Senate Bill Could Open Crypto to U.S. Sanctions, but Industry Trying to Head It Off

A provision in the Senate intelligence committee’s latest spending package targets crypto ties to terrorism, catching many in the industry off guard and criticizing it as a flawed approach to a worthy target.

Sources, panel chairman Sen. He says Mark Warner’s staff has met with people in the digital asset industry to talk about the provision.

Cryptocurrency insiders predict the effort is unlikely to survive the budget process.

Legislation with heavy implications for the digital assets industry was recently introduced through the Senate Select Committee on Intelligence’s funding package, though many in the industry (and many in Congress) are unaware that it has little chance of survival. annoyed.

A Senate bill aimed at funding U.S. intelligence operations included a section taken from an earlier bill aimed at preventing cryptocurrency from being used to support terrorism. As written, this provision could require a major shift in how users are identified in the crypto industry to avoid sanctions that could stifle digital asset businesses. If it were to become law, it would be the most important crypto policy ever adopted by the United States, and there would be no serious debate about its merits.

This part of the intelligence financing effort would expedite and automate the process of sanctioning “foreign digital asset transaction facilitators” (including crypto exchanges) linked to users supporting terrorist groups.

Although the Intelligence Authorization Act cleared the committee by a unanimous 17-0 vote, committee chairman Sen. The crypto section was not publicly disclosed or listed among the bill’s major provisions when Mark Warner (D-Va.) announced the following. passage in a press release. Warner’s office is holding meetings with people in the crypto industry to talk about the episode, according to three people familiar with the discussions, and the Digital Chamber, an industry lobby group, confirmed that he was among those in the talks.

The dialogue suggests the issue is still on the agenda as the spending package moves toward broader Senate consideration under the National Defense Authorization Act (NDAA), which it is likely to pass.

“We have spoken with Warner staff about this issue and are open to broader engagement from the industry,” Cody Carbone, chief constable of the Digital Chamber, told CoinDesk in an email. “Given the immediate industry reaction, I think it will probably be removed from the NDAA process.”

The story continues

The House of Representatives may be unlikely to adopt such a provision that puts the industry within a strict US framework so soon after approving broader crypto market structure legislation aimed at regulating the industry without stifling it. This passage of the Financial Innovation and Technology for the 21st Century Act (FIT21) last month saw a third of House Democrats agree with this view, suggesting that crypto regulation could have broad bipartisan support across Congress. This showing reinforced another recent industry success in the Senate, where 11 Democrats voted with Republicans to delete the Securities and Exchange Commission’s (SEC) accounting policy, despite President Joe Biden’s promised (and delivered) veto .

With so many senators sympathetic to the industry, it may be difficult to pass illegal finance legislation that does not go through an open process of debate and amendment. The original bill was sponsored by Sens. Warner, Jack Reed (D.R.I.), Mike Rounds (R.S.D.), and Mitt Romney (R-Utah).

Is it too wide?

The language in the spending bill could cover a broader range of cryptocurrency interests than intended, and could include central banks and software developers that issue central bank digital currencies (CBDCs), industry insiders argue. unaware of its existence. This could also raise concerns among users of market-leading Tether stablecoin {{USDT}}, which is being investigated by the US for use of its tokens by bad actors.

Warner’s office did not respond to a request for comment on the crypto supply, and vice chairman of the intelligence committee, Sen. Mark Rubio’s (R-Fla.) office also did not respond.

Washington-focused representatives of the industry’s lobbying groups have sought to make clear to policymakers that they are open to discussing legislation to prevent the illicit use of cryptocurrency, which this provision aims to achieve. It has also been widely acknowledged that such bills are necessary to get Senate Democrats to agree with other crypto initiatives to regulate the structure of markets and the issuance of stablecoins.

“Overall, we align with the law’s goal of cutting off funding to foreign terrorist organizations, and I appreciate that the law limits its scope to groups that ‘knowingly’ fund bad actors,” Carbone said. said. The legislation is not entirely bad or good. But he argued that the lack of guidelines for identifying violators and a proportionate (perhaps tiered) enforcement system could be problematic, saying it puts too much power in the hands of the U.S. Treasury Secretary.

The crypto industry wants to avoid a repeat of the painful legislative surprise in 2021 over an infrastructure bill that included an 11th-hour provision guiding crypto taxation. Being blindsided by this bill has increased the industry’s interest in funding a larger Washington lobbying presence that is now weighing in on this intelligence bill.