Senate has announced a new bipartisan bill — co-sponsored by Democratic Elizabeth Warren and Republican Roger Marshall — which will require crypto exchanges to verify customer identities, as it is with traditional financial institutions.
The bill Digital Asset Anti-Money Laundering Act aims to prevent irresponsible parties from using crypto to launder money. If Congress passes it, the Financial Crimes Enforcement Network (FinCEN) — a part of the Treasury Department — will list crypto entities as money service businesses.
According to Warren, criminals prefer crypto to conduct illicit transactions. Warren added that regardless of crypto’s contribution to U.S. politics and its widespread advertisement, it should not get “a pass” to be used for criminal activities.
“The bipartisan bill will help close crypto money laundering loopholes and strengthen enforcement to better safeguard U.S. national security,” Warren said.
Warren-Marshall’s bill is not the only bipartisan bill made to regulate the crypto industry. Earlier this year, Republican Sen. Cynthia Lummis and Democratic Sen. Kirsten Gillibrand brought up the Responsible Financial Innovation Act and plan to reintroduce it next year. This bill requires cryptocurrency issuers to provide disclosures and develop consumer protections.
Lawmakers’ interest in imposing tighter regulation on the crypto industry is related to the implosion of the global crypto exchange FTX back in November. The Bahamian-based crypto company filed for Chapter 11 after facing a severe liquidity crunch, forcing it to freeze customer withdrawals.
A bankruptcy court filing later revealed that the company did not have an overseeing board of directors. Moreover, its founder and former CEO, Samuel Bankman-Fried, allegedly used customer funds for personal expenses, including betting on crypto tokens.
Lummis, a banking committee member, said that Bankman-Fried’s alleged crimes should not be a basis to target the entire crypto industry. Republican Sen. Pat Toomey, another bank committee member, agreed with Lumis, saying there was nothing “intrinsically good or evil” about the crypto technology.
Shark Tank star Kevin O’Leary, who testified in a Congress hearing for the case, also said the blockchain technology would stay. He added that crypto could potentially be another sector within the S&P 500 in the next ten years. O’Leary himself lost $15 million of his fee as an FTX spokesman after the company went defunct.
On the other hand, some people have argued that the current crypto system enables fraudulent acts. American University Washington College of Law professor Hillary J. Allen explained that the embezzlement of customer funds in the industry was possible because crypto was “shrouded in opacity, complexity, and mystique.”
Actor and author Ben McKenzie Schenkkan described crypto as “the largest Ponzi scheme in history.” Schenkkan said his research on crypto showed about 40 million Americans investing in crypto had been lied to. He added that crypto’s vulnerability to criminal conduct should concern everyone.
Bankman-Fried facing criminal charges
The Bahamas authorities arrested Bankman-Fried at his residence on Monday at the request of the U.S. government.
Bankman-Fried appeared at a court in Nassau on Tuesday, facing eight counts for his alleged crimes — including conspiracy to misuse customer funds and wire fraud. He may face up to 115 years if convicted for all charges.
The Securities and Exchange Commission (SEC) also made a statement regarding Bankman-Fried after investigating FTX’s bankruptcy. According to the SEC, the mismanagement of customer funds at the company had been going on for years. Bankman-Fried also attempted to conceal the fund transfer from FTX to his trading company, Alameda Research.
“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC chief Gary Gensler said.
Besides fund mismanagement, the court is also looking into Bankman-Fried’s contribution to political parties. Bankman-Fried allegedly violated federal election laws by donating money to political candidates over federally-regulated limits.