Crypto advocates have criticized the Digital Asset Anti-Money Laundering Act, a bipartisan bill proposed by Democratic Sen. Elizabeth Warren and Republican Sen. Roger Marshall.
On Wednesday, Warren introduced the bill to prevent money laundering activities in the crypto industry. It assigns the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department to list crypto wallet providers, validators, miners and other service providers within the industry as money service businesses.
“By closing some loopholes and applying some common-sense rules, we can crack down on the ways rogue nations, oligarchs, and drug lords use crypto to launder billions, evade sanctions, and finance terrorism,” Warren wrote on Twitter.
Crypto advocates said the bill would change how blockchains operate. As a registered financial institution (FI), every crypto entity should identify and document the personal information of anyone using the technology. The bill also suggests that FI can no longer use privacy tools, including address mixer Tornado cash and private coins zcash, to conduct transactions.
Requiring open source developers to build AML/KYC into node software and hardware wallets? That dog won’t hunt.”
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Republican Sen. Cynthia Lummis — who endorses Bitcoin — said requiring open-source developers to implement Anti-Money Laundering (AML) and Know Your Customers (KYC) policies in their systems would be futile. She was adamant that they would not comply with the order.
Lumis herself, along with Democratic Sen. Kirsten Gillibrand, had proposed the Responsible Financial Innovation Act earlier this year. The bill demands token issuers provide their consumers with risk disclosures and protection measures. Both senators plan to reintroduce the bill to the new Congress formation next year.
Antonin Scalia Law School professor J.W. Verret said Warren-Marshall’s bill could make transactions easier for criminals. The blockchain expert described the bill as an attempt to “stop civil rights.”
“Your representations about the magnitude of illicit use are contrary to Treasury’s testimony,” Verret added. “Your push here is just fundamentally deceptive.”
Executives of crypto policy research agency Coin Center, Neeraj Agrawal and Jerry Brito, also took to Twitter to comment about the bill. Agrawal said it would not prevent “the next FTX,” while Brito described it as the “most direct attack” on the cryptocurrency community.
Foley & Lardner chief of digital asset practice Patrick Daugherty said he was “delighted” to see a bipartisan effort to make the crypto space safe. Daugherty, however, said the bill could disrupt the financial privacy of crypto users who do not participate in corrupt activities.
Requiring miners and validators to perform due diligence can be “problematic.” Daugherty said these crypto entities lacked the knowledge and skills to implement KYC.
Seward & Kissel counsel Casey Jennings said Warren and Marshall did not thoroughly develop the bill. Jennings added that the bill could have “sweeping ramifications” for money service businesses. According to Jennings, it may not pass through in this Congress session because the bill requires improvements.
Cryptocurrency under scrutiny
The crypto industry is experiencing a slump, which started at the beginning of this year. The inconducive macroeconomic situation, which sees a global recession in 2023, has caused investors to avoid risky assets to protect their money.
Some crypto companies announced bankruptcy this year, including Celsius and FTX. These bankruptcy cases brought lawmakers’ attention to customer protection within the cryptocurrency sphere. In the case of crypto company solvency, there is no law regulating the return of customer funds.
FTX's implosion made lawmakers push for tighter crypto regulation. The crypto exchange’s former CEO, Samuel Bankman-Fried, allegedly used client money to trade via his other company, Alameda Research. Bankman-Fried, currently under police custody, reportedly also used customer funds to pay for his personal expenses.