Warren’s surveillance legislation is tailor-made to help big banks
It seems that every time Massachusetts Senator Elizabeth Warren fails to get an anti-crypto bill passed, she introduces a new draft. She has the strategy of messaging bills — legislation introduced for the purposes of media attention and fundraising more than actual passage — down to a science.
Warren’s latest legislation, the Digital Asset Anti-Money Laundering Act, threatens to undermine crypto’s core principles of freedom and personal sovereignty. While Warren argues that her bill is necessary to combat illicit activities, a closer look reveals its potential to stifle innovation, endanger user privacy and play right into the hands of big banks.
The bill, co-sponsored by Kansas Senator Roger Marshall, is based on the premise that digital assets are increasingly being used for criminal activities such as money laundering, ransomware attacks and terrorist financing. While some bad actors exploit digital assets, the bill’s approach of treating all developers and wallet providers as potential criminals is not only impractical but also dangerous.
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The most dangerous part of the bill is the requirement that digital asset developers comply with Bank Secrecy Act (BSA) responsibilities and Know Your Customer (KYC) requirements. This effectively places the burden of law enforcement on the shoulders of software developers. It’s akin to requiring car manufacturers to be responsible for how their vehicles are used on the road.
The bill further seeks to eliminate privacy tools that protect crypto users from malicious actors. By cracking down on digital asset mixers and anonymity-enhancing technologies, Warren’s proposal threatens the privacy rights of law-abiding citizens. It’s essential to remember that privacy is a fundamental right, not a privilege that can be discarded at will. A number of early Bitcoin (BTC) millionaires have been kidnapped and tortured as a direct result of the transparency of the Bitcoin blockchain. Warren would leave future Bitcoiners defenseless against such threats.
While she claims to be acting in the name of national security, it’s worth noting that the big banks would benefit greatly from limiting the competition posed by cryptocurrencies. By imposing onerous regulations, the bill would make it difficult for crypto to compete on a level playing field.
But what about the argument that digital assets are being used by rogue nations and criminal organizations? While this is a valid concern, it’s crucial to distinguish between the technology itself and the actions of a few. The same argument could be applied to cash, which has been used for illegal activities for centuries. Banning cash would be an overreaction, just as overly restrictive crypto regulations are.
Breaking: Elizabeth Warren’s latest proposed anti-crypto legislation
Sen. Warren has co-sponsored the Digital Asset Anti-Money Laundering Act of 2023.
Says the legislation aims to:
-combat the “rising” misuse of digital assets.
-close regulatory “gaps.”
-extends Bank… pic.twitter.com/cl0L95Fyaj— Carlo⚖️.eth (@DeFiDefenseLaw) December 11, 2023
One major concern is the bill’s approach to “unhosted” digital wallets, which allow individuals to bypass Anti-Money Laundering (AML) and sanctions checks. While preventing illicit transactions is crucial, the bill’s proposed rule to require banks and money service businesses to verify customer identities and file reports on certain transactions involving unhosted wallets may have unintended consequences.
Forcing individuals to provide personal information for every transaction goes against the very principles that have drawn people to cryptocurrencies — privacy and pseudonymity. It’s important to strike a balance between security and individual rights. Overregulation could drive users away from regulated platforms, pushing them into unregulated, more challenging-to-track environments.
Additionally, the bill’s focus on directing the United States Financial Crimes Enforcement Network to issue guidance on mitigating the risks of handling anonymized digital assets seems to misunderstand the core tenets of blockchain technology. Cryptocurrencies like Bitcoin are designed to be transparent yet pseudonymous. Trying to eliminate this pseudonymity jeopardizes one of the key features that make blockchain secure and appealing to users.
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Another significant issue is the potential overreach in extending BSA rules to include digital assets. Requiring individuals engaged in transactions over $10,000 in digital assets through offshore accounts to file a Report of Foreign Bank and Financial Accounts (FBAR) may be excessive. It could result in unnecessary burdens on individuals who use digital assets for legitimate purposes, such as cross-border remittances or investments.
Warren’s bill is a sledgehammer approach to a nuanced problem. Rather than stifling innovation and privacy, a more balanced approach would be to target specific criminal activities and individuals. The current AML system, which large crypto exchanges comply with, has been effective at interdicting illicit crypto usage, which is why isolated instances have been reported.
The Digital Asset Anti-Money Laundering Act is a deeply flawed piece of legislation. Warren’s bill poses a real threat to the crypto community and risks playing right into the hands of big banks. It’s essential that we find a more balanced and effective solution that addresses the concerns without stifling the potential of this transformative technology.
J.W. Verret is an associate professor at George Mason University’s Antonin Scalia Law School. He is a practicing crypto forensic accountant and also practices securities law at Lawrence Law LLC. He is a member of the Financial Accounting Standards Board’s Advisory Council and a former member of the SEC Investor Advisory Committee. He also leads the Crypto Freedom Lab, a think tank fighting for policy change to preserve freedom and privacy for crypto developers and users.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
The US Senate has voted to advance a key stablecoin-regulating bill after Democrat Senators blocked an attempt to move the bill forward earlier in May over concerns about President Donald Trump’s sprawling crypto empire.
A key procedural vote on the Guiding and Establishing National Innovation for US Stablecoins Act, or GENIUS Act, passed in a 66-32 vote on May 20.
Several Democrats changed their votes to pass the motion to invoke cloture, which will now set the bill up for debate on the Senate floor.
Republican Senator Cynthia Lummis, one of the bill’s key backers, said on May 15 that she thinks it’s a “fair target” to have the GENIUS Act passed by May 26 — Memorial Day in the US.
The GENIUS Act was introduced on Feb. 4 by US Senator Bill Hagerty and seeks to regulate the nearly $250 billion stablecoin market — currently dominated by Tether (USDT) and Circle’s USDC (USDC).
The bill requires stablecoins be fully backed, have regular security audits and approval from federal or state regulators. Only licensed entities can issue stablecoins, while algorithmic stablecoins are restricted.
Several Democratic senators withdrew support for the bill on May 8, blocking a motion to move it forward, citing concerns over potential conflicts of interest involving Trump’s crypto ventures and anti-money laundering provisions.
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The bill was revised soon after to receive enough bipartisan support to proceed to a vote.
Hagerty’s stablecoin bill builds on the discussion draft he submitted for former Representative Patrick McHenry’s Clarity for Payment Stablecoins Act in October.
Magazine: Crypto wanted to overthrow banks, now it’s becoming them in stablecoin fight
The US Department of Justice is reportedly conducting a probe over Coinbase’s contracted customer service agents in India, who accepted bribes in exchange for allowing criminals access to user data.
According to a May 19 Bloomberg report, DOJ investigators are looking into the data breach, which Coinbase disclosed to the public on May 15. The exchange reported that a group of customer support contractors — subsequently fired — “abused their access to […] systems to steal the account data for a small subset of customers.”
“We have notified and are working with the DOJ and other US and international law enforcement agencies and welcome law enforcement’s pursuit of criminal charges against these bad actors,” said Coinbase’s chief legal officer, Paul Grewal, according to Bloomberg.
Related: New Zealand man arrested in $265M crypto scam tied to FBI probe
Though “no passwords, private keys, or funds were exposed” according to Coinbase, the data breach resulted in social engineering attacks targeting users, including a Sequoia Capital partner, with losses estimated at up to $400 million. The attackers also attempted to extort $20 million from Coinbase in exchange for not disclosing the breach, which the company refused.
Backlash in the courts
The attempted social engineering attacks have resulted in Coinbase users filing several lawsuits against the exchange, alleging that the company mishandled their personal data. One user, a retired artist named Ed Suman, reported losing $2 million to the scammers.
Coinbase’s stock price fluctuated following the news of the breach and an unrelated probe from the US Securities and Exchange Commission over its reported “verified user” numbers. Cointelegraph reached out to Coinbase for comment but had not received a response at the time of publication.
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On May 22, US President Donald Trump is expected to host up to 220 people who had purchased the most significant quantities of his memecoin at a private event in Washington, DC.
Though the exact number of attendees was unknown as of May 19, reports and blockchain data have revealed some of the tokenholders who qualified to apply for the May 22 dinner and “VIP tour” and reception, presumed to be in the White House. Bloomberg reported on May 7 that more than half of the 220 wallets were likely controlled by foreign nationals.
Among the memecoin dinner applicants, who likely still face background checks ahead of getting a confirmed appearance before the president, included Synthetix founder Kain Warwick, a consultant named Vincent Deriu, and crypto user Morten Christensen, who reportedly only paid $1,200 for the opportunity.
Others included a World Liberty Financial adviser going by the pseudonym “Ogle,” and a representative from the Singapore-based startup MemeCore. Cointelegraph has also learned that Vincent Liu, chief investment officer of the Taiwan-based company Kronos Research, plans to attend.
Trump’s memecoin, even before the announced dinner and reception, was criticized by many members of Congress.
Some lawmakers said the president was opening the White House up to potential bribes and conflicts of interest by allowing people, perhaps tied to foreign governments, to put money directly into his pockets without transparency.
Interfering with stablecoin, market structure bills
The controversy has spilled over into proposed legislation connected to digital assets, including a bill in the Senate aimed at establishing a regulatory framework for stablecoins and a draft market structure bill in the House of Representatives. Some Democrats said they would not support any legislation until “Trump’s crypto corruption” was addressed.
“Democrats are thinking that this is just an official means by which to conduct corruption,” said Rebecca Liao, co-founder and CEO of layer-1 blockchain Saga, in a statement shared with Cointelegraph. “What began as a bipartisan bill with potential widespread support has now transformed into a proxy war between the Democrats and the Trump administration.”
Related: Trump’s crypto ties ‘add a certain level of challenge’ to passing bills — Coinbase exec
Some organizations have planned protests during the memecoin dinner on May 22. The Democratic Party’s arm in Arlington, Virginia, announced its members would gather to oppose those in the White House “cashing in on their public office.” Cointelegraph reached out to the organization for comment but had not received a response at the time of publication.
Buying influence, or just speculating on an emerging market?
The top 220 tokenholders reportedly spent a combined $148 million to have the opportunity to attend the event, which finalized its leaderboard on May 12. However, anyone with a wallet can still buy TRUMP tokens and potentially influence the president’s policies after the dinner is completed.
“The decision to acquire the [TRUMP] token was not political,” Vincent Liu of Kronos Research, who plans on attending the memecoin dinner, told Cointelegraph. “It was based on identifying early momentum, cultural relevance, and potential market catalysts.”
In April, Freight Technologies said it would invest $20 million in the TRUMP token, suggesting that it could affect the president’s trade policies between the US and Mexico, where the firm conducts some of its business. GD Culture Group announced in May that the memecoin would be included in its plans for a $300-million crypto reserve.
“The issue is the conflict of interest between the Trump family’s crypto investments and the administration’s pivot toward crypto-friendly policies,” said Liao. “The Trump family has very openly invested in crypto and has started their own crypto ventures. This has created a perception problem where policy shifts favoring cryptocurrency could be viewed as self-enrichment rather than in the national interest.”
If the stablecoin bill, the GENIUS Act, is the first test for how Republicans and Democrats will respond to Trump’s potential conflicts of interest in the crypto industry, there is already a stark contrast between the two parties.
House Speaker Mike Johnson largely brushed off concerns about the president and his family’s connections to the industry, saying he was “not an expert in that.” White House deputy press secretary Anna Kelly reportedly said there were “no conflicts of interest” because Trump’s children managed his assets through a trust.
Lawmakers are expected to take up a vote on the GENIUS Act in a matter of days, possibly before the memecoin dinner and reception are held. At the time of publication, it was unclear whether Republicans intended to address some of the Democrats’ concerns around Trump and crypto, or move forward with a vote with no significant changes to the bill.
Magazine: Trump’s crypto ventures raise conflict of interest, insider trading questions
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