BCCLA at the Cullen Commission of Inquiry into Money Laundering in British Columbia
As 2020 came to a close, the BCCLA continued its participation at the Cullen Commission of Inquiry into Money Laundering in British Columbia. From November 23-25, 2020, the Cullen Commission turned its attention to virtual assets, including blockchain and cryptocurrencies.
Photo by: André François McKenzie
While virtual assets and cryptocurrencies may seem like niche issues today, they are being taken seriously by governments, financial institutions, and technology companies. The underlying technology has a wide range of applications. If the optimists are right, blockchain technology and cryptocurrencies will enable the development of new digital art forms, innovative methods for collective decision-making, and a more inclusive financial system. However, opponents fear they could undermine government’s role in the economy and act as a payment channel for crime and corruption.
The Cullen Commission focused on the darker side of virtual assets. Witnesses discussed the use of cryptocurrencies in enabling drug marketplaces like the Silk Road, in ransomware attacks, and in money laundering more generally. They discussed the challenges in investigating crimes where cryptocurrencies are involved. The Commission heard witnesses from the RCMP, Chainalysis, a company that combines blockchain data with other “open source intelligence” to identify users of cryptocurrencies, and a number of companies in the virtual assets industry.
The BCCLA brought a much-needed civil society voice to the Cullen Commission’s analysis of these emerging technologies. BCCLA lawyers raised serious concerns about privacy and surveillance, encouraged the development of virtual assets in ways that could make the Canadian financial system more equitable and inclusive, and discouraged new rights-infringing regulations that unduly hamper innovation.
The BCCLA encourages the development of virtual assets and blockchain technologies in ways that strengthen Charter values and reduce discrimination, and strongly opposes new police powers that would undermine those gains.
What are virtual assets?
Virtual assets are things that hold value but only exist in digital form. The term often refers to cryptocurrencies such as Bitcoin or Ethereum, but includes other assets built on similar technologies, from securities to digital art and collectibles.
At the Cullen Commission, the discussion of virtual assets focused on cryptocurrencies, which are based on a technology called blockchain. Three features of blockchain technology make it especially interesting to both the Cullen Commission and the BCCLA —decentralization, transparency, and pseudonymity. [1]
Decentralization
Blockchains are decentralized, meaning they don’t rely on an authority like a bank or government to record account balances or approve transactions. Instead, the records are stored in a database that is copied to and maintained by thousands of computers around the world—a blockchain. For most blockchain networks, anyone with a computer and an internet connection can download software that allows them to participate in the network.
Transparency
Blockchains record a history of every transaction that has been sent over the network, typically including the blockchain addresses of the sender and receiver, the amount sent, and the balances associated with each address. Anyone can download a copy of the blockchain to view a specific transaction or the entire history of an address.
Pseudonymity
Blockchain addresses may look like a random string of numbers and letters, but they are not anonymous. They are pseudonymous. Even though blockchain addresses do not provide an individual’s name, they can often be associated with an individual by other means.
Virtual assets and civil liberties
Privacy and surveillance
At the Cullen Commission, the RCMP raised concerns about the difficulties police face in investigating crimes involving cryptocurrencies, suggesting that increased regulation may be necessary to maintain public safety.
However, the RCMP also acknowledged that blockchain technology can be an asset to police investigations, since it provides a full transaction history. Although cryptocurrencies and other blockchain technologies are pseudonymous, the transparency of the blockchain provides a wealth of information to anyone who cares to look, including the police.
Photo by: Volodymyr Hryshchenko
To illustrate this, imagine the stereotypical red string board of an obsessed detective or conspiracy theorist. The detective puts up pictures of individuals they know or bits of evidence they have found, then connect the dots as more facts are uncovered, eventually revealing a map of the subject of the investigation.
With a blockchain, the dots are already connected by a tangle of red string showing all the transactions between addresses, including those related to the criminal activity under investigation. The job for investigators is to decide which strings are important and identify the people the strings lead to.
An RCMP witness acknowledged that the level of information investigators can obtain from the public blockchain is already more than they would be able to get from a bank without a court order:
[T]his is information which we would typically have to complete a production order in order to obtain from a bank or financial institution, whereas here we could simply go publicly and confirm that a transaction has actually occurred.[2]
Privacy, open source intelligence (OSINT), and blockchain analysis
BCCLA is deeply concerned by the level of financial surveillance possible through the combination of blockchain data with OSINT.
The red strings aren’t all the information available to police. With the help of commercial software vendors and data brokers, blockchain data can be supplemented with other personal information. Companies like Chainalysis provide the police with software that combines information available on the blockchain with “open source intelligence” to find patterns in the data and de-anonymize the individuals behind addresses. OSINT includes information collected from a wide variety of sources, including news reports, social media, and public records. It can include information purchased from data brokers and other proprietary sources. Chainalysis witnesses at the Cullen Commission would not confirm exactly what information its software provides to its law enforcement clients, but said it might include information purchased from data brokers.[3]
BCCLA is deeply concerned by the level of financial surveillance possible through the combination of blockchain data with OSINT. Police and intelligence agencies shouldn’t be able to use commercial products to obtain information about Canadians they would not otherwise be able to obtain without a court order. Financial information is one of the most sensitive forms of personal information. How we spend our money can reveal a great deal about our political opinions, religious beliefs, sexuality, health, relationships, and interests. Canadian courts and privacy commissioners have routinely held that financial information is highly sensitive and deserves the highest levels of protection.
Equality and inclusion
Despite the risks to financial privacy, BCCLA is hopeful that the right kinds of development of virtual assets and their underlying technologies could reduce systemic discrimination in the Canadian financial system and help reduce inequality.
Canada’s financial system is one of the most advanced and stable in the world, but it is not accessible to everyone. For example, the Cullen Commission heard evidence that financial discrimination is a growing issue for sex workers. Many banks, credit cards, and online payment platforms refuse to provide service to sex workers. Even if they manage to obtain banking services, credit card processors offer “chargebacks”, which unscrupulous clients use to claw back payments after a sex worker has provided a service.
In response to these challenges, some sex workers are turning to cryptocurrency as an alternative to traditional payment systems. By accepting cryptocurrency, sex workers can avoid the discriminatory barriers created by financial institutions. The pseudonymity of cryptocurrency allows sex workers to maintain their privacy, while the irreversibility of cryptocurrency payments provides certainty that they will be paid for their work.
This is just one example of how cryptocurrencies and other blockchain technologies may provide a path for marginalized communities to work around the financial system that has excluded them. These technologies offer the opportunity to build new financial services outside the existing banking system, with transparency and security guaranteed by the blockchain.
Cryptocurrency is not just for illegal activity
Almost all of the witnesses at the Commission raised concerns that cryptocurrency could be used by “criminals” to conceal their illegal activities. However, the Commission also heard that only 1.1% of cryptocurrency transactions were suspected to be tied to crime. In other words, 98.9% of cryptocurrency transactions were entirely legitimate. As the technology develops and achieves greater mainstream adoption, it is likely an even greater percentage of use will be completely legal. In light of this, the BCCLA rejects calls for new state powers to monitor cryptocurrency transactions or restrict the use of blockchain technology.
Safeguarding financial privacy
The BCCLA is hopeful that virtual asset technologies will lead to a more equitable, inclusive financial system. However, widespread adoption of blockchain technology also creates the risk of unchecked surveillance by law enforcement and intelligence services, providing easy access to vast quantities of deeply personal information without court oversight.
We believe that police should not be free to purchase information they would not be allowed to collect themselves without court supervision. Even when information is technically public, court oversight of its collection and use may be appropriate. To realize the benefits of these promising new technologies, we must prevent them from being used to establish an unaccountable financial surveillance regime.
The BCCLA will continue to push for financial privacy and a more inclusive and equitable financial system as the Cullen Commission continues into 2021.
[1] This blog post won’t provide an in-depth technical explanation of blockchain technology and how it works. For the purposes of this post, we just assume that the technology works as promised. If you want to learn more, there are lots of resources online. You could start with this explainer video: https://www.youtube.com/watch?v=hYip_Vuv8J0
Cryptocurrencies and your rights
BCCLA at the Cullen Commission of Inquiry into Money Laundering in British Columbia
As 2020 came to a close, the BCCLA continued its participation at the Cullen Commission of Inquiry into Money Laundering in British Columbia. From November 23-25, 2020, the Cullen Commission turned its attention to virtual assets, including blockchain and cryptocurrencies.
While virtual assets and cryptocurrencies may seem like niche issues today, they are being taken seriously by governments, financial institutions, and technology companies. The underlying technology has a wide range of applications. If the optimists are right, blockchain technology and cryptocurrencies will enable the development of new digital art forms, innovative methods for collective decision-making, and a more inclusive financial system. However, opponents fear they could undermine government’s role in the economy and act as a payment channel for crime and corruption.
The Cullen Commission focused on the darker side of virtual assets. Witnesses discussed the use of cryptocurrencies in enabling drug marketplaces like the Silk Road, in ransomware attacks, and in money laundering more generally. They discussed the challenges in investigating crimes where cryptocurrencies are involved. The Commission heard witnesses from the RCMP, Chainalysis, a company that combines blockchain data with other “open source intelligence” to identify users of cryptocurrencies, and a number of companies in the virtual assets industry.
The BCCLA brought a much-needed civil society voice to the Cullen Commission’s analysis of these emerging technologies. BCCLA lawyers raised serious concerns about privacy and surveillance, encouraged the development of virtual assets in ways that could make the Canadian financial system more equitable and inclusive, and discouraged new rights-infringing regulations that unduly hamper innovation.
The BCCLA encourages the development of virtual assets and blockchain technologies in ways that strengthen Charter values and reduce discrimination, and strongly opposes new police powers that would undermine those gains.
What are virtual assets?
Virtual assets are things that hold value but only exist in digital form. The term often refers to cryptocurrencies such as Bitcoin or Ethereum, but includes other assets built on similar technologies, from securities to digital art and collectibles.
At the Cullen Commission, the discussion of virtual assets focused on cryptocurrencies, which are based on a technology called blockchain. Three features of blockchain technology make it especially interesting to both the Cullen Commission and the BCCLA —decentralization, transparency, and pseudonymity. [1]
Decentralization
Blockchains are decentralized, meaning they don’t rely on an authority like a bank or government to record account balances or approve transactions. Instead, the records are stored in a database that is copied to and maintained by thousands of computers around the world—a blockchain. For most blockchain networks, anyone with a computer and an internet connection can download software that allows them to participate in the network.
Transparency
Blockchains record a history of every transaction that has been sent over the network, typically including the blockchain addresses of the sender and receiver, the amount sent, and the balances associated with each address. Anyone can download a copy of the blockchain to view a specific transaction or the entire history of an address.
Pseudonymity
Blockchain addresses may look like a random string of numbers and letters, but they are not anonymous. They are pseudonymous. Even though blockchain addresses do not provide an individual’s name, they can often be associated with an individual by other means.
Virtual assets and civil liberties
Privacy and surveillance
At the Cullen Commission, the RCMP raised concerns about the difficulties police face in investigating crimes involving cryptocurrencies, suggesting that increased regulation may be necessary to maintain public safety.
However, the RCMP also acknowledged that blockchain technology can be an asset to police investigations, since it provides a full transaction history. Although cryptocurrencies and other blockchain technologies are pseudonymous, the transparency of the blockchain provides a wealth of information to anyone who cares to look, including the police.
To illustrate this, imagine the stereotypical red string board of an obsessed detective or conspiracy theorist. The detective puts up pictures of individuals they know or bits of evidence they have found, then connect the dots as more facts are uncovered, eventually revealing a map of the subject of the investigation.
With a blockchain, the dots are already connected by a tangle of red string showing all the transactions between addresses, including those related to the criminal activity under investigation. The job for investigators is to decide which strings are important and identify the people the strings lead to.
An RCMP witness acknowledged that the level of information investigators can obtain from the public blockchain is already more than they would be able to get from a bank without a court order:
Privacy, open source intelligence (OSINT), and blockchain analysis
BCCLA is deeply concerned by the level of financial surveillance possible through the combination of blockchain data with OSINT.
The red strings aren’t all the information available to police. With the help of commercial software vendors and data brokers, blockchain data can be supplemented with other personal information. Companies like Chainalysis provide the police with software that combines information available on the blockchain with “open source intelligence” to find patterns in the data and de-anonymize the individuals behind addresses. OSINT includes information collected from a wide variety of sources, including news reports, social media, and public records. It can include information purchased from data brokers and other proprietary sources. Chainalysis witnesses at the Cullen Commission would not confirm exactly what information its software provides to its law enforcement clients, but said it might include information purchased from data brokers.[3]
BCCLA is deeply concerned by the level of financial surveillance possible through the combination of blockchain data with OSINT. Police and intelligence agencies shouldn’t be able to use commercial products to obtain information about Canadians they would not otherwise be able to obtain without a court order. Financial information is one of the most sensitive forms of personal information. How we spend our money can reveal a great deal about our political opinions, religious beliefs, sexuality, health, relationships, and interests. Canadian courts and privacy commissioners have routinely held that financial information is highly sensitive and deserves the highest levels of protection.
Equality and inclusion
Despite the risks to financial privacy, BCCLA is hopeful that the right kinds of development of virtual assets and their underlying technologies could reduce systemic discrimination in the Canadian financial system and help reduce inequality.
Canada’s financial system is one of the most advanced and stable in the world, but it is not accessible to everyone. For example, the Cullen Commission heard evidence that financial discrimination is a growing issue for sex workers. Many banks, credit cards, and online payment platforms refuse to provide service to sex workers. Even if they manage to obtain banking services, credit card processors offer “chargebacks”, which unscrupulous clients use to claw back payments after a sex worker has provided a service.
In response to these challenges, some sex workers are turning to cryptocurrency as an alternative to traditional payment systems. By accepting cryptocurrency, sex workers can avoid the discriminatory barriers created by financial institutions. The pseudonymity of cryptocurrency allows sex workers to maintain their privacy, while the irreversibility of cryptocurrency payments provides certainty that they will be paid for their work.
This is just one example of how cryptocurrencies and other blockchain technologies may provide a path for marginalized communities to work around the financial system that has excluded them. These technologies offer the opportunity to build new financial services outside the existing banking system, with transparency and security guaranteed by the blockchain.
Cryptocurrency is not just for illegal activity
Almost all of the witnesses at the Commission raised concerns that cryptocurrency could be used by “criminals” to conceal their illegal activities. However, the Commission also heard that only 1.1% of cryptocurrency transactions were suspected to be tied to crime. In other words, 98.9% of cryptocurrency transactions were entirely legitimate. As the technology develops and achieves greater mainstream adoption, it is likely an even greater percentage of use will be completely legal. In light of this, the BCCLA rejects calls for new state powers to monitor cryptocurrency transactions or restrict the use of blockchain technology.
Safeguarding financial privacy
The BCCLA is hopeful that virtual asset technologies will lead to a more equitable, inclusive financial system. However, widespread adoption of blockchain technology also creates the risk of unchecked surveillance by law enforcement and intelligence services, providing easy access to vast quantities of deeply personal information without court oversight.
We believe that police should not be free to purchase information they would not be allowed to collect themselves without court supervision. Even when information is technically public, court oversight of its collection and use may be appropriate. To realize the benefits of these promising new technologies, we must prevent them from being used to establish an unaccountable financial surveillance regime.
The BCCLA will continue to push for financial privacy and a more inclusive and equitable financial system as the Cullen Commission continues into 2021.
More on our work at the Cullen Commission:
Notes:
[1] This blog post won’t provide an in-depth technical explanation of blockchain technology and how it works. For the purposes of this post, we just assume that the technology works as promised. If you want to learn more, there are lots of resources online. You could start with this explainer video: https://www.youtube.com/watch?v=hYip_Vuv8J0
[2]https://cullencommission.ca/data/transcripts/Transcript%20November%2023,%202020.pdf, November 23, 2020, page 36
[3]https://cullencommission.ca/data/transcripts/Transcript%20November%2024,%202020.pdf page 130-135
CIVIL LIBERTIES CAN’T PROTECT THEMSELVES