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Bipartisan Momentum Grows for Digital Asset Anti-Money Laundering Act to Enhance Cryptocurrency Regulation

Money LaunderingBipartisan Momentum Grows for Digital Asset Anti-Money Laundering Act to Enhance Cryptocurrency Regulation

On July 28th, Senators Elizabeth Warren (D-Mass), Roger Marshall (R-Kan.), Joe Manchin (D-W.Va.), and Lindsey Graham (R-S.C.) reintroduced the Digital Asset Anti-Money Laundering Act (the “Act”), a legislative initiative aimed at enhancing anti-money laundering and counter-terrorism financing (AML/CFT) regulations for digital assets. This legislation has gained more momentum recently, potentially in response to cryptocurrency-friendly bills passed in the House of Representatives, and it now enjoys broader bipartisan support.

The Act seeks to expand the existing regulatory framework for anti-money laundering and counter-terrorism financing to encompass various aspects of digital assets. Key provisions of the Act include:

  1. Expanding the Definition of “Financial Institution”: The Act proposes amending the Bank Secrecy Act (BSA) to broaden the definition of a “financial institution” to include unhosted wallet providers, digital asset miners, validators, and other nodes involved in digital asset transactions. These entities would be subject to regulatory oversight by the Financial Crimes Enforcement Network (FinCEN).
  2. Regulation of Unhosted Wallets and Validators: Unhosted wallet providers and validators would be required to register with FinCEN as Money Service Businesses (MSBs) and comply with BSA regulations. The Act defines unhosted wallets as those that give users total control over their digital assets’ value, while validators are entities that process and validate digital asset transactions. This potentially broadens the regulatory scope, including miners.
  3. Digital Asset Kiosks: Digital asset kiosks, often referred to as cryptocurrency ATMs, would be subject to customer identity verification and transaction record-keeping requirements. Owners and administrators of these kiosks would need to report their physical addresses to FinCEN regularly.
  4. Expanding FBAR Filing Requirements: The Act would expand the Foreign Bank and Financial Accounts (FBAR) filing requirements to include digital assets, obligating U.S. taxpayers to report foreign digital asset holdings exceeding $10,000.
  5. Regulating Anonymity-Enhancing Technologies: FinCEN would be tasked with implementing regulations related to anonymity-enhancing technologies, such as mixers and tumblers, used in connection with digital assets. These regulations would aim to mitigate illicit finance risks.
  6. Examination Standards: The Act requires the development of risk-based AML/CFT compliance examination and review processes for MSBs and entities regulated by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) regarding digital assets.

The Act’s reintroduction coincides with other legislative developments in the digital asset space, including an amendment to the 2024 National Defense Authorization Act (NDAA) related to AML compliance examinations and anonymity-enhancing technologies. Additionally, the House of Representatives passed bills like the “Keep Your Coins Act of 2023” and the “Clarity for Payment of Stablecoins Act of 2023,” each with its own implications for digital asset regulation.

The Act’s timing is essential, reflecting the rapidly evolving landscape of digital assets and their potential implications for national security, financial crime prevention, and privacy. It is noteworthy for its broad bipartisan support, with lawmakers recognizing the need for effective regulations in this space. The Act’s fate and impact will depend on further legislative processes and developments in the digital asset sector.

By FCCT Editorial Team

Disclaimer: The views expressed in this article are independent views solely of the author(s) expressed in their private capacity.

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