Treasury Secretary Mnuchin Issues Warning About Facebook Crypto Plan

Photo Credit: MICHAEL REYNOLDS/EPA-EFE/Shutterstock
July 15, 2019

By Tanaya Macheel

Treasury Secretary Steven Mnuchin declared Monday that he was "not comfortable" with Facebook's new digital currency, Libra, warning that it could be used for illicit activities like cyber crime, tax evasion, extortion, and drug and human trafficking.

“Libra could be misused by money launderers and terrorist financiers,” he said, “Many players have attempted to use cryptocurrencies to fund their maligned behavior. This is indeed a national security issue.”

Mnuchin made the statements in a surprise press briefing the day before the head of Facebook's Libra project, David Marcus is scheduled to testify before lawmakers on Capitol Hill. And it echoes the sentiment expressed last week by President Trump when he tweeted that he was “not a fan” of cryptocurrencies and that their value is “based on thin air.”

Some $2 trillion in fiat currencies is laundered around the world, according to United Nations Office on Drugs and Crime, by bad actors that leverage vulnerabilities of legacy banks’ systems. The current market cap of the crypto industry is $330 billion.

“With regard to Facebook’s Libra, our overriding goal is to maintain the integrity of our financial system and protect it from abuse,” Mnuchin said. “The Treasury takes very seriously the role of the U.S. dollar.”

Mnuchin reiterated several times that he was “not comfortable” with Facebook ($FB) moving forward with its plans for Libra. Mnuchin complimented Facebook for “being very candid with the administration.” But he said the company is “a long way away” from making regulators more comfortable with the digital currency and refused to speculate on how long it would take for them to get there.

The comments by the Treasury Secretary were yet another indication of the hurdles Facebook must clear before it moves forward with Libra, which was announced with great fanfare only a few weeks ago.

"This is the biggest global rollout of a cryptocurrency that we've seen," Rob Marvin, an editor for PC Magazine, told Cheddar in mid-June. "At its core, Facebook is releasing what could completely upend the global financial system."

But concerns about Libra surfaced immediately. Rep. Maxine Waters, chairwoman of the House Financial Services Committee requested a moratorium on Libra’s development and raised specific concerns about Facebook’s track record on privacy. "With the announcement that it plans to create a cryptocurrency, Facebook is continuing its unchecked expansion and extending its reach into the lives of its users," she said in a statement.

Waters’ committee will be one of two that Facebook’s Marcus faces when he testifies on Tuesday. The other is the Senate Banking Committee.

Marcus plans to tell lawmakers in the coming days that the Libra Association and Facebook’s Calibra wallet intend to be fully compliant with U.S. tax, anti-money laundering, and anti-fraud laws, according to prepared remarks he released Monday.

“The Libra Association expects that it will be licensed, regulated, and subject to supervisory oversight,” he wrote. “Because the Association is headquartered in Geneva, it will be supervised by the Swiss Financial Markets Supervisory Authority (FINMA). The Association also intends to register with FinCEN [The U.S. Treasury Department’s Financial Crimes Enforcement Network] as a money services business.”

In his afternoon briefing, Mnuchin said that U.S. regulators intend to maintain an even-level playing field for financial services firms, and that it is not partial to legacy firms.

“Whether you’re Moneygram, PayPal, online, or a bank, we do encourage electronic payments systems in dollars,” he said. “They’ve been very effective; there’s been a lot of financial innovation. We will continue to support that and want technology to evolve.”

Mnuchin and Trump’s public comments on cryptocurrency followed those of Federal Reserve chairman Jerome Powell, who on Thursday raised concerns about Libra and suggested it could immediately make Facebook a “systemically important” institution (which sounds impressive but, as any banker knows, is a regulatory nightmare) – aka “Too Big To Fail.” Specifically, Powell cited privacy, money laundering, consumer protection, and financial stability as concerns.

Powell’s comments at the time also included the imagining of a return to multiple U.S. currencies and a comparison of bitcoin to gold.

“Almost no one uses bitcoin for payments, they use it more as an alternative to gold,” Powell said Thursday. “It’s a speculative store of value.”

Mnuchin implied Monday that law-abiding speculation is okay with the government, as legitimate entities operating with cryptocurrencies are subject to Anti Money Laundering and Know Your Customer procedures. The United States will not allow digital asset service providers “to operate in the shadows,” he maintained.

“If you’re going to use it for speculation, that’s one thing,” he said later in the briefing. “But if you want to use it for illicit activities … If you’re to use bitcoin to go on the Dark Web thinking you’re not going to get caught, you’re going to get caught.”

When asked what Americans should know when considering investing in bitcoin, Mnuchin said, “I'd tell them to be careful. They should be clear why they are investing in them. There are a lot of good things to invest in. We don't want bad actors using cryptocurrencies.”