As the United States Government grapples with the implosion of FTX, Senator Warren of Massachusetts is making waves on Capitol Hill with the introduction of the new Digital Anti-Money Laundering Act. This is the latest in a series of bills introduced to Congress in order to reign in power in the crypto markets.
Will this new act be the blueprint for a better, more well-regulated crypto ecosystem? Or will this be the nail that seals the fate of crypto for the United States?
What’s in the Proposed Bill?
The proposed bill seeks to place know-your-customer (KYC) requirements on blockchain infrastructure providers and participants operating in the United States, including developers creating software for decentralized networks and even the miners and validators that support such networks.
Warren and Marshall’s bill would direct the Financial Crimes Enforcement Network to tackle wall providers, miners, and validators.
The bill would also impact unhosted or self-custody crypto wallets, requiring platforms and networks to identify such customers and track their transactions. FinCEN proposed such a rule in December 2020, which many crypto industry companies and advocates spoke out against, but it has yet to be implemented. The bill seeks to finalize that process.
Furthermore, the bill prohibits any financial institution from using a digital asset mixer service or other privacy-enhancing technologies. Mixers are typically used to conceal transactions of cryptocurrency between wallets. The best-known Ethereummixer service, Tornado Cash, was banned by the U.S. Treasury via sanctions in August.
What Senator Warren Had to Say
“The crypto industry should follow common-sense rules like banks, brokers, and Western Union, and this legislation would ensure the same standards apply across similar financial transactions,” said Warren in a statement.
“The bipartisan bill will help close crypto money laundering loopholes and strengthen enforcement to better safeguard U.S. national security.”
Already, the proposed bill has drawn significant scrutiny from the crypto industry. In a post this morning, crypto advocacy group Coin Center decried the bill as “an opportunistic, unconstitutional assault on cryptocurrency self-custody, developers, and node operators.”
It All Started with the Collapse of FTX
The bill was introduced following November’s collapse of Sam Bankman-Fried’s FTX, with founder and former CEO SBF arrested this past week by Bahamian police amid numerous criminal charges from U.S. authorities.
Bankman-Fried faces charges from the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), as well as the Complex Frauds and Cybercrime Unit at the Southern District of New York U.S.
The proposed bill has drawn similar scrutiny as last year’s infrastructure bill, which changed the Internal Revenue Service’s definition of a “broker” to include companies that trade crypto assets, forcing exchanges to report transactions to the government. That bill was feared also to impact network participants like validators and miners, plus crypto wallet providers and more.
Regulation focused on unhosted wallets has also gained traction in Europe this year, with the European Union voting to impose KYC on such wallets in March and the United Kingdom considering similar legislation this summer before ultimately scrapping its plans.
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