Senate Bill Threatens Crypto Sanctions

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  • Legislation with major implications for the digital assets sector has advanced through the Senate Select Committee on Intelligence’s funding package
  • The bill includes a provision aimed at preventing cryptocurrency from supporting terrorism, potentially requiring further user identification
  • This provision, if enacted, could become the most impactful US crypto policy yet, lacking substantial debate on its implications

A piece of legislation with significant ramifications for the digital assets sector has quietly advanced through the Senate Select Committee on Intelligence’s funding package. The Senate bill, intended to fund US intelligence operations, includes a provision from an earlier bill aimed at preventing the use of cryptocurrency to support terrorism. This provision could usher in a substantial shift in the crypto industry towards further identification of users that could cripple crypto businesses. If enacted, it would represent the most impactful US crypto policy to date, all without substantial debate regarding its implications.

Crypto Rules Slipping Through on the Sly

The contentious section of the intelligence funding effort seeks to expedite and automate the process of sanctioning “foreign digital asset transaction facilitators,” such as crypto exchanges linked to users who support terrorist groups. Although the Intelligence Authorization Act passed the committee unanimously with a 17-0 vote, this crypto-related section was neither publicly mentioned nor highlighted in the bill’s key provisions announced by Senator Mark Warner, the committee chairman.

Warner’s office has since arranged meetings with crypto industry representatives to discuss this provision, according to Coindesk. The Digital Chamber, a prominent industry lobbying group, confirmed its involvement in these talks. This dialogue indicates the issue is still in play as the spending package moves towards broader Senate consideration, potentially as part of the must-pass National Defense Authorization Act (NDAA).

Cody Carbone, chief policy officer for the Digital Chamber, expressed optimism about the industry’s engagement with Warner’s staff, suggesting that the contentious provision might be removed from the NDAA due to immediate pushback from the sector. The House of Representatives is also seen as unlikely to support this strict provision, especially after recently passing the Financial Innovation and Technology for the 21st Century Act (FIT21), which aims to regulate the industry without stifling innovation.

With notable bipartisan support in Congress for crypto regulation, the passage of such illicit finance legislation, which bypasses open debate and amendment processes, will not be straightforward. The original bill had backing from Senators Warner, Jack Reed, Mike Rounds, and Mitt Romney.

Bill Could be Wide-ranging

Industry insiders argue that the language in the spending bill might inadvertently affect a wider range of crypto interests than intended, potentially including central banks issuing digital currencies and software developers. Concerns also extend to users of the Tether stablecoin (USDT), which has faced US scrutiny over its use by bad actors.

Carbone acknowledged the legislation’s goal of cutting off funding for terrorist organizations but criticized its broad scope and the excessive authority it grants to the U.S. Treasury Secretary. The crypto industry is determined to avoid a repeat of the 2021 infrastructure bill incident, where a late provision on crypto taxation caught the industry off guard, highlighting the importance of a robust lobbying presence in Washington.