Bipartisan Bill Aims to Prevent Money Laundering via Cryptocurrency Companies

Capitol Hill continued its pursuit to impose regulations on the digital asset market following the fall of prominent cryptocurrency trading platform FTX and the misuse of consumer assets, with Sens. Elizabeth Warren, D-Mass., and Roger Marshall, R-Kan., introducing new legislation to task federal agencies to oversee the asset class.

The Digital Asset Anti-Money Laundering Act of 2022 emphasizes applying current anti-money laundering and financing terrorism prevention measures to the cryptocurrency industry. In addition to protecting consumers’ finances, the bill primarily seeks to halt the transfer of digital assets to adversarial countries sanctioned by the federal government.

“Rogue nations, oligarchs, drug lords and human traffickers are using digital assets to launder billions in stolen funds, evade sanctions and finance terrorism,” Warren commented in the press release. “The crypto industry should follow common-sense rules like banks, brokers and Western Union, and this legislation would ensure the same standards apply across similar financial transactions.”

The provisions in the bill target current loopholes by extending regulations imparted by the Bank Secrecy Act to digital asset companies and service providers, particularly those which host digital wallets that are used to store and transfer cryptocurrencies. 

Notably, the bill also directs the Financial Crimes Enforcement Network to oversee the application of an anti-money laundering framework within the digital asset marketplace, but to specifically implement the agency’s previous rule that applies financial regulations to digital asset trading firms. 

One of the key regulatory features requires U.S. citizens that make a cryptocurrency or digital asset transaction greater than $10,000 to an account outside of the U.S. to file a report declaring the purpose of the transfer.

Should the bill be ratified, FinCEN would be required to implement this rule within 120 days of the bill’s passage. 

“Following the September 11, 2001 terrorist attacks, our government enacted meaningful reforms that helped the banks cut off bad actors’ from America’s financial system,” Marshall said. “Applying these similar policies to cryptocurrency exchanges will prevent digital assets from being abused to finance illegal activities without limiting law-abiding American citizens’ access.”

This bill follows not only the implosion of FTX and the arrest of its founder and former CEO Sam Bankman-Fried, but the increasing law enforcement action against cryptocurrency companies. 

Earlier in August, the Department of the Treasury announced sanctions against virtual currency mixer Tornado Cash, citing allegations of money laundering to sanctioned nation North Korea. Over $7 billion is said to have been laundered to the Lazarus Group hacking organization, facilitated by unregulated cryptocurrency and digital asset transactions. 

The Biden administration has prioritized regulating digital assets to prevent them from being used as tools to obfuscate money laundering activity. Countering illegal financial transactions was a topic during the White House’s Second International Counter Ransomware Initiative Summit, where participating countries discussed how to enforce anti-money laundering rules against digital asset companies.