The Digital Asset Anti-Money Laundering Act: A Step Towards Regulating Cryptocurrencies

The Digital Asset Anti-Money Laundering Act: A Step Towards Regulating Cryptocurrencies

U.S. Senator Elizabeth Warren recently reintroduced the Digital Asset Anti-Money Laundering Act, backed by an unlikely ally — the Wall Street banks. The Bank Policy Institute, a financial policy think tank consisting of several banks, has thrown its support behind the legislation, recognizing the need to address the national security risks associated with cryptocurrencies. This surprising collaboration between Warren, a long-time critic of The Bank Policy Institute, and the banks highlights the shared goal of cracking down on crypto-related criminal activities.

Warren emphasized that cryptocurrencies have become the preferred payment method for cybercriminals. In a press release, she stated, “This bipartisan bill is the toughest proposal on the table to crack down on crypto crime and give regulators the tools they need to stop the flow of crypto to bad actors.” The Digital Asset Anti-Money Laundering Act, which was initially introduced in December 2022, seeks to apply the obligations of the Bank Secrecy Act (BSA) to crypto wallet providers, miners, and validators. If passed, crypto service providers and network participants will be required to comply with know-your-customer requirements.

The 7-page bill includes provisions that mandate the Treasury Department to establish a compliance examination and review process to ensure that all crypto money service businesses comply with anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the BSA. Additionally, the bill directs the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to establish similar review processes for crypto businesses within their jurisdiction.

Crypto businesses will be required to file a Report of Foreign Bank and Financial Accounts (FBAR) with the Internal Revenue Service. This report must be filed whenever a U.S. customer conducts crypto transactions over $10,000 using one or more offshore accounts. The bill aims to enhance transparency and accountability within the crypto industry.

To address the regulatory gap created by self-custody wallets, the bill directs the Financial Crimes Enforcement Network (FinCEN) to implement a proposed rule from 2020. This new rule will require banks and money service businesses to verify customer and counterparty identities, maintain records, and file reports for specific crypto transactions involving self-custody wallets or wallets hosted in non-compliant jurisdictions. The bill will also target the risks associated with crypto ATMs by mandating that ATM owners and administrators regularly report and update the physical addresses of their kiosks. Furthermore, ATM operators must verify customer and counterparty identities for all transactions.

The bill entrusts FinCEN with the responsibility to provide guidance to financial institutions on mitigating risks associated with handling, using, or transacting with crypto that has undergone obfuscation using mixers or other anonymity-enhancing technologies. This provision seeks to promote the responsible use of cryptocurrencies while avoiding illicit activities.

The overarching aim of the Digital Asset Anti-Money Laundering Act is to regulate crypto businesses in a manner similar to traditional banks. As Senator Roger Marshall, a supporter of the bill, stated, “The reforms outlined in our legislation will help us fight back and secure our digital assets by using proven methods that our domestic financial institutions have been complying with for years.” Senator Lindsey Graham, another supporter of the bill, echoed this sentiment, emphasizing the need for similar rules to govern both traditional currency and cryptocurrencies.

The reintroduction of the Digital Asset Anti-Money Laundering Act signals a significant step towards regulating cryptocurrencies. The coalition formed between Senator Elizabeth Warren and Wall Street banks underscores the urgency to address the national security risks posed by cryptocurrencies. If passed, this legislation will impose regulatory obligations on various entities in the crypto industry and enhance compliance with anti-money laundering and countering the financing of terrorism obligations. By bridging the regulatory gap and promoting transparency, the bill seeks to establish a framework that ensures responsible and secure use of cryptocurrencies.


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