Author: LianGuaiBitpushNews Mary Liu
On July 19th, members of the U.S. Senate Banking Committee, Jack Reed (D-RI), Mike Rounds (R-SD), Mark Warner (D-VA), and Mitt Romney (R-UT), announced the “Cryptocurrency and National Security Enforcement (CANSEE) Act” (S. 2355) and submitted it to the U.S. Senate.
At the time of writing, the full text of the bill has not been released, but according to the briefing summary, this new bill will impose strict anti-money laundering (AML) requirements on decentralized finance (DeFi) protocols, requiring DeFi protocols to implement controls on their user base similar to traditional banks. If passed, it will have a significant impact on DeFi projects.
The briefing document states that the bill aims to “combat the increasing cryptocurrency crime and cut off avenues for money laundering and sanctions evasion that are critical to national security.”
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DeFi protocols are financial applications that allow anyone with a cryptocurrency wallet to borrow, lend, and trade cryptocurrencies through smart contracts. These projects are harder to regulate than centralized companies like Coinbase because they operate directly on permissionless blockchains.
Several key points of the bill include:
Requiring DeFi businesses to comply with the same requirements as “other financial companies, including centralized cryptocurrency exchanges, casinos, and even pawnshops.” The bill will hold “anyone in control of the project” responsible for facilitating the use of DeFi services by sanctioned individuals. Requiring anyone “in control” of a DeFi protocol to ensure an effective anti-money laundering plan and comply with Know Your Customer (KYC) policies. DeFi protocol controllers will also be responsible for reporting suspicious activity and ensuring that anyone blocked by sanctions cannot use the protocol.
The bill states: “If a DeFi service has no identifiable controller, then as a payor, anyone who invests more than $25 million in developing the project will be held responsible.”
The bill also expands the anti-money laundering powers of the U.S. Treasury Department beyond the traditional financial system. The statement says: “As new technologies such as cryptocurrencies increasingly facilitate new ways of conducting financial transactions, expanding the Treasury Department’s power to combat illegal financial activities that may occur outside the banking sector is crucial.”
New requirements are also proposed for cryptocurrency ATM operators, who will need to verify the identities of both parties in a transaction. The bill stipulates that operators of such ATMs/machines must “at a minimum, verify and record the consumer’s name and physical address, including reviewing official documents proving nationality or residence that include a photograph of the consumer.”
This bill is another bipartisan effort to advance cryptocurrency regulations at the federal level. Democratic Senator Elizabeth Warren of Massachusetts and Republican Senator Roger Marshall of Kansas introduced the “Digital Asset Anti-Money Laundering Act” last year, aimed at tightening anti-money laundering rules for digital assets, but it did not progress further. Warren has pledged to reintroduce the legislation in this Congress.
Strong Opposition from the Cryptocurrency Community
The proposed legislation has immediately drawn strong opposition from the cryptocurrency community, with some individuals believing it could stifle innovation, while others argue that DeFi should not be regulated in the same way as traditional financial institutions and should be approached in a new way.
The DeFi Education Fund (DEF) stated in a tweet, “While we support taking effective measures to combat illegal use of DeFi, the bill proposed today is essentially saying ‘centralize, shut down, or leave the United States’.”
The organization added that there are better ways to address illicit financial activities in DeFi, with lower implementation costs that do not stifle technological innovation.
Yaya Fanusie, the Anti-Money Laundering and Cybersecurity Director of the Cryptocurrency Innovation Council, referred to the bill as “arbitrary and poorly defined,” as it would apply traditional financial company rules to anyone controlling a DeFi protocol or developing applications using the protocol.
Amy James, an industry advocate and founder of the Web3 Working Group, commented, “It is unfortunate that the support for web3 innovation in the United States is decreasing. […] While some may view any level of regulatory clarity as a victory, it must be the right one, otherwise it is not a long-term victory. We commend the legislators for attempting to provide regulatory clarity and hope to see them adjust various aspects of the bill based on industry feedback, in order to make the United States a long-term competitive market for web3.”
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