Crypto Anti-Money Laundering Bill Goes to US Senate • The Register

A bipartisan bill tabled in the U.S. Senate could finally nudge the cryptocurrency industry by, among other things, extending existing banking regulations to digital currencies and designating crypto cash sellers as money services businesses.

The Digital Asset Anti-Money Laundering (DAAML) Act [PDF] was introduced yesterday by Senators Elizabeth Warren (D-MA) and Roger Marshall (R-KS) with the stated goal of banning the use of cryptocurrencies as a means of money laundering and terrorist financing.

“The crypto industry should follow common sense rules like banks, brokers and Western Union, and this legislation would ensure that the same standards apply to similar financial transactions,” Warren said.

While he didn’t directly say that the arrest of disgraced former FTX CEO Sam Bankman-Fried was the impetus for the bill, Warren told CNN that bankrupting “a major crypto platform” and indicting its CEO meant it that digital assets would be increasingly scrutinized in the political spectrum. What better time to take action than when crypto crimes are at the forefront, she opined.


“Rogue states, oligarchs, drug lords and human traffickers are using digital assets to launder billions of dollars in stolen funds, circumvent sanctions and fund terrorism,” Warren said.

One doesn’t have to look far to find support for this claim: in 2020, a Bulgarian man who ran a crypto exchange was convicted of using it to launder money for fellow criminals, and last year faced a $150 million Crypto laundering ring in Hong Kong busted by Chinese government.

Two men from Estonia were arrested last month and charged with stealing and laundering $575 million worth of crypto through a Ponzi scheme, and FTX’s Bankman-Fried was also charged with laundering digital funds, among other charges.

However, there are many people who use cryptocurrency for non-criminal purposes: spending, trading, and so on.

The bill gives the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) authority over the creation and enforcement of the proposed rules by directing it to comply with Bank Secrecy Act (BSA) requirements, such as the know-your-customer rules to expand to cryptocurrencies.

The BSA requirements in DAAML include requiring US citizens to transact more than $10,000 worth of digital assets stored in an offshore account in order to do so above IRS-enforced rules for foreign banks and report financial accounts.

The BSA also requires that “digital asset wallet providers, miners, validators, and other network participants that can validate, secure, or facilitate digital asset transactions” be classified and regulated as Money Services Businesses (MSBs).

As part of designating crypto actors as MSBs, the bill also requires FinCEN to establish an anti-money laundering task force and fight the Counter Terrorism Financing (AML/CFT) compliance process for MSBs.

As an additional way to prevent anonymous exchanges of crypto assets, the bill would also ban financial institutions from “using or doing business with digital asset mixers,” which pool cryptocurrencies and then redistribute them to obfuscate users and to hide the origin and destination of funds.

DAAML also takes action against cryptocurrency ATMs by requiring machine owners to regularly update kiosk location maps and verify customer identity.

What about offline crypto wallets?

In a summary of the bill, Senator Marshall’s office said that non-hosted crypto wallets, meaning anything controlled by an individual — like cold storage on a flash drive or in an offline wallet — represent a serious regulatory loophole that must be closed.

Such wallets “allow individuals to bypass AML and sanctions screening,” the two said in the abstract, and the bill takes steps to ensure such wallets are not black holes for regulators.

DAAML instructs FinCEN to implement proposed rules for 2020, “which would oblige banks and MSBs to verify customer and counterparty identities, keep records, and file reports in relation to certain digital asset transactions involving non-hosted wallets or wallets that are hosted in non-BSA compliant jurisdictions”.

In other words, if this bill passes both the Senate and the House of Representatives, the illusion that cryptocurrencies are automatically and simply anonymous will be finally, and possibly permanently, dispelled.

Don’t expect it to be quick, though: Since we’re already mid-December, it’s unlikely the bill will be heard before the December 21 congressional recess for the year. In that case, DAAML would need to be reintroduced when the 118th Congress meets in early January. ® Crypto Anti-Money Laundering Bill Goes to US Senate • The Register

Rick Schindler

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