A letter to CA Gov. Newsom about vetoing Kiosk Bill: SB-401

Today, I sent a letter to the Governor of California, Gavin Newsom, asking him to veto Senate Bill 401. This bill sets an awful precedence and will destroy the kiosk industry in the state. The bill has overtones of personal vendettas against a subset of the crypto industry. It also poorly attempts to protect consumers while hindering the ability of kiosk operators to survive. There are many other impacts this bill will have and should not be passed in this form.

I'm including the whole email below for you to read. I'd love to hear your comments about this bill and how it will impact you.

For those of you who would like to send a similar letter, I'm working on a template letter to send yourself. DM me if you are interested and I'll also provide you with the email address of where to send it.

Thanks for taking the time.

-Chris Groshong

03OCT23

Dear Governor Newsom,

Please do not sign SB-401 into law. SB-401 will enhance fraudsters’ ability to go undetected, all while stifling operators who are a growing source of much needed tax revenue for the state. Although well-meaning, SB-401 lacks key elements to make it an effective countermeasure to protect consumers adequately, the true goal of this bill. I testified against SB-401 at the Senate Banking & Finance Committee meeting on March 29th earlier this year. Although I live in San Diego, I flew up to Sacramento specifically for this purpose. I've also met in person with the staff who wrote this bill and staff from the offices of both of the authors.

You should veto SB-401 for 5 main reasons:

• Harms business owners in the state & reduces state tax revenue
• Other states have passed less aggressive kiosk bills
• All kiosk operators have federal reporting requirements
• Removes choke points for cash
• Doesn’t do enough to actually protect consumers

Forcing all kiosk operators to lower the buying threshold to $1000/day will cause them to close shop. All the operators I’ve talked to will move to other states or be forced to close. Most operators will lose 50% of their revenue overnight and these limits will only force the fraudsters into other methods of coercing money from their victims. After all, the bad guys can work around regulation while the kiosk operators cannot. The closing of these businesses has a trickle down effect. There will be layoffs, reductions in contractors, services, and subscriptions. The economic impact will be felt across multiple areas.???

As an example of a more thoughtful approach to regulating kiosks, the Connecticut legislature passed a kiosk bill this year with a daily limit of $2500. Just above the FinCEN (Financial Crimes Enforcement Network) threshold for reporting suspicious activity.?

The above policy makes more sense than SB-401, because MSBs are required to report suspicious activity with a threshold of $2000. All kiosk operators must be registered with FinCEN as MSBs (Money Service Businesses) too. If kiosk operators have an artificially low $1000 limit, the filing threshold will never take effect. All the possible suspicious activity will go undetected.

Kiosk operators are great places for “cash” choke points. When AML programs are enforced properly, it allows kiosk operators to detect criminal activity that law enforcement can take action on. Over this past year, a kiosk operator we provide AML compliance services to, worked with the US Secret Service to unfurl a socially engineered money mule scheme involving elderly victims. This would not have been easily detected with a $1000 limit.?

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This bill’s attempt to protect consumers does nothing to stop them from falling victim. It simply lacks enough protections for consumers. It does not address the issue that lies between the customers and kiosk operators. The bill gets some things right, like providing the customer clear pricing, but if you fail to ask a customer the proper questions during account creation or at other designated points, no reduction in limits is going to save them. When the fraud continues, what’s next… limiting the online exchanges to purchases of $1000 per day too? This is a slippery slope.

The answer to the problem is not with kiosk operator limits. It’s the variability in how kiosk operators are enforcing their AML program and policies. We can reduce so much fraud if we require the kiosk operators to have a “cool off” period, or a transaction “freeze” for new customers attempting to do over $2000 until a video conference can be had. During the interview, specific questions would be required to be asked, along with whatever other questions the MSBs feel are appropriate. All the FinCEN regulations still apply. This is just one suggestion, but there are plenty more that the industry and legislature could agree upon.??

People will always fall victim, but we have a real chance to make a meaningful impact on criminal enterprises by mandating human interactions at the kiosk.? Let’s help consumers by preventing as much fraud as possible. Let’s help businesses stay open and residents to keep their jobs. Let’s help California retain tax revenue and remain a leader in consumer protection.

Sincerely,?

Chris Groshong, Certified Fraud Investigator

CoinStructive Inc.?- President & Founder