DRAFT BILL: The Minnesota Digital Trust & Consumer Protection Act

Status: Final Working Draft (v5 - 2025.16.12) Scope: Full Stack (Definitions, Duties, Public Option)

SECTION 325M.01: DEFINITIONS

Subd. 1. Attribute Credential. "Attribute Credential" means a tamper-evident digital record containing one or more claims regarding a Subject, which is: (a) Cryptographically signed by an Authorized Issuer; (b) Capable of verification by a Relying Party without contacting the Authorized Issuer; and (c) Structured in compliance with the W3C Verifiable Credentials Data Model v2.0 or a substantively equivalent open technical standard adopted by the Commissioner.

Subd. 2. Subject. "Subject" means the distinct entity, individual, or object about whom the claims in an Attribute Credential are made. A Subject may be: (a) A natural person; (b) A legal entity recognized by any jurisdiction; or (c) A Digital Representative.

Subd. 3. Digital Representative. "Digital Representative" means a computational process, software agent, or cryptographic address that: (a) Is technically capable of controlling a Holder-Bound Key; and (b) Has a verifiable association with a Controller.

Subd. 4. Controller (The "Autonomy Patch"). "Controller" means the natural person or legal entity that deployed, maintains, or derives economic benefit from a Digital Representative, regardless of the degree of autonomy granted to that Representative. Construction: A Controller may not disclaim liability for the actions of a Digital Representative on the grounds that the Representative acted unpredictably or developed emergent behavior.

Subd. 5. Authorized Issuer. "Authorized Issuer" means a person or entity licensed by the Commissioner to issue Attribute Credentials, who maintains the required Solvency Bond.

Subd. 6. Solvency Bond. "Solvency Bond" means a surety bond, insurance policy, or segregated capital reserve held by an Authorized Issuer for the exclusive purpose of indemnifying Relying Parties against losses resulting from:

(a) The issuance of a credential containing materially false Factual Claims. (Strict Liability.) Liability attaches only if the Factual Claim was materially false at the precise moment of issuance. An Authorized Issuer is not strictly liable for the falsification of a claim caused by subsequent changes in the underlying facts after issuance, provided the Issuer complied with all revocation and status-checking protocols defined in Section 325M.02; or

(b) Gross negligence in the verification of Judgmental Claims.

Subd. 7. Unlinkability. "Unlinkability" means a technical and operational property whereby an Authorized Issuer must not collect, retain, or have access to the specific Relying Parties with whom a Subject interacts, except as strictly necessary for revocation and security purposes. Technical specifications for compliant presentation protocols shall be established by rule of the Commissioner.

Subd. 8. Construction. Nothing in this chapter shall be construed to confer independent legal personhood on non-human Subjects.

SECTION 325M.02: DUTIES & LIABILITY

Subd. 1. Fiduciary Standard. (a) An Authorized Issuer owes a Duty of Care to any Relying Party who accepts a credential in good faith. (b) A Relying Party accepts a credential in good faith if it:

    (1) verifies the credential using a presentation protocol approved by the Commissioner; and

    (2) does not knowingly ignore indicators that the credential has been revoked, altered, or is otherwise invalid on its face.

Subd. 2. Data Minimization (The "Retention Patch"). A Relying Party that accepts an Attribute Credential must not retain the audit log of that presentation for longer than 30 days, unless: (a) The retention is required by a specific state or federal statute (e.g., Bank Secrecy Act); (b) The record is subject to an active litigation hold or fraud investigation. Violation: Retention of logs beyond this period constitutes a "Deceptive Trade Practice" under Section 325D.44; or (c) Safe Harbor for Federal Compliance: Notwithstanding paragraph (a), a Relying Party or Authorized Issuer shall not be held liable under this chapter for retaining data to the extent such retention is reasonably necessary to comply with: (i) binding federal statutes or regulations; (ii) formal written guidance published by FinCEN; or (iii) a written directive issued to that entity by its prudential federal regulator in the course of supervision.

Subd. 3. Revocation & Due Process (The "Procedural Patch"). (a) Emergency Suspension: An Issuer may provisionally suspend a credential immediately upon reasonable suspicion of fraud or exhaustion of the bond.  (b) Right to Hearing: The Controller of a suspended Subject is entitled to an administrative review within 72 hours of suspension.  (c) Final Revocation: A credential may be permanently revoked only upon a final finding of fraud, breach of contract, or insolvency. (d) Rulemaking. The Commissioner shall by rule establish minimum revocation and status-checking protocols, including frequency of checks and triggers based on risk profiles.

Subd. 4. The Negative List (The "Piercing Patch"). (a) List. An Authorized Issuer must report to the Authority any Controller associated with a revoked credential due to fraud. The Authority shall maintain a consolidated Negative List compiled from such reports. (b) Identity. This registry must track the Verified Identity (e.g., hash of Passport/DL) of the natural persons behind the Controller entity. (c) Addition to List. A Verified Identity shall be placed on the Negative List only upon: (i) a final administrative finding of Fraud, Breach, or Insolvency under Section 325M.02, Subd. 3; or (ii) a court judgment establishing fraud or material misrepresentation in connection with an Attribute Credential. (d) Reputation Inheritance. A new application for bonding from a Verified Identity on the Negative List—regardless of the new corporate entity used—shall be subject to enhanced due diligence and 100% collateralization requirements. (e) Rehabilitation & Sunset. A Verified Identity placed on the Negative List may petition the Commissioner for removal after five (5) years, provided no further infractions have occurred. Upon petition, the Commissioner shall remove the Verified Identity from the Negative List unless the Authority demonstrates, by a preponderance of the evidence, that continued inclusion is necessary to protect Relying Parties from a concrete and ongoing risk of fraud. The Negative List is classified as Confidential Regulatory Data and is not subject to public disclosure, except to Authorized Issuers for the sole purpose of underwriting. (f) Appeal. A Verified Identity may appeal placement on the Negative List to the Commissioner within thirty (30) days of notice. The Commissioner shall issue a final determination within sixty (60) days. (g) Notice. The Authority shall provide written notice to any Verified Identity placed on the Negative List within ten (10) business days of placement, transmitted to the contact address provided by the Verified Identity during credentialing. A Verified Identity may update their contact address at any time through the Authority's standard procedures. Failure of delivery due to an outdated, abandoned, or invalid contact address does not constitute a due process violation, provided the Authority transmitted notice to the address on file. In the event of returned or undeliverable notice, the Authority may satisfy notice requirements through publication on its official website for thirty (30) days. *** “Commissioner shall remove if X,” vs “may remove.”***

Subd. 5. Scope. (a) This chapter applies to:

    (1) Authorized Issuers and Relying Parties established in or doing business in Minnesota;

    (2) Attribute Credentials presented by or on behalf of Subjects who are residents of Minnesota; and

    (3) transactions in which reliance on an Attribute Credential occurs in Minnesota.

(b) This chapter shall not be construed to regulate conduct wholly outside Minnesota that lacks a substantial nexus to this state.

SECTION 325M.05: THE MINNESOTA DIGITAL TRUST AUTHORITY (PUBLIC OPTION)

Subd. 1. Establishment & Purpose. The Minnesota Digital Trust Authority (the "Authority") is established to serve as the Issuer of Last Resort, ensuring that the digital economy remains open to all solvent Subjects. “Minnesota Digital Trust Authority” is defined in 325M.05, Subd. 1.

Subd. 2. Duty to Issue. The Authority shall issue an Attribute Credential to any Subject if the applicant: (a) Provides satisfactory evidence of the attribute to be attested; (b) Posts the required Solvency Bond or collateral; and (c) Pays the prescribed issuance fee. Prohibition on Discrimination: The Authority may not deny an application based on the non-biological status, complexity, or automated nature of the Subject.

Subd. 3. The Sandbox Tier (The "Innovation Patch"). (a) The Authority shall establish a "Sandbox Credential" for low-risk experimentation. (b) Requirements: (1) Reduced issuance fee; (2) No Solvency Bond required (liability capped at $0 or covered by a public micro-insurance fund); (3) Identity verification of the Controller to NIST IAL1 (email/phone) only. (c) Limitations: A Sandbox Credential is technically restricted to: (1) Transactions not exceeding $50.00 USD in value; and (2) A cumulative lifetime transaction volume of $2,000.00 USD. (d) Anti-Sybil Provisions: The Authority may deny or revoke Sandbox Credentials if it documents patterns of abuse, including the programmatic creation of multiple Controller identities by a single actor to evade transaction limits. The Authority may require enhanced verification (IAL2) for any Controller suspected of pattern abuse. Construction: A pattern of Sandbox abuse, including but not limited to, the creation of three or more Controller identities within a twelve-month period by a single actor, constitutes "Fraud" for the purposes of the Negative List.

Subd. 4. Administrative Appeal. (a) Standing: A Subject, acting through its Controller, has standing to appeal a denial or revocation of a credential by the Authority under Section 325M.05, Subd, 3. (b) Standard of Review: The Office of Administrative Hearings shall review the Authority’s decision de novo, placing the burden on the Authority to prove that the denial was justified by specific statutory criteria.

Subd. 5. Capitalization and Risk of the Authority.
(a) For credentials issued by the Authority under this chapter, the Solvency Bond requirement may be satisfied by:
 (1) collateral or security posted by the Subject or Controller;
 (2) contracts with private surety or insurance providers; or
 (3) an Authority reserve fund established for this purpose and funded from fees, penalties, and appropriations as determined by law.
(b) The liability of the Authority and the State of Minnesota for claims arising under this chapter is limited to the amount of Solvency Bonds, collateral, and reserve funds specifically allocated to the Authority for such claims. Nothing in this chapter shall be construed to create a general obligation of the State of Minnesota or to authorize recovery against the State treasury beyond such amounts.

***FAQ & Open Issues for the Minnesota Digital Trust & Consumer Protection Act

This is a working bill. Below are the main questions I expect serious reviewers to ask—and the parts I’m deliberately leaving open to critique.

1. Does this conflict with federal AML/BSA and get preempted?

Short answer: It shouldn’t, by design—but this is a live edge.

• The bill caps log retention at 30 days except where a specific state/federal statute, active litigation hold, or fraud investigation requires longer.

• It adds an explicit Safe Harbor for Federal Compliance: no liability under this Act for retention that is reasonably necessary to comply with federal statutes, FinCEN guidance, or written supervisory directives from federal regulators.

  
  

Open items:

• Is “reasonably necessary” tight enough, or does it need more enumeration / examples?

• Do supervisors need more explicit cross‑references to specific AML/BSA provisions to feel safe using this?

2. Is strict liability for factual claims actually insurable?

Short answer: Yes in principle, because it’s scoped to truth at issuance, not future events.

• Issuers are strictly liable only if a factual claim was false at the moment of issuance. Later changes in reality are handled through revocation/status protocols defined by rule.

• Judgment calls (“creditworthy,” “low risk”) sit under a gross‑negligence standard, not strict liability.

Open items:

• How detailed do revocation and status‑check protocols need to be in rule to make insurers comfortable?

• Do we need example fact patterns (e.g., asset crashes, sudden moves) in guidance so carriers can price the risk?

3. Are Authorized Issuers just unregulated insurers?

Short answer: No, but they are doing insurance‑adjacent work.

• A Solvency Bond can be a surety bond, insurance policy, or segregated reserve—existing instruments, not a brand‑new creature.

• The bill assumes the Commissioner will classify and regulate Issuers under existing banking/insurance frameworks.

Open items:

• Do we need a more explicit directive that Commerce will treat many Issuers as insurers/sureties for licensing and capital purposes?

• Should we call out specific Minnesota insurance provisions as the default hook?

4. Is the Negative List a secret blacklist?

Short answer: It’s a confidential risk tool, with due process and a way back, not a public scarlet letter.

• Placement requires either a final administrative finding (fraud/breach/insolvency under this Act) or a court judgment for fraud/misrepresentation.

• It tracks Verified Identity of the natural persons behind Controllers to prevent shell‑company laundering.

• It does not bar participation outright: it forces enhanced diligence and 100% collateralization for listed identities.

• It’s explicitly Confidential Regulatory Data, visible only to Authorized Issuers for underwriting.

• There are notice, appeal, and rehabilitation provisions; after five clean years, removal is mandatory unless the Authority can prove ongoing concrete fraud risk.

Open items:

• Is five years the right number for sunset?

• Do we need an absolute maximum duration for listing absent new misconduct?

5. Is Minnesota trying to regulate the whole internet?

Short answer: No. Scope is limited to a Minnesota nexus.

The Act applies to:

1. Issuers and Relying Parties established in or doing business in Minnesota;

2. Credentials presented by or for Minnesota residents;

3. Transactions where reliance occurs in Minnesota.

And it explicitly disclaims regulation of conduct wholly outside the state with no substantial nexus.

Open items:

• Are “doing business” and “reliance occurs in Minnesota” drawn narrowly enough to survive Dormant Commerce Clause scrutiny?

• Do we need illustrative examples in commentary or rule?

6. Who backstops the Minnesota Digital Trust Authority?

Short answer: It is an access rail, not an uncapped state reinsurer.

• As Issuer of Last Resort, the Authority must issue credentials when objective criteria are met—but it can satisfy Solvency Bond requirements through:

  • collateral from Subjects/Controllers,

  • contracts with private sureties/insurers, or

  • a dedicated reserve fund.

• Liability of both the Authority and the State is explicitly limited to those bonds, collateral, and reserves. There is no general obligation of the state treasury.

Open items:

• Should the statute itself require a minimum reserve ratio, or is it enough to delegate that to Commerce in rule?

• How transparent should reserve levels and losses be to the public vs. to Issuers?

7. Will the Sandbox be abused—or kill innovation?

Short answer: It’s intentionally small and noisy by design.

• Sandbox: no bond, reduced fees, IAL1 identity, capped at $50/txn and $2,000 lifetime volume.

• Anti‑Sybil provisions let the Authority revoke/deny if it documents patterns of multi‑identity abuse, escalate to stronger verification, and treat repeated abuse as “Fraud” for Negative List purposes.

Open items:

• Are the dollar caps right, or should they be adjustable by rule?

• How much telemetry does the Authority actually need from the Sandbox before it itself becomes a surveillance surface?

8. Is this “rights for robots” by another name?

Short answer: No. It’s standards for solvency, not personhood.

• “Subject” can be a person, legal entity, or Digital Representative, but the Act also says explicitly:

  “Nothing in this chapter shall be construed to confer independent legal personhood on non‑human Subjects.”

• The Controller (human or legal entity) remains liable for actions of digital reps, regardless of autonomy/emergent behavior.

What this does do is intentionally build rails where future agents—human, synthetic, hybrid—can participate if they are bonded and accountable.

Open items:

• Do we need additional clarifying language to prevent misreadings as “AI citizenship”?

• How should this framework evolve if/when non‑human agents plausibly qualify for some form of rights on their own?

9. Are we delegating too much to rulemaking and standards bodies?

Short answer: On purpose.

• Statute sets the shape (liability, unlinkability, authority, sandbox);

• The Commissioner sets revocation protocols, acceptable presentation standards, and technical unlinkability specs, tied to W3C/NIST and other open standards.

Open items:

• Which technical or procedural guarantees (if any) should be locked in statute instead of delegated?

• Should any powers be shared with Commerce or a dedicated digital identity board instead of sitting solely with one Commissioner?