Interpreting the Digital Asset Anti-Money Laundering Act initiated by five US senators, including Elizabeth Warren.

Understanding the Digital Asset Anti-Money Laundering Act Introduced by a Group of Five US Senators, Led by Elizabeth Warren

Author: JSpprcfd

In a recent announcement, U.S. Senator Elizabeth Warren unveiled an expanded alliance in support of the Digital Asset Anti-Money Laundering Act, which aims to curb the use of cryptocurrencies for illicit financial activities such as money laundering, drug trafficking, and sanctions evasion. The legislation closes loopholes to ensure that the digital asset ecosystem complies more effectively with regulatory oversight, thereby mitigating the illegal financial risks posed by the Anti-Money Laundering and Countering the Financing of Terrorism (AMF/CFT) framework in certain financial systems.

Five new senators have been added as co-sponsors, including three members of the banking committee. They join existing co-sponsors, including Senators Roger Marshall, Joe Manchin, Lindsey Graham, among others.

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Senator Warren stated, “The Treasury Department has made it clear that we need new laws to combat the use of cryptocurrencies by terrorist organizations, rogue states, drug lords, ransomware gangs, and fraudsters to launder money, evade sanctions, and fund illegal arms programs. I’m pleased to have five new senators join this effort, including three members of the banking committee. Our bipartisan legislation is the toughest proposal to crack down on the illicit use of cryptocurrencies, providing regulatory agencies with more tools.”

Senator Van Hollen also pointed out that cryptocurrencies lack fundamental legal safeguards, exposing Americans to countless risks. Cryptocurrencies have become the preferred payment method for terrorist organizations, drug cartels, and authoritarian regimes seeking to finance illicit activities. He emphasized that cryptocurrencies should be subject to the same transparency rules as traditional banks.

Senator Heikamp said, “We provide protections for banks to safeguard everyone from crime and terrorism. Similar protections should be in place for cryptocurrencies. These reforms will protect safe, transparent innovation.”

Senator Lummis stated that cryptocurrencies operate with almost no regulation, leaving consumers vulnerable and creating new avenues for funding terrorism and drug trafficking. She proudly joined her colleagues’ efforts to protect people from the consequences of unregulated cryptocurrency use in criminal activities.

The legislation has garnered support from the Bank Policy Institute, Massachusetts Bankers Association, Transparency USA, Global Financial Integrity, National Association of Attorneys General, Major County Sheriffs of America, Massachusetts Sheriffs’ Association, Association of Retired Americans, National Consumer Law Center (representing low-income clients), and National Consumer League.

The Ministry of Finance, the Ministry of Justice, and other experts in national security and financial crimes are warning that digital assets are increasingly being used for money laundering, drug trafficking, ransomware attacks, theft and fraud schemes, terrorist financing, and other criminal activities. Rogue states like Iran, Russia, and North Korea use digital assets to launder money, evade US and international sanctions, and fund illegal weapons programs. For example, it is estimated that nearly half of North Korea’s missile program is funded through cybercrime and digital assets. In 2022, the total amount of illegal digital asset transactions reached a record high of at least $20 billion.

“Anti-Money Laundering Act for Digital Assets”:

• Expand the responsibilities of the “Bank Secrecy Act” (BSA), including “KYC” requirements, to apply to digital asset wallet providers, miners, validators, and other network participants who may verify, protect, or facilitate digital asset transactions.

• Address the significant loophole of “non-custodial” digital wallets that allow individuals to bypass anti-money laundering and sanction checks.

• Guide FinCEN in issuing guidelines for financial institutions to reduce the risks of processing, using, or trading digital assets that employ coin mixing tools and other enhanced anonymity technologies.

• Strengthen enforcement of BSA compliance, directing the Treasury Department to establish anti-money laundering/counter-terrorism financing checks and reviews for MSBs and other digital asset entities with BSA obligations, and directing the Securities and Exchange Commission and the Commodity Futures Trading Commission to establish AML/CFT compliance checks and reviews for their regulated entities.

• Expand the scope of BSA rules regarding reporting foreign bank accounts, including digital assets, requiring US persons to submit Foreign Bank and Financial Accounts Report (FBAR) to the IRS when engaging in digital asset transactions exceeding $10,000 through one or more foreign institutions.

Summary:

If this bill is officially introduced, it could be a major upheaval for the cryptocurrency industry. It requires anyone maintaining public blockchain infrastructure, whether software developers or transaction validators, to register as financial institutions (FIs). This means they must not only perform programming or node operations, but also verify and record customer identities like banks, develop anti-money laundering procedures, and ensure that people using their software or network are not engaging in illegal financial activities.

Furthermore, the bill specifies that all financial institutions, including banks, institutions custodians of cryptocurrencies, and these newly designated providers of cryptographic infrastructure, cannot process transactions involving privacy tools or privacy-focused cryptocurrencies.

From a compliance perspective, this bill poses some challenges. Firstly, it significantly expands the roles and responsibilities of software developers and node operators. They are now not just technology providers but also bear the burden of financial regulation. This could potentially impact the decentralized nature of blockchain.

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