Appeals court reinstates crypto traders’ claims against feds

CINCINNATI (CN) — The Treasury Department could violate crypto traders' free speech and Fourth Amendment rights when it requires them to disclose sensitive personal information during transactions, the Sixth Circuit ruled Friday.

The decision by a three-judge appellate panel determined several claims brought by a group of traders are justiciable and sent the case back to the lower court.

Dan Carman, Raymond Walsh, Coin Center, and Quiet Industries Corp. filed their lawsuit against the Treasury Department, the IRS, and other federal government agencies and officials in 2022 after the U.S. Congress amended tax law to require disclosure of personal information of those involved in cash transactions of $10,000 or more.

The amendment updated the definition of "cash" to include any digital asset, including cryptocurrencies like Bitcoin and Ethereum.

Anonymity is a massive advantage of the cryptocurrency market, according to the traders, who argued in their complaint they would now be required to disclose their names, addresses, and Social Security numbers when they send and receive more than $10,000.

Specifically, the traders claimed the updated requirements violated their First and Fourth Amendment rights, as well as their Fifth Amendment right against self-incrimination and the enumerated powers doctrine of the U.S. Constitution.

U.S. District Judge Karen Caldwell, a George W. Bush appointee, determined all of the traders' claims were either unripe or nonjusticiable in her July 2023 opinion, which granted the government's motion to dismiss.

Caldwell found the chain of events necessary for the amended statute to deliver any real harm to the traders would likely never occur, especially considering the government had not taken any of the steps outlined in their complaint.

"Plaintiffs do not allege a history of government enforcement against others. Nor do they claim that they have ever received any enforcement warning letters relating to this statute. Plaintiffs also do not pinpoint any attribute of the amended statute that makes enforcement easier," the judge wrote in her 2023 ruling.

The case was appealed and argued before the Cincinnati-based Sixth Circuit in May 2024, and Friday's decision reinstated several, but not all, of the traders' claims.

U.S. Circuit Judge Karen Moore found the enumerated powers claim "was ripe the moment Congress passed the law" because it rests on the purely legal question of whether Congress exceeded the powers given to it under the Constitution.

The First and Fourth Amendment claims were "not so simple," according to Moore, a Clinton appointee, but she nevertheless found fault with Caldwell's interpretation.

"Plaintiffs argue that even the mere disclosure of a specific transaction to the government implicates the Fourth Amendment bar on unreasonable searches regardless of any further steps taken by the government," she said. "As in Chandler and Patel, such a facial Fourth Amendment challenge poses no reviewability issues because it is premised on solely the disclosures that must actually be made based on the text of the statute, not what law enforcement intends to do with the information or how the law will be enforced."

While Moore agreed with Caldwell that some of the First Amendment claims hinge on "too many contingencies" that may never come to pass, she emphasized the fact that the plaintiffs will undoubtedly have to adhere to reporting requirements, which implicates their free association rights.

"Because there is no question that at least some of the plaintiffs will need to make disclosure reports, it is appropriate for a court to consider whether the mere disclosure of covered transactions implicates the First Amendment and passes the requisite level of constitutional scrutiny if so," she said.

The traders' Fifth Amendment self-incrimination claim did not fare as well, and the appeals court swiftly rejected it on the grounds that none of the plaintiffs had made a claim of the privilege prior to filing suit.

Moore also rejected their unconstitutional vagueness claim and determined the potential for future guidance and clarification from the Treasury Department prevents a pre-enforcement challenge.

"Forthcoming regulations may meaningfully narrow the statute's scope, ameliorate certain of plaintiffs' claimed injuries, or result in plaintiffs (or certain of their transactions) not falling under the statute's requirements altogether," she concluded.

U.S. Circuit Judges John Nalbandian, a Trump appointee, and Rachel Bloomekatz, a Biden appointee, also sat on the panel and joined in Moore's lead opinion.

Neither party immediately responded to requests for comment.

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