'Pro Law Enforcement Bill' Clarity Passed Out of Committee

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The Senate Banking Committee passed its part of the Digital Asset Market Clarity Act 15-9 out of committee after more than two hours of deliberations on Thursday, positioning the bill for a full Senate vote after the text is merged with the Senate Agriculture Committee’s draft on the Commodity Futures Trading Commission’s authority.<br>Over the past months, the Banking Committee’s draft has been widely criticized for expanding surveillance powers over digital assets, while opponents have argued that the bill’s powers do not go far enough. During Thursday’s markup, Wyoming Senator Cynthia Lummis defended the bill’s law enforcement provisions, telling the committee: “This is a pro-law enforcement bill.”<br>White House Digital Assets Report Deems Financial Privacy “Primary Money Laundering Concern”<br>The White House Digital Assets Report asks the Treasury to finalize a rule that would codify all transactions that obfuscate the source of funds as a “primary money laundering concern”.<br>The RageL0la L33tz

How Much Surveillance is Enough Surveillance?<br>Even though the CLARITY Act was sold as ending regulation by prosecution, it’s now set to expand PATRIOT Act special measures to digital assets while arguably only narrowly improving on the prosecutorial trapdoor that convicted Tornado Cash and Samourai developers.<br>Lummis pointed to the bill’s extensive Bank Secrecy Act integration as evidence of its enforcement focus. “This bill, our bill, I think references the BSA 16 times,” she said. “So we’re really tying BSA into our bill.” The Bank Secrecy Act is the 1970 law that requires financial institutions to employ KYC measures and monitor and report customer transactions to FinCEN under criminal penalties.<br>During Thursday’s hearing, Lummis rattled off a list of surveillance provisions: Treasury’s expanded special measures authority, studies on mixers and tumblers, annual reports on foreign jurisdictions’ AML compliance, and temporary holds for suspicious activities.<br>Senator Elizabeth Warren disagreed that the bill went far enough, defending her failed amendment attempts to restore OFAC’s authority to sanction Tornado Cash. She called the platform a “notorious mixer that had been used to launder more than $7 billion for criminals and foreign entities, including more than $450 million for a North Korean hacking group.” Warren asked rhetorically, “What purpose does Tornado Cash serve except to hide where the money came from and where the money is going to? It’s the terrorists, money launderers, Iran.”<br>But Tornado Cash did not launder $7 billion. The figure represents the total amount transacted in the charged time period, of which around $1.5 billion is estimated to have been of illicit origin. Lummis countered Warren’s criticisms explaining that the bill was already designed to target illicit behavior.<br>Crypto industry experts were quick to call out the dissonance. As CoinCenter CEO Peter van Valkenburgh wrote on X in response to Senator Kim’s failed amendment to add a distinct BSA category for DeFi protocols, “there is so much new BSA authority in this bill. There will be so much more collection of intimate data about innocent Americans as a result. That this still is not acceptable to surveillance hawks is disappointing.”<br>Van Valkenburgh also rebutted Warren’s characterization of Tornado Cash as a “service,” noting that it was “immutable software that could never have been effectively sanctioned without full bans on publishing the blockchain,” he said. Warren’s amendment would have directed OFAC to do the impossible and try to punish an immutable smart contract, he argued.<br>“It won’t work and would only ban Americans from using good privacy tools.”<br>US Government To Bring PATRIOT Act to Digital Assets<br>FinCEN Director reveals that the Treasury is finalizing a ban on privacy tools, Representatives revive Special Measures to Fight Modern Threats Act<br>The RageL0la L33tz

PATRIOT Act Provisions, BSA Risks<br>The bill references Section 5138A of the PATRIOT Act four times across titles II and III. Section 5318A, added to the Bank Secrecy Act in 2001, gives the US Treasury five escalating “special measures” it can impose when it finds a foreign jurisdiction, institution, class of transaction or type of account to be of “primary money laundering concern.”<br>Historically it has been used sparingly, mostly against foreign banks in countries like Myanmar, North Korea, and Iran. Now the provision finds itself inside crypto legislation, meaning Treasury authorities can treat entire protocols as “primary money laundering concerns,” potentially limiting the availability of privacy tools. The Tornado Cash sanctions already attempted this, but with Section...