In the last two months, billions of people have started working and educating their kids from home, underscoring the necessity of fast, at-home Internet (“broadband”). Yet in the United States, one in four households has no broadband at home. And those who can pay for it mostly get bad deals: U.S. residents, on average, pay more money for slower Internet than the rest of the developed world.
Like electricity in the late nineteenth century, broadband deployment today largely follows the profit motives of private providers. This approach leaves many poor neighborhoods — in cities, and especially in rural areas — in digital darkness. Ten percent of Americans, and nearly 40 percent of those living in rural areas, have no option, at any price, to subscribe to broadband where they live. They will continue to be left behind unless we are willing to create broadband networks where the private market has not and will not.
To bridge these digital divides, the federal government should direct new grants to communities to build their own publicly-owned networks (“public broadband”). Years ago, I made the case for public broadband in the Yale Journal of Law and Technology. I argued that, in many communities, broadband should be built, delivered, and maintained as a public service — like water, electricity, and roads. I also laid out legal and political strategies to help communities build these networks.
One example of such a network, among many, is in Chattanooga, Tennessee, whose public broadband network is now among the fastest and most affordable in the world. The Institute for Local Self-Reliance maintains a fuller list of America’s public broadband networks here.
Just last week, House Democrats announced a plan to invest nearly $100 billion of new broadband infrastructure, including build-out grants and guaranteeing the right of local governments to deliver public broadband. Good. But we should keep careful eye on the proposal’s details as they emerge, to make sure the funds go to communities — and are not just another handout to private providers like Comcast.
This pandemic has demonstrated unequivocally that broadband is an essential public service. It is high time for our leaders, both national and local, to step up and treat it like one. Public broadband networks, funded via new federal grants directed to communities, are a good place to start.
My article, “A Light in Digital Darkness: Public Broadband after Tennessee v. FCC,” is available here.
This has been a scary week, as we all scramble to stock our pantries, keep our families safe, and figure out what comes next. As everyone continues to grapple with the growing COVID-19 crisis, it is worth keeping an eye out for some of the legal issues that are likely to arise and shape the response along the way:
Employees: Many people have already begun working from home, either at the encouragement of their employers or pursuant to remote-work HR policies. That is an important step to lessen transmission, but likely not the end of the story. Countless people have jobs that cannot be performed remotely or work for employers that do not offer paid sick leave. The availability of paid sick leave may be starting to change — at the federal, state, and company levels. In the meantime, employees may consider invoking other rights under the Family Medical Leave Act, the Americans with Disabilities Act and the Rehabilitation Act, applicable state statutes, and whistleblower statutes. For employees who are told to come into work in dangerous conditions or fired for working from home (or remaining on leave), there are potentially claims for wrongful termination and straight-up breach of contact. Anti-discrimination protections remain pertinent, for example in cases when more senior employees are suspended or terminated because of their age (as it relates to COVID-19 risks), or when Asian-American or Italian workers who face hostile work environments.
Startups and businesses: The Centers for Disease Control and Prevention (CDC) released interim coronavirus guidance for businesses and employers, as has the Occupational Safety and Health Administration (OSHA). In addition to protecting the health of their employees and customers, a number of businesses in this pandemic may face significant economic problems, either directly health-related or as a byproduct of overall worsening market conditions. A range of commercial disputes will likely arise — for instance, stemming from closed stores or supply chain disruptions — and some will hinge on questions of contract law involving force majeure, impossibility, frustration of purpose, and material adverse change clauses. Additionally, as a corollary to keeping workers and customers safe, companies may want to take a second look at premises liability and the scope of their insurance coverage. More generally, various forms of regulatory and tax relief may be available, for example through Small Business Administration loans, deferments from the Internal Revenue Service, and extensions at the Securities Exchange Commission.
Constitutional rights: Soon enough, the COVID-19 crisis will raise constitutional issues. In the last 24 hours alone, President Trump floated a travel ban upon the state of California and Mayor de Blasio had to quash rumors about a quarantine of Manhattan. Over the last week, the response has involved voluntary self-isolation, forced cancellations of certain events, quarantines, and a “containment area” around the entire town of New Rochelle, enforced by the National Guard. Quarantine, containment, and other public health measures are governed by a patchwork of federal and 50 state laws: each type of intervention involves its own legal authorities and limits. At the moment, many Americans would probably prefer more federal guidance and clarity and will, of course, comply with the instructions of public health and law enforcement officials. If the situation becomes more extreme, and more intensive measures are contemplated — like the use of guarded or physical barriers (called a “cordon sanitaire”) upon an entire city or state, enforced by threat of arrest or use of force — then the constitutional balance could start to change. There is already confusion about the scope of certain quarantines and it is not hard to imagine ethical and constitutional questions arising in cases of someone violating a quarantine trying to leave home to obtain life-saving treatment, or worse yet, getting shot attempting to cross a city line to get food. In a nutshell, there could eventually be substantial constitutional questions, e.g., under the Privileges and Immunities Clause (and freedom of movement), federalism and anti-commandeering concerns (when state and federal officials disagree), and perhaps even the Takings Clause (when the government seizes property in particular ways). In terms of commentary, look out for Georgetown Professor Lawrence Gostin, who has offered expert insights about forced quarantining and its constitutional implications.
Courts: In order for the law to be an effective remedy, whether for individuals or businesses, the courts to remain functional in some form. There have already been a handful of closures, including yesterday at the U.S. Supreme Court. Initial reporting suggests federal courts are each deciding how to respond, and the “orders range from detailed to vague and confusing.” For example, the Ninth Circuit is letting attorneys file motions to appear remotely and the Administrative Office of the U.S. Courts is drawing up other plans (and a template). Assuming that the COVID-19 pandemic becomes more widespread and persists for some time, federal courts should have a uniform system in place to allow for live-streaming of courtroom audio and remote appearances. By comparison, across the Atlantic, the United Kingdom recently announced a plan for virtual courts. Otherwise, indefinitely delaying trials and rulings could seriously impede access to justice.
All told, coronavirus presents an uncertain and frightening moment for the private and public sector alike. At the same time, this pandemic is not a free-for-all, either: during a crisis, a thorough understanding of the laws and rights available to you can be a crucial tool to save lives, mitigate damage, and promote recovery. Please do your best to stay healthy, flatten the curve, and consider not just your own safety but the health of everyone else. If you have any COVID-19 related legal questions, please do not hesitate to reach out.
Before Central Bank Digital Currencies (CBDCs) became headline news, we at Schnapper-Casteras PLLC were researching and publishing about them, and conferring with CBDC stakeholders: at central banks in the United States and abroad, on the Hill, with securities and commodities regulators, investment firms, software developers, business schools, and think-tanks. We were early, and we were right: central banks are going to offer digital money.
Today, we are excited to announce the launch of a new practice area in this emerging field of CBDCs. If you are a public or private financial institution, a technology company, a not-for-profit, or another stakeholder in the global transition to digital currency, we offer a combination of legal services, policy analysis, and strategic counseling.
A recent survey found that 80% of central banks — including the Bank of England, the European Central Bank, and the Bank of Japan — are researching, piloting, or planning to launch their own digital currency networks in the coming years. China’s CBDC may launch this year.
CBDCs implicate complex, inter-disciplinary questions across law, policy, technology, and economics: the balance of powers between monetary policymakers like Congress, the Federal Reserve, and other central banks; foreign policy and currency competition; technological features and interoperability; national security, cyber-security, and data privacy protections. We can help you plan accordingly.
We look forward to hearing from you — and in the meantime, please find a few examples of our past writings on CBDCs and digital money:
Fair use has long been essential to artistic expression. That is a core theme of a brief we filed today on behalf of The Robert Rauschenberg Foundation and the The Andy Warhol Foundation for the Visual Arts in Google v. Oracle. The litigation, which is hailed as the “copyright case of the century,” involves a high-stakes dispute over the use of source code in smartphones — but it could also have significant implications for the doctrine of fair use as it applies to artistic expression. We urge the Court to be careful not to implicate fair use in the arts in this case.
First, we lay out a variety of examples demonstrating that the use and re-use of other creative works are often essential vital to the visual, literary, and musical arts. For instance, the painter of an iconic portrait of George Washington, “borrowed freely” from other models — and even the designs of the Supreme Court building itself are “virtually identical” to prior designs. The visuals, reprinted in the brief, really are worth a thousand words:
We also address the First Amendment protections and public interest issues that undergird fair use, explain how software APIs are quite different than the arts, and argue why the Supreme Court should decline the invitation to wade into other areas of fair use law that are not properly presented. Carolyn Shapiro, who co-authored the brief, remarked, “the bottom line is that, whatever the justices choose to say about fair use in the software development context, they should be careful not to suggest that the same analysis necessarily applies to the arts context. The Court has made clear in the past that fair use analysis in the arts requires close attention to a case’s factual and artistic context. It should take care not to sweep so broadly in this software case that it inadvertently disrupts the work of an array of creative industries and professionals.”
Recent weeks have seen a surge of interest in Central Bank Digital Currencies (CBDCs), starting with China’s public plans to launch its own and culminating in the Federal Reserve Chairman’s letter to the Hill on the topic. The growing attention to CBDCs is a welcome sign — especially for tech-focused lawyers like us — but before everyone rushes in, we should start assessing some foundational issues.
As Congress and the Federal Reserve consider the possibility of launching a dollar-based CBDC, here are some key questions that they should find answers to first:
– What is the problem that a CBDC in the United States is aiming to solve? To be sure, there are plenty of issues in our national financial infrastructure that CBDCs could partly address, for example: reducing transaction costs; ensuring all citizens have bank accounts; expanding the availability and speed of fund transfers; improving financial stability and oversight; or upgrading our banking software systems. (The Bank of Israel published a useful report laying out some of the different types of CBDCs and the tradeoffs among them.) This may be the most difficult question to answer, but it makes little sense to proceed on CBDCs without deciding our core purpose in doing so.
– Who are the target users of the CBDC? With widespread and often conflicting reports on China’s new digital currency project, it’s not entirely clear who their CBDC will serve: banks, regular people, or both? Beyond China, there are important design tradeoffs on this front: Some versions of a CBDC could be “peer-to-peer” like bitcoin or e-mail, where anyone can participate and send or receive money. Other proposals would just give access to banks and major financial institutions, resulting in more mild but still potentially important efficiency improvements over today’s systems. A related question is who are the intended operators of the CBDC? The Federal Reserve, other federal agencies, some public-private partnership with banks, or technology companies?
– What is the desired impact on public policy? Domestically, could CBDCs have useful applications as a monetary tool to combat recessions or curb overheated economic growth? Should CBDCs constitute a sort of “public option” for certain banking services? Or are various policy considerations essentially secondary to finding a way to upgrade the “rails” that undergird our nation’s financial infrastructure? Internationally, are we worried about other digital currencies gaining traction and threatening the reserve currency status of the dollar? Representative Foster, whose letter spurred Chairman Powell’s CBDC comments, said that his inquiries were motivated by desire to preserve the “primacy of the U.S. dollar” against a “competitive disadvantage” if other countries move first. In any event, the form of the CBDC has to be driven by the impact the CBDC is designed to produce.
– When do we (realistically) plan to launch a CBDC of some sort? The Federal Reserve Chairman has already indicated that he sees no need for the Fed itself to rush into this project and is “carefully monitoring the activities of other central banks.” Meanwhile, the newly-appointed head of the European Central Bank has advocated for CBDCs and the European Union appears to be progressing in that direction; private companies like Facebook, JP Morgan, and Coinbase are proceeding with digital currency systems of their own. Should Washington’s timing reflect a stance on whether the private sector or other countries could “get ahead” of the U.S. dollar? (On a separate, but related, track, the Federal Reserve is making slow progress on a plan to offer real-time gross settlement, which is at least five years off in the United States — but already available in many other countries).
– Why take on the risks of a CBDC at scale? What if there is a cyber-security breach, technical malfunction, or poor deployment? What if a serious competitor to the dollar or SWIFT-based settlement emerges in the meantime or becomes preferred by banks or consumers? How do we assess the downsides and audit the integrity of new technology, against the costs and benefits of the status quo?
These are big questions with major political, economic, and legal ramifications — and different public and private sector stakeholders may view them quite differently. It is good to see the Federal Reserve taking this issue seriously (which we have suggested for some time now). Congress too, has a special role to play, since the Constitution grants it the power to oversee and regulate money, including the Federal Reserve and any CBDC efforts. Congress can shape this matter of national importance by conferring with constituents about their financial needs, holding hearings, and/or enacting statutes and allocating funds to further explore digital currency.
With CBDCs, we have the opportunity to consider major changes to monetary technology and policy. By tackling some of these basic issues first, we can chart a sensible course forward.
Yesterday, several current and former U.S. officials announced support for a digital version of the U.S. dollar. The prior CFTC Chairman and CIO, J. Christopher Giancarlo and Daniel Gorfine, penned an oped in the Wall Street Journal advocating for a “government-sanctioned” virtual currency — and various alumni of the Federal Reserve and FDIC went on the record with Politico’s Zachary Warmbrodt, calling on the Fed to explore similar proposals. These endorsements represent an early milestone in mainstreaming discussions about a digital dollar, and spur us to offer some guidelines about what should come next.
Support for a digital dollar is generally encouraging, and something that Misha and I have long been urging the U.S. government to prepare for, both in writing and in private conversation. It’s also a marked contrast from when we first began talking with central bankers, who were deeply skeptical (to put it mildly) when we discussed Bitcoin or the prospect of a Central Bank Digital Currency (CBDC). One regulator abroad even called Bitcoin “evil spawn” — as Kanye West might say, “that’s a pretty bad way to start the conversation.” The political backlash to Facebook’s Libra currency proposal, together with some foreboding around a “digital yuan” promoted by China, has shifted the policy dialogue rather quickly. Competition can breed innovation.
In the meantime, here are a few initial guidelines policymakers should consider:
– Start small: Giancarlo and Dorfine are right to suggest a pilot program may be the best way to kick things off. The United States can build upon what worked (and did not work) in other pilot programs at central banks abroad — and also elevate research by officials at Regional Fed Banks, who have begun to explore a Bitcoin monetary “standard” and the prospects of digital currency competition.
– Don’t reinvent the wheel: For all the ups and downs of the cryptocurrency ecosystem, there has been an immense amount of activity that we can all learn from. The Fed does not necessarily need to build everything from scratch — and should not waste billions of dollars and years of development on a bloated private contract, only to yield an inferior version of Bitcoin.
– Support open source protocols: Creating a successful digital dollar is not just about having a killer app — it will also hinge upon the functionality and adoption of the underlying protocols that power the network. In the 1970s, the U.S. Defense Department funded open-architecture networking protocols like TCP/IP that form the backbone of the Internet today. The Internet succeeded because it was open: anyone could participate and launch a website, app, or browser. Similar principles bear with us today.
A digital dollar will not — and should not — develop overnight. But it is good to see some progress in the conversation. As the world flirts with digital money, the dollar should stay ahead of the curve.
What if spending money in the real world was as inconvenient and invasive as spending money online? Imagine a customer at the register of a local corner store:
Customer: I’d like to buy this $1 water.
Merchant: OK, I just need you to type your name, home address, email, and credit card number, all of which I’ll add, without your consent, to your customer profile, where we track every one of your purchases. We’ll tell our partners what you purchased here today (for a fee, of course), send you ads to sell you more things . . .
Merchant: . . . Oh, and we attached a GPS tracker to your coat so we can see what stores you visit next.
Dystopic, huh? Fortunately, in the real world, unlike on the Internet, you have the option of cash, a timeless technology which allows fast, discreet exchange of money for goods and services. Of course “cashless” solutions like credit/debit cards are convenient, too: you can pay by thumbprint/swipe/tap, always make perfect change, and never have to figure out what to do with pennies. But in a digital age, we should have the best of both: the ease and privacy of cash with the convenience of digital payments.1
As Wired Magazine’s Zeynep Tufecki lamented this year: “I want to easily support artists and writers [online] without having to set up an account, create a password, fork over my credit card details, and commit to an ongoing relationship that involves receiving a new piece of spammish email at least once a week.” When we make payments online, she says, “it sucks.”
So how can we make it suck less? Can it be true that small digital payments are impossible or incompatible with the Internet? No way.2 So why aren’t cash transactions under $5, which are abundantly common in the brick-and-mortar world, available via our computers and phones?
One big answer for the lack of digital cash is that the traditional banking system isn’t designed for them. The legacy payment rails, like ACH, are designed for infrequent, large-value, high-fee transfers between big banks (who own these rails, and charge high fees to use them). Similarly, credit cards charge a high base fee for each transaction, plus ~3% of the cost — which makes accepting small-dollar credit purchases unduly expensive.
But a big technological leap happened in the last year: the emergence and growth of a new, open payment technology called the Lightning Network, an alternative rails for fast (faster than credit cards), low-cost, secure digital cash transactions. It’s still early days, but there’s no question the network works. Here’s an example of Lightning in action, buying a recipe for $0.01:
We’ve been working on integrating and experimenting with Lightning for a while now, and we couldn’t be more excited about where digital cash is headed. We see three reasons it’s going to be huge:
One reason is timing: a variety of consumer preferences and market trends are converging in ways that are favorable for digital cash. There is a growing body of evidence that users are increasingly worried about their privacy, fatigued by subscription-only paywalls and targeted advertising, and willing to pay for content and choose products based on how they handle their data. Cash use remains especially popular for individuals under 25. Studies confirmed that we search differently when we know we’re being watched — and it is only logical to assume we buy differently too.3 Businesses are looking for new ways to sell products, expand their user bases, and monetize existing content with alternatives to advertisements. Content creators are clamoring for a way to be compensated directly by fans, as evidenced by the rise of newsletter- and membership-based services like Patreon, Substack, and Medium. In the words of Medium CEO (and Twitter co-founder) Ev Williams, “it’s clear that the broken system is ad-driven media on the internet. It simply doesn’t serve people.”
The second reason is technology. The Internet succeeded because it was open: anyone could launch a website, app, or browser. Similarly, Lightning is designed so anyone can readily send or receive digital cash.4 The legacy banking system is closed — only banks get to send money to and from each other, or only allow transfers within the same network, like on PayPal or Venmo.5 Until recently, there was simply no alternative. But with Lightning, we have a network that is open to everyone. Lightning also makes payments programmable, so as developers dive in, integrating Lightning is leading to all sorts of applications that are just getting started: clearing paywalls as easy as scanning a code, online pay-to-play arcades, you can even instantly feed chickens. The fact that consumers are already getting used to paying by smartphone makes for an easy and exciting transition to digital cash. Here’s Lightning in action, buying a beverage:
The third reason is opportunity: studies have shown that cash payments under $5 accounted for over $1 trillion in consumer spending in the United States alone. If Lightning providers can bring some of those transactions into the digital realm, the revenue opportunity is enormous, and that’s just for handling payments. Much like the early Internet, there is an incredible amount of business that can be built on top of an open network where anyone can participate. We’re not the only ones who think so: legendary computer scientist and former Stanford President John Hennessy, and prominent venture capitalists Mary Meeker and Marc Andreesen have spoken passionately about the massive potential for small payments online, and Twitter co-founder Jack Dorsey invested directly in supporting Lightning development.
To be sure, there is plenty of work ahead. Lightning Network transactions almost all take place using bitcoin, which for now puts it out of most users’ comfort zones.6 And the meteoric success of “free” services such as Facebook, Gmail, and Google Search does suggest that many users are accustomed to paying with their privacy; writers and artists publish plenty of content online for free. At the same time, consumers and creators haven’t really had the option of digital cash before, so we’re in new territory: many of those behaviors could change.
In short, it’s an exciting time for digital cash. If we build and invest deliberately, we can find ourselves on the cusp of a cash comeback that has the potential to revitalize business models and create new ones, support quality content, and protect privacy. Imagine the possibilities for an economy full of seamless, speedy, private, digital cash transactions. We’ll be able to pay, get what we came for, and move on. With Lightning, that’s just getting started.
After nearly two years of litigation, we are pleased to have reached a favorable resolution in a constitutional challenge involving the U.S. Naval Station Guantanamo Bay. Schnapper-Casteras PLLC represents Mr. Richard Kammen, a prominent member of the Indiana Bar, who was appointed to serve as a lead defense counsel in Guantanamo and who faced arrest after he uncovered a concealed microphone in a meeting room for attorneys.
Mr. Kammen’s legal battle involves a troubling and extraordinary set of facts, which underscore how far the system in Guantanamo has strayed from basic principles of justice. In 2017, Mr. Kammen and his colleagues discovered a listening device, hidden in a smoke detector in a room reserved for attorney-client meetings. Mr. Kammen raised this issue and other ethical concerns with U.S. Marine Corps Brigadier General John G. Baker and an outside legal ethics expert. The expert informed Mr. Kammen that, in order to adhere to the rules of professional conduct, he had no choice but to withdraw from his legal duties in Guantanamo. General Baker expressly approved of Mr. Kammen’s withdrawal. However, the military commission official overseeing the matter at the time, Col. Vance Spath, responded by pursuing the lawyers themselves, civilian and military alike. Col. Spath sentenced General Baker to a term of confinement and threatened to have Mr. Kammen and his co-counsel arrested, to force them to continue work in Guantanamo, and/or to bring them to Virginia to hold them in contempt.
In November 2017, Mr. Kammen filed a petition in the Southern District of Indiana against the U.S. Secretary of Defense and military commission officials seeking to prevent his imminent arrest. Following an emergency hearing, the District Court suspended any and all warrants and travel requirements held against Mr. Kammen. Mr. Kammen subsequently amended his petition, advancing claims under the First Amendment, due process under the Fifth and Fourteenth Amendments, and Sixth Amendment. The U.S. Department of Justice, while not disputing most of the facts, argued that a federal court could not hear the case because Mr. Kammen was jurisdictionally equivalent to an alien, non-citizen enemy combatant. Although the Justice Department ultimately acknowledged the existence of the concealed microphone, it sought to downplay it as a “legacy” device. Separately, General Baker and the other civilian lawyers filed lawsuits against the Government (represented by Jenner & Block LLP, and Michel Paradis et al., respectively).
The record is clear: every federal court to have reached the merits on this episode has ruled against the Government. In 2017, the U.S. District Court for the District of Columbia granted General Baker’s habeas petition and vacated his conviction for contempt. In April 2019, the U.S. Court of Appeals for the D.C. Circuit issued a sweeping opinion, tossing out years’ worth of Col. Spath’s military commission rulings in light of revelations that he had engaged in conduct giving rise to the appearance of judicial bias. In its holding, the D.C. Circuit took the remarkable step of praising the conduct of Mr. Kammen and his co-counsel:
“Although a principle so basic to our system of laws should go without saying, we nonetheless feel compelled to restate it plainly here: criminal justice is a shared responsibility. Yet in this case, save for [the] defense counsel, all elements of the military commission system—from the prosecution team to the Justice Department to the CMCR to the judge himself— failed to live up to that responsibility.”
The D.C Circuit opinion effectively nullified Col. Spath’s order that Mr. Kammen return to Guantanamo or else be held in contempt. In May 2019, Mr. Kammen, still living under the specter of being arrested or forced back to Guantanamo, urged the Southern District of Indiana to take judicial notice of the D.C. Circuit’s ruling. In July 2019, the Department of Justice confirmed that it would “not seek further review” of the D.C. Circuit ruling and acknowledged that the decision was dispositive in the Indiana litigation. In August 2019, Mr. Kammen and the Justice Department agreed to resolve the Indiana case by voluntarily dismissing it, a request the District Court granted yesterday.
In light of yesterday’s resolution, Mr. Kammen stated that he felt “vindicated by the result and relieved that his co-counsel no longer have to live under the cloud of uncertainty.” Mr. Kammen added that:
“JP [Schnapper-Casteras] was instrumental in the success we had convincing the military and civilian courts that government misconduct directly required me to be excused as the lawyer for Abdul Rahim al-Nashiri. More importantly, his wise counsel and aggressive litigation, helped persuade the federal judge in Indiana that the government could not have me arrested and forced to represent al-Nashiri when that would have been both illegal and unethical.”
JP Schnapper-Casteras, who represented Mr. Kammen alongside Jessie A. Cook and Robert W. Hammerle, remarked: “In the United States of America, we should extol attorneys for acting ethically — not arrest them.”
Today’s announcement of Facebook’s much-anticipated cryptocurrency, Libra, has already spurred a flurry of commentary about technology and ramifications for the fintech space. But as Facebook publicly unveils its plans for Libra, a new question emerges: is Facebook prepared for the legal challenges to come?
On the face of things, Facebook’s announcement hews close to legal compliance. Their subsidiary is already registered with FinCEN, and their announcement carefully avoids any impression that purchasing Libra will earn users a profit. So, legally speaking, nothing to see here — right? Nope, not so fast. Here are some big, unanswered legal questions on Facebook’s horizon:
First, who will regulate this potentially ground-breaking new “global currency”? In today’s current legal environment, the short answer is just about everyone. In the U.S. alone, the Treasury, SEC, CFTC, IRS and state financial regulators are all already involved in cryptocurrency regulation. Facebook already earned the ire of antitrust groups through its data collection alone; its foray into central banking could be the kicker that finally sets off the Department of Justice’s Antitrust Division to begin more formally exploring the possibility of breaking Facebook up. On the Hill, representatives across the political spectrum have been asking hard questions about Facebook and its currency plans, including a recent bipartisan inquiry from the Senate. The two top lawmakers on the House Financial Services Committee have urged Facebook to testify before Congress about its plans for Libra; Maxine Waters, the ranking Democrat, even called for a moratorium on further Libra development. Other legal questions linger, including about tax implications of Libra-denominated spending, and Facebook’s commitment to enforcing the U.S.’s strict Anti-Money Laundering requirements placed on financial institutions like banks.
Globally, Libra faces an international regulatory landscape that is even more complex. Within hours of Facebook’s announcement, France’s Finance Minister, Bruno La Maire, proclaimed that Libra becoming a sovereign currency should be “out of the question,” that it “can’t and must not happen,” and that it only “increases our determination to regulate the Internet giants.” Jurisdictionally, Facebook headquartered the Libra Association in Geneva, but that hardly settles the question of which countries will try to exert control. In Asia, India’s legislature is considering a bill that would criminalize the purchase and sale of cryptocurrencies, presumably including Libra. China has repeatedly vacillated on digital currencies, banning and unbanning their production and sale. Perhaps Facebook has a grand strategy to employ a phalanx of local counsel to persuade regulators overseas or challenge clampdowns in court where needed. But it is hard to see smooth seas ahead.
Beyond finessing global regulations, Libra will have to contend with United States securities laws, especially surrounding its plans to “stabilize” its currency value. Facebook’s announcement suggests the company plans to “back” Libra with a mix of financial assets in order to stabilize its price. The legal status of so-called “stablecoins” — designed to retain a steady value, as compared to a currency like bitcoin or the Japanese Yen, whose purchasing power appreciates and depreciates — is unclear. The regulatory uncertainty surrounding “stablecoins” played a major part in the dissolution of one of the biggest projects, Basis, which shuttered and refunded approximately $100 million to investors.
More fundamentally, if Facebook succeeds in creating a currency that maintains value — as opposed to the 2% annual decline in purchasing power (inflation target) favored by the world’s central banks, Libra could even represent a source of competition for national currencies. As the Nobel-Prize winning mathematician John Nash mused, monetary policies “are typically of great importance to citizens who have alternative options for where to place their savings.” If Facebook can beat 2% inflation, then some currencies could struggle to compete.
Thus, questions remain: will central bankers (and other political leaders) view Libra as a threat to their monetary sovereignty? Will regulators see stablecoins as a benign mechanism to avoid speculative investment or crashes? Will they view it as a basket of commodities and securities like an ETF? Or will they ask whether stablecoins could constitute a form of market manipulation whereby Libra’s members, who each paid $10 million to participate in the network, intervene to prop up (or deflate) the price whenever they so choose?
Finally, the elephant in the room is not Libra, but Facebook itself. Libra comes out in a difficult and sensitive moment for Facebook, both in terms ofpolitics and popular backlash. More broadly, there is serious skepticism from progressives and conservatives alike about the expanding size and role of “Big Technology.” At the consumer level, there appears to be a groundswell of concern about how companies like Facebook are monetizing and handling years’ worth of private data. Whether Facebook can earn back user trust, at the same time it launches a currency that will invariably require some degree of trust, remains to be seen. Indeed, the “In God We Trust” phrase printed on the U.S. Dollar is more than a motto — nearly one century after the Federal Reserve ended citizens’ abilities to redeem dollars for gold, the phrase symbolizes how trust in the currency’s value is crucial to the money’s acceptance and success. A currency without trust backing its value can quickly become worth no more than the paper (or a cotton-linen blend) on which it is printed.
The big risk for the world’s regulators is not that Libra fails, but that it succeeds. Or, perhaps even more consequential, that Libra succeeds in familiarizing a broad swath of users to digital currencies, who ultimately opt to use an even more permissionless global currency like bitcoin. In the future, regulators considering a clampdown on the cryptocurrency phenomena may find themselves also facing a bitcoin network with no affinity for authority — and longing for simpler or centralized policy landscape that has since been overtaken by events. For now the bottom line is this: between today’s announcement and Libra’s launch in 2020, Facebook’s legal team — and perhaps monetary and financial regulators too — have plenty of work to do.
I am thrilled to announce that Professor Carolyn Shapiro is joining the firm as Of Counsel. As the former Solicitor General of Illinois, a constitutional law scholar, and a former Supreme Court clerk, she shares her tremendous appellate experience and acumen. Moreover, I deeply admire Carolyn’s long-standing commitment to public interest work and all she’s done to stand up for the rule of law in recent years — and consider myself very fortunate to be able to collaborate with her in this new capacity. You can find her full biography here, select publications on SSRN, and her Tweets @cshaplaw.