Competitive Enterprise Institute Submits Request To File Amicus Brief In IRS-Coinbase Case

Today, August 3, 2017, the Competitive Enterprise Institute (CEI) submitted a request to file an amicus curiae brief in the US Federal Court in San Francisco. In the proposed brief that accompanied the request, the CEI opposes the Government’s petition to enforce the “John Doe” summons that was issued by Internal Revenue Service (IRS) to Coinbase, a digital asset exchange.

Long-time readers will remember that the IRS invasively sought extensive customer records on the hunch that some Coinbase users may not have complied with federal tax laws. Despite the IRS narrowing the scope of its summons in July 2017, the brief contends that it remains overbroad, and in any event, should not be enforced due to important privacy issues.

The Government “shouldn’t get the benefit of coming to court with a subpoena that represents an extreme bargaining position,” writes Jim Harper, vice president of the CEI. This could be analogous to the Government asking for the moon and trying to settle for the stars.

The brief argues that if the Court accepts the John Doe summons in its current format, it would invite future “distended subpoenas” by the Government, which may waste judicial resources. It further suggests that, for what amounts to a “fishing expedition,” this is an obvious violation of the Fourth Amendment. The Fourth Amendment protects “the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.”

Harper says the CEI is concentrating on the “division of property rights in data,” asserting that “the data is not Coinbase’s to give to the Government based on an invalid subpoena.” The brief insists that the Court consider the “contract-based privacy interests of Coinbase users.” Through its user agreement and privacy policy, Coinbase has allocated customers “the bulk of rights to control and use their personal data.”

The possessive pronoun (“your”) in Coinbase’s privacy policy implies that customers own their data, writes the CEI. Additionally, recognizing that Coinbase might be compelled to share customers’ personal information with Government officials or law enforcement, the CEI stresses that Coinbase has a duty to “resist invalid subpoenas.” After all, “compelled” indicates a measure of pushback by the digital asset exchange.

Dimensions of Privacy

The CEI brief emphasizes four “dimensions of ‘privacy”: control, security, freedom of speech & action, and privilege.

“Control” simply alludes to the autonomy of customers, but the other three touch upon much greater concerns.

With regard to security, the CEI suggests that digital data is susceptible to hacking and breach, and remarks that the risks “rise with each data holder and copy of data.” On this basis, the CEI urges the minimization of forced information-sharing.

Questioning the 1976 John Doe Statute, the CEI encourages the Court to examine whether it violates Due Process today. Given the physical and tangible barriers to data breaches in the past (when information was literally on paper), the Court needs to keep in mind that today’s digital data is much less secure. The CEI urges that if the summons survives, affected Coinbase customers ought to be notified by e-mail.

In “freedom of speech and action,” the CEI examines what transactions should/might be known by the Government. By revealing a person’s financial activities, the Government might curtail a user’s constitutionally protected speech. Citizens desire anonymous speech in some circumstances, so the Government must act cautiously to maintain the First Amendment rights of Coinbase users. The CEI compares this to a case in which the Government sought access to Internet searches on Google.

Finally, the brief explores the potential for Coinbase customer data to reveal “relationships that are privileged by law” (i.e., attorney-client privilege). Transaction data might “produce inferences… that the Government is not entitled to know about,” says the CEI.