SEC Commissioner Hester Peirce delivered a forceful defense of financial privacy rights on August 4, arguing that Americans should retain the ability to use privacy-protecting crypto technologies without government surveillance.
Her remarks at Stanford’s Science of Blockchain Conference come as Tornado Cash co-founder Roman Storm faces criminal trial for allegedly facilitating $1 billion in illicit transactions through the sanctioned crypto mixer.
Fourth Amendment Protections Eroded by Third-Party Financial Surveillance
Peirce criticized the Bank Secrecy Act’s 55-year-old framework that deputizes financial institutions as “de facto law enforcement investigators,” requiring them to file over 25 million transaction reports annually, including 4.7 million suspicious activity reports.
She argued the third-party doctrine strips Americans of Fourth Amendment protections when they interact with financial intermediaries.
The Commissioner advocated for zero-knowledge proofs, encrypted networks, and decentralized technologies that eliminate intermediaries from financial transactions.
She warned against requiring open-source software developers to answer for how others use their code, stating that immutable protocols available for anyone’s use cannot practically comply with financial surveillance measures.
Peirce’s speech coincided with Storm’s July 14 trial date, where prosecutors face evidence authentication challenges after initially misattributing a key Telegram message about the $600 million Axie Infinity hack.
Defense attorneys revealed the message was written by former CoinDesk reporter Andrew Thurman, not Storm’s co-developer Alexey Pertsev, as prosecutors claimed.
Bank Secrecy Act Under Fire as Surveillance Costs Mount
Peirce questioned whether the BSA’s “sledgehammer approach” to financial monitoring serves proportionate benefits, given its massive costs to institutions and privacy implications for Americans.
She noted that approximately 324,000 financial institutions submitted over 25 million transaction reports in fiscal 2024, creating what she called a “when-in-doubt-file dynamic.”
The Commissioner cited Justice Douglas’s 1976 dissent, warning that banking transactions reveal “a fairly accurate account” of individuals’ religion, ideology, and interests, making automatic availability to federal agencies a threat requiring “delicate scalpel” precision rather than broad surveillance.
Recent Government Accountability Office findings suggested that most Currency Transaction Reports go unused by law enforcement.
Deputy Treasury Secretary Michael Faulkender acknowledged the need for BSA modernization reforms to balance costs and benefits.
Treasury recently delayed an anti-money laundering rule for investment advisers pending substantive review, indicating growing recognition of the program’s burden.
Peirce also criticized the SEC’s Consolidated Audit Trail, which captures customer trading data across all markets without suspicion of wrongdoing.
She and Commissioner Uyeda described the CAT as a tool “one would expect to find in a dystopian surveillance state” that disregards investor privacy interests.
Chairman Atkins has called for a CAT review, including “a hard look at the reporting requirements and scope of what is collected.”
The SEC stopped requiring customer names, addresses, and birth years in CAT submissions earlier this year following privacy concerns.
Tornado Cash Case Exposes Prosecutorial Evidence Problems
Storm’s criminal trial faces significant evidentiary challenges after prosecutors mishandled key digital communications extracted from Dutch authorities following co-developer Pertsev’s arrest.
The disputed Telegram message about “cashing out 600 mil” was central to the government’s case establishing criminal intent.
Assistant U.S. Attorney Ben Arad referenced the message during pretrial hearings, telling the judge it demonstrated the co-founders’ awareness of wrongdoing.
Defense attorneys argue the misattribution provided “false information” to both the court and potentially the grand jury that issued the indictment.
The authentication problems extend beyond single messages, with defense lawyers noting missing author information for forwarded Telegram messages and incomplete file retrieval from Dutch law enforcement.
FBI Agent Dickerman’s extraction reportedly contained multiple flaws that prosecutors cannot verify due to limitations in international evidence sharing.
Storm’s defense maintains the charges criminalize open-source software development, with the Ethereum Foundation pledging $500,000 toward legal defense and matching up to $750,000 in community contributions.
The trial outcome could establish precedent for how prosecutors pursue cases against decentralized technology developers.
Peirce’s privacy advocacy aligns with broader regulatory shifts under the Trump administration’s “Project Crypto” initiative, which aims to onshore crypto businesses while protecting self-custody rights and privacy-preserving technologies.
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