DeFi Education Fund files amicus brief over financial privacy concerns in IRS case

In a landmark case that marks the first opportunity for the U.S. Supreme Court to weigh in on the Fourth Amendment rights of cryptocurrency users in the context of IRS investigations, the DeFi Education Fund (DEF) has filed an amicus brief urging the court to consider the unique aspects of crypto technology when evaluating privacy rights.

The case — IRS vs. James Harper — revolves around the government ordering cryptocurrency exchange Kraken to provide data related to cryptocurrency transaction records of more than 14,000 people, including Harper, for tax enforcement purposes.

Kraken said it tried to fight back against the order as it considered it an overreach of authority, and the requests could have compromised users’ personal data like IP addresses, net worth, employment data, and sources of wealth.

The case outcome is expected to have far-reaching implications for the intersection of digital privacy and law enforcement.

Fourth Amendment concerns

The DeFi Education Fund argued that the court must consider the differences between cryptocurrency technology and traditional financial institutions (TradFi) when addressing Fourth Amendment concerns.

DEF chief legal officer Amanda Tuminelli said blockchain data provides authorities with “an intimate view into a person’s financial life in the past, present, and future” that has not been possible before.

She added that this potentially violates the Fourth Amendment rights of American citizens.

Tuminelli emphasized the importance of upholding privacy rights in the digital age, citing the Supreme Court’s guidance in Kyllo v. United States (2001). She stated:

“When old precedents meet new technology, courts must ‘assure preservation of that degree of privacy against government that existed when the Fourth Amendment was adopted.’”

The DeFi Education Fund’s amicus brief raises three significant considerations for the court’s deliberation.

First, it argued that the court should not treat the Fourth Amendment protections differently in cases involving information held by third parties.

The organization asserts that Carpenter v. United States (2018) should be considered the most recent and authoritative statement on the “third-party” doctrine — effectively limiting the scope of government access to private data.

The DEF provided detailed legal analysis in the filing to support its position, emphasizing that Carpenter’s ruling reduced the relevance of two older cases that had previously formed the foundation of the third-party doctrine.

Precedents

The brief contends that these older cases never announced a broad and unqualified rule and were contingent upon specific limitations that the government cannot demonstrate in this case.

Second, the amicus brief underscored the unique nature of cryptocurrency transactions, emphasizing that they are not analogous to traditional banking. Unlike traditional banks, cryptocurrency transactions are recorded on a public ledger, making them traceable by anyone.

The DEF asserted that the government’s request to access cryptocurrency transaction records provides an unprecedented window into users’ financial lives and personal associations.

The lobby group’s legal argument delves deep into the mechanics of cryptocurrency technology, explaining how pseudonymous addresses and blockchain data enable the government to access a wealth of information about individuals’ financial activities, associations, and more.

The brief argued that this level of insight far exceeds what is attainable through traditional banking records.

Lastly, the brief invokes Supreme Court precedents, such as Kyllo v. United States and Carpenter, to argue that the court must adapt its approach to privacy concerns in light of evolving technology.

It contends that the government’s ability to access unlimited unrelated transactions through cryptocurrency technology necessitates a reevaluation of existing Fourth Amendment jurisprudence.

The case holds immense significance for the cryptocurrency community and digital privacy advocates. It hinges on the delicate balance between law enforcement’s investigative powers and individuals’ right to financial privacy in the digital age.

As the Supreme Court prepares to hear this case, the crypto industry and privacy advocates eagerly await its decision. The final ruling is expected to set a precedent for protecting digital assets and personal information in an ever-evolving technological landscape.