty Good Privacy for the people:
"Zimmerman outlined one very significant theme during his speech. He noted that the assumption of a continuous benevolent government is not realistic. Governments come and go, some may be more democratic than others and even strong democracies may turn into dictatorships, depending on the circumstances. It is therefore important to design society, governments and the technologies that we use to manage society, guarantee that a balance exists between the powers of government and those of the public. The public, the people should always be allowed to remain digitally out of sight of government. Such a robust structure would be important to ensure a fair treatment of the people over a long period of time."
It is too bad, that our governments appear to be unable to properly balance the political interests at hand. Reality is that we do not live in paradise: both governments and market players may have ill intentions and we should be open to that fact of life. In this respect it is clear that a range of private sector players provided more than one elegant suggestion to help with the criminal perspective, while still protecting it. Why would there be a reason to ignore this?
I do understand the dynamics however. In the words of Ian Grigg:
'It's hard to have a serious discussion on terrorism. It’s too much of a magic password that shuts down critical thinking.'
What's up next is, that we will need to resort to national and supranational courts to re-address this issue and correct our governments. Because like it or not, the future of our democracies is at stake.
And a video on this same topic here, for those who are more into the looking/listening mode: