After the article was published, leadership from the Uniform Law Commission (ULC) contacted my editors and me to advise about inaccuracies in the article. The Uniform Law Commission alleges that the article is inaccurate because it misstates the:
- Uniform Law Commission mission;
- Mandatory use of an intermediary; and
- Drafters of the UCC.
I believe the ULC’s concerns to be without merit and explain below, addressing the first and third points first.
With respect to the first point, the article refers to the Uniform Law Commission as a group “whose mission is to keep U.S. state laws as uniform as possible.” The ULC decries this assertion, explaining that the “ULC does not . . . seek to create uniformity in state law on every topic but rather . . . [only] on a subject matter where uniformity across the states is practicable and desirable.”
The ULC’s explanation, however, is belied by its own language on the Uniform Law Commission’s website. Under the heading entitled, Overview, the web site sets forth that, “The Uniform Law Commission (ULC) has worked for the uniformity of state laws since 1892” (emphasis added). So, the article was not incorrect in its reporting.
As to the third point, the article reports that “[s]tate-enacted UCC laws are generally derived from UCC model laws, which are drafted by attorneys in the Uniform Law Commission.” The ULC claims that this statement is incorrect because “it work[s] jointly [with the American Law Institute] to draft and amend the Uniform Commercial Code.”
Once again, the Uniform Law Commission’s web site undermines its argument. There is nothing on the web site that refers to American Law Institute attorneys drafting model laws. The published text of the Supplemental Act itself credits the American Law Institute only as an “advisor,” along with one other advisor, the American Bar Association. Relatedly, the web site lists the American Law Institute among other organizations that serve on Editorial Boards:
“There are six Editorial Boards which have been appointed with respect to uniform Acts in various subject areas. These Boards are responsible for monitoring new developments which may have an impact on the Acts and for making recommendations for revising existing Acts or drafting new Acts in their subject areas. The Editorial Boards are made up of members from the Uniform Law Commission, the American Bar Association, the American Law Institute, and other organizations.”
So, although the members of the American Law Institute, as well as those of the American Bar Association and other organizations are “responsible for monitoring new developments” and “making recommendations,” they are not actually responsible for drafting and amending the code. Therefore, the article is not inaccurate with respect to this point as well.
Finally, with respect to point two, the Uniform Law Commission takes the (disingenuous) position that the Supplemental Act does not require virtual currency holders to use intermediaries to hold their virtual currencies, but that such use is purely “voluntary.”
But, that’s exactly what it does, both explicitly and by omission. The Supplemental Act requires owners of virtual currencies seeking to participate in the regulatory framework that governs trade finance in the U.S.A., i.e., the Uniform Commercial Code, to relinquish their property rights to intermediaries pursuant to Article 8 of the UCC. Moreover, Section 4(b) of the Supplemental Act would infer a contract where none exists:
“To the extent that there is no agreement that complies with subsection (a), the relationship between a licensee or registrant and a user is determined as if the licensee or registrant and the user have an agreement that complies with subsection (a) and specifies that the law of this state governs the agreement.” (Emphasis added.)
And that’s the problem.
And, for these reasons, I would also suggest that this third and final point made by the Uniform Law Commission is nothing more than a weak attempt to distract from the real inadequacies of the Supplemental Act — which is that it seeks to shoehorn virtual currencies — a mere subset of all digital assets — into a less than ideal system for securities ownership and settlement.
Testimony given by Keith Rowley, the Uniform Law Commissioner for the State of Nevada and one of the 9 members of the Supplemental Act’s drafting committee, backs up this conclusion. Mr. Rowley testified that he and his colleagues were concerned about the lack of financing opportunities for virtual currency businesses due to the “the unavailability of fractional-reserve banking [for virtual currencies]” (at 2:37:56). According to Mr. Rowley, the Supplemental Act addresses this concern because “it brings into the fold of the [Supplemental] Act the framework from Article 8 of the Uniform Commercial Code that applies to securities and commodities intermediaries. . . .”
It is alarming that the ULC created the Supplemental Act to enable fractional-reserve banking for virtual currencies. I imagine that if the drafters and the commissioners and everyone else who approved the Supplemental Act knew about the attendant dangers this creates in the context of virtual currencies, they would think again. Perhaps it is time for the drafting committee to reconsider its position and craft a model act we can all get behind.