Enhancing Privacy and Due Process Through Technology: Using Zero-Knowledge Proofs to Mitigate the Deficits of Your Consumer Rules

24 Wake Forest J. Bus. & Intell. Prop. L. 240.

Throughout history, Congress has legislated regulations which compel banks to collect customers’ personally identifiable information (PII) and transaction histories.  Under the Commerce Clause, Congress has the authority to do so, and has implemented know-your-customer (KYC) rules for that purpose.  Although KYC rules do not explicitly compel banks to share PII and transaction histories with the United States government (State), KYC rules encourage banks to share such information with the State.  While there is no privacy interest in financial records, the juxtaposition of the State both regulating the collection of information and de facto compelling its sharing violates a privacy interest.  Thus, the State avoids technically violating the Fourth Amendment under KYC rules by encouraging sharing, instead of forcing sharing––a legal fiction via semantic sleight of hand.  Further, this de facto violation of the Fourth Amendment spawns a subsequent violation of procedural due process on account of the availability of an alternative process, which better protects that private interest and that the State can more easily administer.  

The State can constitutionally deter crimes without the legal fiction that KYC rules do not violate privacy through the pairing of regulating banks and de facto compelled sharing.  Compared to KYC rules, Zero-Knowledge Proofs (ZKPs) more effectively fulfill the State’s goal of monitoring banking activities and obligations to do so without violating constitutional rights.  ZKPs are a technology that allow confirmation of a search without revealing any information in support of that search.  Unlike KYC, which reveals PII and transactional histories to the State, ZKPs can verify PII or similar transactions that have taken place for the State without revealing any PII.  The ability to process the same information as KYC rules without revealing PII allows ZKPs to meet the government’s goals of deterring crime and preserving privacy without violating private interests.  Further, because the State can more easily administer ZKPs than KYC rules, the adoption of ZKPs neutralizes the due process violation emergent from using insufficient procedure under KYC rules.  

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