Legislators’ Fear and Doubt Drive Proposed Crypto Regulations in the US – Cointelegraph Magazine

True bipartisan legislative efforts are rare in Washington, D.C. these days, but Democratic Senators Elizabeth Warren and Joe Manchin and Republican Senators Lindsey Graham and Roger Marshall came together to support a bill targeting crypto-crime.

According to senators, the Digital Assets Anti-Money Laundering Act of 2023 aims to close loopholes in the country's anti-money laundering laws. The bill would amend the Bank Secrecy Act and designate various digital asset providers as financial institutions.

The Bank Secrecy Act establishes program, recordkeeping, and reporting requirements for national banks, federal savings associations, federal branches, and foreign banking agencies. Digital asset providers are required to comply with many of the same regulations as traditional banks.

Warren in 2010 July 27, 2023 In the year In the year In the year In the year In the year In the year He introduced the bill to the United States Senate. In the year The bill has been referred to the Senate Committee on Banking, Housing and Urban Affairs. It has not been voted on by the full Senate or sent to the US House of Representatives for consideration. President Biden hasn't signed it either and it's not a legal issue at this point.

The law will add a wide variety of cryptocurrency providers to US regulators' list of financial institutions. These include unhosted wallet providers, digital asset miners and verifiers or other nodes that verify third-party transactions, miners of value, other verifiers or network participants who control network protocols, or just about anyone else who facilitates or provides exchange-related services. Selling, maintaining or lending digital assets.

All of these organizations and individuals will be subject to the same regulations that currently apply to financial institutions in the United States. The bill includes exceptions for those using distributed ledger, blockchain technology or similar technologies for internal business purposes.

Crypto under federal review

If the bill becomes law, within 18 months of its passage, the US Treasury's Financial Crimes Enforcement Network will require any American to report $10,000 in digital assets or one or more digital assets held abroad. In the same timeframe, the US Treasury will establish controls to reduce illicit financial risks associated with digital asset mixing and anonymity-enhanced cryptocurrency.

Within two years of the bill's passage, the Treasury, in consultation with the Conference of State Bank Supervisors, would create a process for risk-based screening and assessment of participants in digital assets designated as financial institutions. They will determine whether efforts to stop money laundering and prevent crypto-funded terrorism are sufficient and whether crypto providers and facilitators are compliant with the new laws. Then, in the same timeframe, the Securities and Exchange Commission and the Commodity Futures Trading Commission will consult on the same issues as the Treasury.

About my favorite BTC kiosks?

The next section of the bill focuses on digital asset kiosks. Within 18 months of the bill's passage, FinCEN will require digital asset kiosk (ATM) owners and operators to submit and update their kiosk's physical address every 90 days. Kiosk owners must also verify the identity of each customer using a valid government-issued ID and must collect the name and physical address of each transaction.

Within 180 days, FinCEN will issue a report on any digital asset kiosks that are not registered. The report includes estimates of the number of unregistered kiosks, their locations, and additional resources that FinCEN may investigate.

Within a year of the law's passage, the U.S. Drug Enforcement Agency will issue a report identifying recommendations to reduce drug trafficking and money laundering related to digital asset kiosks.

Impact of the Crypto Industry

Grant Fondo, co-chair of Goodwin's digital currency and blockchain practice and former assistant U.S. attorney, told the magazine, “The bill is an attempt to bring players in the digital asset industry under regulatory scrutiny and close some of the loopholes in Congress that are not covered by the current regulatory system.”

If passed, Fondo believes the bill would have the practical effect of killing decentralized finance in the US by implementing a system that doesn't work on DeFi protocols. Fondo notes that the law places a burden on verifiers and miners, and also questions how realistic it is to impose bank-like requirements on a software company that verifies blockchain transactions.

Hadas Jacoby, an attorney in Reed Smith's financial industry group who previously worked as a financial enforcement regulator for New York State, agrees. According to Jacoby, the act applies Bank Secrecy Act requirements to crypto participants who are not financial institutions, depending on the context.

“The act can be read to apply to programmers and other technology providers who create frameworks for financial operations, rather than providing the services themselves,” Jacoby says.

Although Jacoby believes there is a need for legislative clarity in the space, she questions whether the main purpose of the law — the crypto sector's threat to national security — is even relevant. Jacobi says that on-point regulation of cryptocurrency and digital asset service providers is important, but digital assets are not a national security threat.

“A blanket statement that digital assets pose a threat to US national security would be inaccurate and short-sighted. Bad actors in the digital asset space pose a global threat to national security and financial stability – but the digital asset industry and its underlying technology do not,” Jacobi said.

What are the politicians saying?

In a written statement, Senator Marshall said the bill addresses the threat to the United States' national security.

“This law is a matter of national security. Major hackers from adversaries such as Iran, Russia and North Korea are committing billions of dollars in cybercrime against America. They must be held accountable. “The reforms outlined in our legislation will help us protect and secure our digital assets using proven methods that our local financial institutions have respected for years,” Marshall said.

Marshall said the Know Your Customer Act would extend the Bank Secrecy Act's responsibilities to those affected, address a “huge loophole” with unmanaged digital wallets, direct FinCEN to issue guidelines for financial institutions to address digital asset risks, and strengthen them. Implementing BSA compliance will extend the BSA's foreign bank account regulations to include digital assets and reduce digital asset ATM illegal financing risks.

Warren argued that US officials warned that crypto could be used for all kinds of crimes and to evade US sanctions against dissident countries.

“Rogue nations such as Iran, Russia and North Korea have used digital assets to launder stolen funds, evade US and international sanctions, and fund illicit weapons programs,” Warren said.

The move would help reverse those efforts, Warren said, focusing her statement on North Korea's missile program.

“For example, it is estimated that half of North Korea's missile program is financed by cybercrime and digital assets. In the year Illegal digital asset transactions will reach at least $20 billion by 2022 — the highest ever,” Warren wrote.

Manchin called on Democrats and Republicans to come together and vote for the bill. “Our bipartisan legislation will reduce these security risks and require cryptocurrency platforms to follow the same anti-money laundering laws that banks must follow. I urge my colleagues on both sides of the aisle to support this common-sense legislation to protect Americans by preventing bad actors from using cryptocurrencies to fund their criminal activities,” Manchin said.

Fondo doesn't see how the Anti-Money Laundering Act would reduce threats to national security, but he does know how the bill would address issues related to anonymity-enhanced cryptocurrency.

Still, this legislative effort requires careful consideration before passing the law. “No one wants terrorists and criminals to cover their money transfers. But conversely, privacy is a rare commodity, so it's important to properly balance it with national security,” says Fondo.

Jacoby worries that excessive regulation will lead to duplication and excessive costs that will deplete the industry. Although she believes they have been doing that since 2013, she says the act directs FinCEN to regulate digital service providers as money transmission businesses. In addition, she says, most state inspectors have been investigating and documenting for a long time.

“The legislation has the potential to destabilize the current US dual state and federal regulatory system by creating additional conditions for monitoring and auditing money transfer businesses, exposing the digital asset industry to wealth-draining, duplicative enforcement actions,” Jacoby said.

Will the bill become law?

It's anyone's guess. The House of Representatives is back on its feet after weeks of struggling to elect a new speaker.

The US Senate still needs a supermajority vote to pass any piece of legislation, and all the while, members of Congress and President Joe Biden are focused on geopolitical issues like the Israel/Hamas conflict and the war in Ukraine.

Also, most US federal politicians are heading into the 2024 election season, with control of the Senate, House of Representatives and the presidency all up for grabs.

Controversial legislation will be stalled until the election, but a potentially popular crypto bill could easily appeal to candidates from both sides of the aisle to make it to the president's desk. If digital asset anti-counterfeiting legislation, many cryptocurrency providers would have to learn how to comply with the same regulations as traditional financial institutions.

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Mich. Even

Mitch is a writer who covers cryptocurrency, politics, the intersection between the two, and a few other unrelated topics. He believes that crypto is the future of finance and feels that he has opportunities to report on it.