Budget requests show that U.S. agencies are pushing for smarter, better staffed crypto oversight

Earlier this month, the U.S. government submitted its budget request for the 2021 fiscal year.

The mammoth $4.8 trillion proposal is just a starting point, to be clear. Congress typically charts its own path, at least initially, on the budgeting process – but the combined submission nonetheless constitutes a detailed blueprint of the administration’s goals, intentions and plans.

As The Block reported earlier this month, U.S. agencies are requesting millions of dollars worth of additional funding and people-power to enforce their respective burgeoning oversight and investigative capabilities as they relate to cryptocurrencies and blockchain. Some of these agencies are at the forefront of such efforts – including the Internal Revenue Service, the Federal Bureau of Investigation and the Commodity Futures Trading Commission – and the steps they take over the next year could reshape how they operate in the digital asset arena.

Specifically, there are two likely outcomes if the various funding proposals are approved:

1. The U.S. government will collectively possess a greater cryptocurrency and blockchain knowledge base
2. Federal agencies will have more people on hand who are trained to carry out their oversight and investigative objectives in crypto.

An emphasis on expertise

There is one line from the budget request from the Office of Foreign Assets Control (OFAC) that is especially revealing. As a reference, OFAC is seeking approval to four full-time employees as $812,000 to bring in dedicated "virtual currency investigators."

As OFAC wrote:

"Presently, OFAC has a single investigator focused on the illicit use of virtual currency, and this investigator is often pulled away from purely investigative duties in order to share virtual currency expertise across [Terrorism and Financial Intelligence], since this area is of high concern but also an uncommon area of technical competency. Meanwhile, investigators across most sanctions programs are reporting increasing exposure to the use of virtual currencies by the targets of their investigations. Additional virtual currency investigators will allow investigations involving cryptocurrency across all of OFAC’s sanctions programs to be able to exploit this investigative arena."

What we have here, in essence, is an admission that OFAC doesn’t have enough in-house expertise to handle the sum of its investigative needs. The plan, then, is to quadruple the size of its dedicated crypto team and provide them with the necessary funding to carry out their duties. The result: more people who understand the technology and can handle the myriad challenges it presents.

Indeed, the need for a more substantial knowledge base was also on display within the budget request for the CFTC.

"This budget request supports the Commission’s efforts to examine the different approaches to protecting digital assets used by [derivatives clearing organizations]. In addition, there is a need to supply technical training to our systems risk analysts so they are better equipped with the knowledge needed to identify these novel and unique risks," the agency’s Department of Enforcement wrote.

The Block reached out to some of the groups working in Washington, D.C., about their perspectives on the recent budget requests. Jerry Brito, executive director for the non-profit research and advocacy group Coin Center, said that “budget requests give an indication of what is important to a particular agency.”

"So if an agency is requesting more funds for cryptocurrency related enforcement, that would be a signal that they intend to do more on crypto in the near future."

Kristin Smith of the Blockchain Association, a non-profit trade organization based in D.C., told The Block that "budget requests are a signal that the slow processes of the federal bureaucracy now fully recognize the foothold that cryptocurrencies have gained in global markets."

"Our perspective has always been that good oversight is necessary for the industry to fully mature, and having people who are field experts means that we don’t have to start from zero every time we start a new conversation on proper regulations," she contended.

The path ahead

Of course, there’s no certainty that the agencies in question actually obtain access to the funds they're seeking in a divided Washington.

Senior administration officials like Treasury Secretary Steve Mnuchin have consistently called for stronger oversight efforts at the federal level. As Mnuchin remarked this month: “We want to make sure that technology moves forward, but on the other hand, we want to make sure that cryptocurrencies aren't used for the equivalent of old Swiss secret number bank accounts.”

In that context, it makes sense to posit that the budget requests will be given a fair shake by the Congressional appropriators who craft the bills in question.

U.S. President Donald Trump himself has said he is “not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air.” His comments – during which he also sharply criticized the Facebook-backed stablecoin project Libra – came in a series of tweets posted last summer.

The current fiscal year ends on September 30, meaning that the process through which the federal agencies might get the crypto-connected funds they want will play out over the coming months. A possible headwind: the fact that we are in the midst of a presidential election year, which carries the risk that any budget efforts may fall victim to political combat.

Finalized funding for FY 2020 was signed into law by Trump in December, more than two months after the fiscal year began and following a series of continuing resolutions that kept the government from shutting down.

Ultimately, these federal agencies want to bring in more people who understand crypto and can support their ongoing efforts – but they’ll need to Congress to play ball first.