‘Innovation Crushing’ Crypto Law Could Sneak Through California Legislature
A proposed law in California could have a disastrous impact on both the U.S. cryptocurrency scene and the global industry, according to a newly-launched advocacy group.
Launched today, The Aquarian Advocacy Group (TAAG) says it will campaign against the proposed Uniform Regulation of Virtual Currency Businesses Act, which is currently under debate in California’s State Assembly.
Under the bill, virtual currency companies would have to seek approval from California’s Department of Business Oversight (DBO) before they can operate in the state. They would also have to turn over all transaction and user information, which regulators would be authorized to share with other regulators and even foreign governments.
“If you look at the bill, I don’t understand why anyone in the industry would support this,” said TAAG’s Executive Director, Margaux Avedisian. The DBO would have to be consulted on any merger or acquisition involving cryptocurrency businesses, regardless of size. The regulator would even have to sign off on any changes to a company’s business strategy.
“It allows regulators to place any other conditions it chooses,” Avedisian explained. “[T]he bill would require companies to pay for the cost of enforcing the new regulation.” Companies would be liable for a $50,000 penalty for every day they are not in compliance.
What would the crypto law mean for California?
California was one of the first jurisdictions to recognize “digital currencies” as a legitimate means to purchase goods and services. Early recognition combined with an already-prominent tech sector means that the state, the fifth largest economy in the world, has a thriving cryptocurrency industry. Coinbase, Ripple and Kraken are all based in California.
Although Federal regulations require companies to register as money transmitters and to comply with existing KYC / AML laws, there are no additional state-level requirements. A proposed BitLicense was defeated in 2015.
That’s not to say that everyone in the state is a fan of cryptocurrencies. Representative Brad Sherman, who represents California’s 30th Congressional District, proposed outlawing cryptocurrency transactions altogether earlier this year. As Crypto Briefing reported at the time, some of his main donors come from the traditional finance sector.
TAAG isn’t against regulation altogether, but Avedisian claims that the proposed law is problematic on multiple levels. Companies won’t be able to apply to the regulator until the bill becomes law. Unlike the New York BitLicense, which included a grandfather clause to give existing companies time to comply, there will be no grace period for this bill.
That means that from the day the law is enacted, every crypto company with operations or users in California will be in violation. The only choices will be “to shut down their business until you have approval, or pay $50,000 a day,” Avedisian said.
There are also issues for companies that operate on an international scale. It would be impossible to comply with the proposed law, which requires companies to share user information with regulators, and also abide by the strict laws on data privacy in the European Union.
Not only would this bill be “innovation crushing,” Avedisian says, it could “create a mass exodus of companies from California.” Drafted by the Uniform Law Commission, a prominent legislative research institute, similar bills have also been proposed in Hawaii, Nevada, Rhode Island and Oklahoma.
If all of these bills pass, they could influence Federal law and even “set a precedent for other countries.”
Legislation Through The Backdoor
The bill had its first reading back in February, but very few people even know about the bill’s existence, much less its ramifications for the U.S. crypto industry.
Having spoken to numerous companies about the bill, Avedisian says she is shocked at the number of compliance officers who haven’t heard about the new bill. She believes its low profile was an intentional move by the bill’s proponents, including Assembly Majority Leader Ian Calderon, to sneak legislation in through the backdoor.
“That to me is probably the most disturbing part,” Avedisian adds. “[I]t could have gone on and all of a sudden it was passed.”
The bill still has a strong chance of passing. It has support from the American Bar Association, which has one of the most powerful lobbying groups in the country.
But TAAG is confident they can defeat this bill, so long as they have the funds to campaign and support from the community. The group has retained political consultants that have experience in managing complex regulatory issues for a variety of disruptive industries.
Avedisian wouldn’t divulge their strategy but did say that some prominent companies had privately committed themselves to the cause. TAAG’s launch today was a strategic move, coming two weeks after the Assembly’s final session for the year.
That gives them until January to canvass support for their campaign, creating a united front before the bill gets its second reading sometime in 2020. Now that TAAG has launched, Avedisian believes regulators could try and push the bill through early in the next session. Next year could become a pivotal moment in the battle for cryptocurrencies.
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