Anti-freedom and anti-Bitcoin legislative proposal by the CDU/CSU shot down

The Finance Committee of the Bundestag today rejected the proposal of the CDU/CSU parliamentary group, which, among other things, was intended to criminalize the privacy of Bitcoin use. The information from the committee secretariat was passed on to Blocktrainer.de by the "Bitcoin im Bundestag" initiative and the office of Joana Cotar, a member of the Bundestag, in the early evening.

The motion "Consistently combating money laundering and the financing of terrorism and extremism [...]", through which the CDU/CSU parliamentary group in the Bundestag wanted to urge the federal government to draft a corresponding bill, was specifically aimed at making the exchange of cash for cryptocurrencies and the offering or use of crypto mixers completely illegal. The proposal also provided for a legal ban on transactions from or to crypto addresses that are self-managed but not registered. Another component was to extend the usual account retrieval procedure to crypto wallets.

The CDU/CSU parliamentary group in the German Bundestag submitted the corresponding motion at the end of January - Blocktrainer.de reported. As part of the general fight against money laundering and the financing of terrorism and extremism, the opposition parties had also targeted the privacy of Bitcoin and cryptocurrencies.

Under point 9 of the proposed bill, the CDU/CSU parliamentary group wanted to prevent the use of crypto assets for illegal activities. The planned implementation was quite a challenge.

To urgently improve the fight against money laundering and the financing of terrorism and extremism in Germany, the German Bundestag is calling on the Federal Government to submit a draft law in which (9.) preventive regulations on the use of crypto assets for the purposes of money laundering and terrorist financing are put in place by

a. regulating by law that increased due diligence obligations in accordance with Section 15 of the German Money Laundering Act must be applied when acquiring crypto assets and carrying out crypto transactions;

b. an explicit legal prohibition is regulated in relation to the mutual exchange of crypto assets and cash;

c. an explicit legal prohibition is regulated in relation to the offering and obtaining of services from so-called crypto mixers;

d. a registration obligation for self-hosted addresses and a prohibition on carrying out transactions from or to self-hosted addresses is regulated if these have not previously been registered. When registering, it must be stated who exercises control over the hosted address. In the event of loss of control over the self-hosted address, this must be indicated;

e. an automated retrieval procedure for crypto wallets is set up analogous to the account retrieval procedure pursuant to Section 24c of the German Banking Act;
_{From the application}

These efforts would have effectively led to the general criminalization of privacy in the use of Bitcoin and Co. Not only would it be forbidden to exchange Bitcoin for cash, but also to interact with other network participants, provided that at least one of the parties was not already completely transparent. Bitcoin users who have acquired their Satoshis privately in the past would have had to register their wallet to avoid suddenly becoming criminals.

The use of mixing or coinjoin services, which anonymize crypto transactions, would also have been expressly prohibited. A few weeks ago, the founders behind several such services were already targeted by the judiciary in the USA - Blocktrainer.de reported.

Should someone lose the private keys, i.e. access to their coins, they would have had to report this to the authorities according to the proposal. In this way, the draft seems to want to prevent Bitcoin users from retroactively claiming that transactions were not initiated by them or that they lost their BTC.

The automated account retrieval procedure also mentioned is already being used in the banking sector. Specifically, this means that the Federal Financial Supervisory Authority (BaFin) and the Federal Central Tax Office (BZSt) can access the data of financial institutions around the clock and unnoticed, i.e. information about the accounts, securities accounts and safe deposit boxes held with them. If a user's Bitcoin addresses are known to BaFin or the BZSt, they could view the holdings and transactions at any time anyway. This was probably more about extending the retrieval procedure to crypto service providers.

As early as the end of January, there was outrage in the Bitcoin community, which picked up again when it became clear that the draft would actually be put to the vote. The "Bitcoin im Bundestag" initiative wrote at the time that the CDU/CSU parliamentary group in the Bundestag was aiming for "total surveillance and control of Bitcoin". In the context of the upcoming vote, the tone of the Bitcoin-friendly initiative became even harsher.

Even though the Finance Committee voted against the opposition parties' bill, the risk of further restrictions on financial privacy remains acute. Even before the vote, the "Bitcoin in the Bundestag" initiative emphasized that if the current opposition parties CDU and CSU were likely to join the government again, another attempt could be made with a better chance of success.

In addition, the initiative by Joana Cotar, a non-attached member of the Bundestag, explained that other parties could be inspired by this. Often, the motivation behind voting behavior is not so much conviction, but rather the principle of not voting for the enemy party.

The fact that Bitcoin and cryptocurrencies are also used by criminals for illegal activities is a frequent point of criticism. As is so often the case, it is important to take a closer look at the facts. For example, the original motion by the CDU/CSU parliamentary group stated that

Cryptocurrencies also play a crucial role in the financing of terrorist groups such as Hamas.
_{From the motion}

This assumption has been refuted since a hearing in the USA in October last year - Blocktrainer.de reported. According to the application, another reason for combating Bitcoin and Co. is the 450 million euros in illegally obtained funds that were invested in crypto-assets in 2022, according to the Federal Situation Report on Organized Crime (OC).

In general, the use of cryptocurrencies for criminal activities is rather negligible. According to analysis firms working with state authorities, illegal transactions accounted for just 0.34% in 2023 - a significantly lower proportion than for US dollar or euro transactions.

Bitcoin is also not suitable for criminal activities. The transactions are pseudonymous and the publicly accessible ledger records them forever. The hurdle for law enforcement authorities is to assign the addresses associated with illegal activities to people.

Even if the highly critical proposal does not become legally binding for the time being, efforts of this kind are worrying. Denying Bitcoin users the opportunity for financial privacy by placing them all under general suspicion could drive the industry's innovations and many wealthy people further out of Germany. There are also efforts at EU level to significantly restrict anonymous cash and crypto payments - Blocktrainer.de reported.

Although the US has also taken action against the founders of privacy tools such as Coinjoin services, the wind is slowly turning in the world's most relevant economy with regard to the Bitcoin and crypto sector. According to the betting markets, the likely next US President Donald Trump is campaigning on the basis that he wants to keep the industry in the US. He is also referring in particular to Bitcoin mining, the energy use of which is currently viewed exclusively critically by the federal government.

In terms of sustainability, the German government takes a critical view of Bitcoin mining.
_{From the Federal Government's response to the AfD's minor interpellation}

At the same time, there are also efforts in the US to introduce Bitcoin as an optional means of payment for federal income taxes. Matt Gaetz, an ally of Donald Trump, has submitted the corresponding bill and emphasized that the US must continue to play a pioneering role in terms of innovation and technological progress - Blocktrainer.de reported.

It remains to be seen how the legal situation in Germany and the EU will develop with regard to financial privacy. Times in which the majority of citizens are otherwise occupied, for example with a major soccer tournament, are certainly suitable for waving through unwelcome laws in the shadows of the public eye.

But even if the private use of Bitcoin and Co. were to be completely banned and all law-abiding Bitcoiners were to become financially transparent citizens, their Satoshis in personal custody could not be confiscated.