Crypto Travel Rule Returns To US Senate After Reintroduction

August 14, 2023
Two US senators have reintroduced a bipartisan bill that would give the federal government oversight of certain crypto transactions worth $10,000 or more.

Two US senators have reintroduced a bipartisan bill that would give the federal government oversight of certain crypto transactions worth $10,000 or more.

Senators Elizabeth Warren (D-MC) and Roger Marshall (R-KS) reintroduced the bill for a second time, after it failed to pass in 2022.

The Digital Asset Money Laundering Act 2023 is an updated version of the same bill that was introduced last year.

Its predecessor, the Digital Asset Money Laundering Act 2022, was read twice in the Senate before being submitted to the Senate Banking Committee, where it ground to a halt.

Announcing the reintroduction of the bill, Warren said its main purpose is to assist federal law enforcement agencies in combating the use of crypto by organised crime groups and hostile state actors.

“The Digital Asset Anti-Money Laundering Act would mitigate the risks that digital assets pose to our national security by closing loopholes and bringing the digital asset ecosystem into greater compliance with the AML/CFT frameworks governing the greater financial system,” she said.

As noted by Warren, the US Treasury and Department of Justice (DOJ) have warned that digital assets are increasingly being used for money laundering, ransomware, theft, fraud, trafficking, terrorist financing and other crimes.

“Rogue nations like Iran, Russia and North Korea have turned to digital assets to evade sanctions and fund illegal weapons programs,” she said.

In 2022, according to blockchain analytics firm Chainalysis, cybercriminals working for North Korea’s Lazarus Group stole more than $1.7bn in crypto-assets, mainly through hacks of decentralised finance (defi) platforms.

This figure “shattered” the group’s previous record for crypto-assets stolen in a year by about half a billion dollars, and dwarfed North Korea’s total exports in 2020 of $142m.

“It isn’t a stretch to say that cryptocurrency hacking is a sizable chunk of the nation’s economy,” Chainalysis said.

Moreover, more than half of the funding for North Korea’s ballistic missile programme is believed to be sourced from cybercrime and theft of digital assets.

As covered previously by VIXIO, Warren has also been at the forefront of efforts to bring US regulators’ attention to the use of crypto-assets by Chinese and Mexican drug traffickers.

In June, at a hearing of the Senate Banking Committee, Warren highlighted the use of bitcoin and the Tether stablecoin by Mexican drug cartels who purchase fentanyl precursor chemicals from China.

Citing new research from blockchain analytics firm Elliptic, Warren said that more than 90 chemical companies based in China are currently accepting crypto payments for precursor sales.

These companies are believed to have received more than $27m in crypto-asset payments to date, and have shipped enough precursors to produce $54bn worth of fentanyl.

What’s in the bill?

If passed, the bill would extend Bank Secrecy Act (BSA) rules regarding reporting of foreign bank accounts to include digital assets.

In practice, this would mean that US persons engaged in digital asset transactions of $10,000 or more through an “offshore account” would be required to file a Report of Foreign Bank and Financial Accounts (FBAR) with the Internal Revenue Service (IRS).

As many of the largest crypto trading platforms market to US customers from offshore, this proposal is likely to capture these platforms under its requirements.

In addition, the bill would extend BSA responsibilities to digital asset wallet providers, miners, validators and other network participants that secure or facilitate digital asset transactions.

This would mean that some of these actors would be subject to know your customer (KYC) requirements for the first time.

Similarly, the bill would implement a 2020 proposal by the US Treasury’s Financial Crimes Enforcement Network (FinCEN) with respect to so-called unhosted wallets.

This would require banks and money service businesses (MSBs) to verify customer and counterparty identities, keep records and file reports on certain transactions involving unhosted wallets or wallets hosted in non-BSA compliant jurisdictions.

Killing us softly with compliance

The reintroduction of the bill has been met by strong opposition from the Chamber of Digital Commerce, a US digital asset and blockchain advocacy group.

In a statement, the chamber said the bill would “eradicate” digital asset innovation in the US by imposing “impractical and unworkable” compliance burdens on digital asset firms.

In particular, the chamber opposed the application of BSA rules to miners, validators and digital asset wallet providers.

“Treating these entities commensurate with the largest banks, hedge funds and money transmitters would weigh them down with unnecessary compliance, stifle innovation, hinder industry growth and force activity offshore to jurisdictions with less adequate security and oversight,” it said.

This would result in a brain drain from the US, the chamber said, a process that is already underway due to lack of workable regulations in the US.

“For these reasons, we strongly encourage all consumers interested in preserving and improving the health and viability of the digital asset ecosystem to call their senators to voice opposition to this bill,” the statement read.

The chamber added that it has met with nearly all members of the Senate Banking Committee, and believes the bill will not pass, although it will attract significant media attention.

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