To be or not to be... anonymous digital cash! That is the question! The battle that emerges is between the right to privacy by means of anonymous digital cash verses the desire of law enforcement to ferret out crime. The fact of complete anonymity guarantees that some money laundering will be easier to pull off. On the other hand, the lack of anonymity means that every move made on the Internet will be traceable. Thus, whether money laundering becomes rampant under the guise of anonymous ecash may be one of the first tests of the practical aspects of DigiCash's future. Any discussion of privacy rights would be woefully incomplete without mentioning the famous privacy article published by Samuel Warren and Louis Brandeis in 1890. This article, barely a century after the Constitutional Convention, professed that the "right to be let alone" was of the utmost importance. Almost two hundred years after the Constitution was initially ratified, the Supreme Court defined the scope of privacy for an individual's financial information in two landmark decisions.
In California Bankers Association v. Schultz, the Court held that bank record keeping requirements do not violate the Fourth Amendment right to privacy and do not amount to an illegal search and seizure.In United States v. Miller, the Court held that a criminal defendant had no Fourth Amendment right to protection of his bank records, and did not have a legitimate expectation of privacy regarding these papers.
Concluding over two centuries of Constitutional erosion, it is apparent that an individual's right to financial privacy is limited. The issue involving cyberspace is whether financial privacy rights are so limited that the federal government could monitor a digital cash user's financial transactions in a detailed fashion. In effect, rendering completely anonymous digital cash completely pointless.
While the Supreme Court has sliced financial privacy rights on several, previously mentioned, occasions, Congress has attempted to restore financial and informational privacy rights to the individual. The Privacy Act of 1974, The Right to Financial Privacy Act of 1982, and The Electronic Communications Privacy Act of 1986 are currently the three best hopes for individual financial privacy.
First, The Privacy Act of 1974 regulates the practices of federal agencies regarding personal information. With certain exceptions, no federal agency may disclose any record contained in its system to any other person or agency without the written request or consent of the individual.
Next, The Right to Financial Privacy Act of 1982 ("RFPA") attempted to further protect financial records.Under RFPA, in order to obtain a customer's financial records from a financial institution, the federal government must serve a subpoena on the customer before or concurrently with service on the bank. The government must show that the records are related to a "legitimate law enforcement inquiry," and notify the customer that it can take steps to block the bank's disclosure of the records.
Finally, The Electronic Communications Privacy Act of 1986 ("ECPA") attempts to protect the individual against the unauthorized interception of electronic communications. Title I focuses on the interception of wire, oral and electronic communications. Title II prohibits an electronic communications service provider from knowingly divulging the contents of a communication while in electronic storage.
Applying current law to the Internet, the result is inadequate protection of individual financial privacy. The combination of The Privacy Act and RFPA prevent the government from groundless searches of individual financial records. However, the standard required for a search is only that there exist some evidence that the records are related to a "legitimate law enforcement inquiry." Due to this relaxed standard, individual financial privacy may be violated without any probable cause. A "legitimate law enforcement inquiry" is clearly an easier requirement to meet than a Fourth Amendment probable cause standard.
Expanding into cyberspace, if the Internet falls under the protection of the ECPA, as it is an electronic communication, then individual financial privacy in cyberspace is afforded as little protection as financial privacy in the tangible world. Essentially, the government need only claim that it requires access to financial records due to a "legitimate law enforcement inquiry."
Taking one step further, the application of current financial privacy laws to DigiCash's Ecash may be the eulogy for completely anonymous digital cash. If the government believes that ecash is overflowing with money launderers, a "legitimate law enforcement inquiry" into the situation would likely allow access to ecash account records. Since even the bank can not trace ecash to a user, pressure would be placed on various agencies to solve the problem.
First, the Federal Reserve would likely announce that all cyberbanks accepting anonymous ecash conform with FDIC regulations. Thus, these banks would be subject to federal scrutiny and pressured into insuring anonymous ecash deposits. Since insuring anonymous ecash might prove unprofitable, it is probable that many timid cyberbanks will succumb to federal intimidation and abandon anonymous ecash altogether.
Second, cyberbanks could be convinced to implement special "investigatory software" into their computer systems so as to flag suspicious ecash accounts. While the technical aspects of such a system are beyond the scope of this article, it is fair to say that if such programming is both possible and practical, then no ecash account would be safe from the "legitimate law enforcement inquiring" software.
Finally, if ecash accounts become subject to greater scrutiny, the IRS and FinCen will capitalize on the additional information being unearthed. Since there is no requirement of probable cause to search an individual's financial account, the IRS and FinCen could use the preliminary information obtained from the "legitimate law enforcement inquiry" so as to have sufficient facts to establish probable cause, enabling a full scale search and seizure of an individual's financial records.



Reference:
http://osaka.law.miami.edu/~froomkin/seminar/papers/bortner.htm