New York’s intention to create a comprehensive regulatory scheme is clear with the May 10th proposal of Bill 7024 on the back of the CRPTO Act that was proposed by New York Attorney General Letitia James last week. New York’s progress in the cryptocurrency space is unsurprising considering how aggressive it has been in cryptocurrency enforcement actions like those against Celsius, KuCoin, CoinEx, and Nexo.
Bill 7024 would amend the Criminal Procedure Law to authorize fiat-collateralized stablecoins as a form of bail. Not only would accepting stablecoins for bail be the first to be allowed by statute, but so would the regulatory schemes and systems necessary to accept and process stablecoins for bail. Accordingly, the bill would also empower the Commissioner of Taxation and Finance, the Chief Justice of the Unified Court System, and Director of the Office of Information Technology to promulgate regulations and establish a system for accepting and processing stablecoins for bail.
Currently, Section 520.10 of the New York Criminal Procedure Law only allows for cash bail, insurance company bail bonds, secured surety bonds, secured appearance bonds, partially secured surety bonds, unsecured surety bonds, unsecured appearance bonds, and credit cards for bail. If the bill passes, stablecoins would be added to the list.
Stablecoins are cryptocurrencies backed by traditional fiat currencies (i.e. USD). While the bill does not specify which stablecoins will be accepted (e.g. Tether, USD Coin, Binance USD, etc.), the CRPTO Act proposed by Attorney General James on May 5, 2023 provides some, albeit very little, guidance. The Act prohibits any digital asset from being referred to as a “stablecoin” unless it maintains a ratio equal to 1.0 or greater as outlined by the Act. Even though stablecoins would be an acceptable means of posting bail directly, the bill makes clear that the statute would not “compel any person, firm or corporation” to accept the cryptocurrency for the posting of a bond.
Cryptocurrency is notoriously volatile and the bill seems to acknowledge that. The bill provides that where stablecoins are used for bail, if the value of the stablecoins drops by more than fifty percent since the date bail was posted, the court may request additional bail. This is not the case when the dollar loses value in an economic downturn. In a criminal justice system where, despite being innocent until proven guilty, the accused are faced with significant hardships, discretion to require additional bail due to market conditions raises the question of whether the law would make posting bail more accessible or cause further harm whereby a defendant would be unable to access or sell a failing asset while awaiting trial. It also raises a concern that where a defendant would rather liquidate large amounts of cryptocurrency and post cash bail, it could cause an already volatile crypto market to crash. For example, in 2018, Martin Marsich was ordered to pay his $750,000 bail in Bitcoin but was ultimately not allowed to sell off the cryptocurrency due to market concerns. Additionally, the government refused to effectuate any transfer of the cryptocurrency into a wallet because of liability and forfeiture concerns. If the bill passes, it will be interesting to see what regulatory schemes and processes will be implemented for obtaining, processing, and holding the cryptocurrency, but also for accessing, vetting, and protecting the digital assets.
