Congress has been inundated with calls to create an expansive anti-money laundering framework to address the over-exaggerated (and often mischaracterized) presence of illicit finance in the digital asset ecosystem. It’s time we had a serious discussion on what these proposals entail and why they are misguided.
First, much of this debate has been reinvigorated by Hamas’ unprovoked, barbaric terrorist attack against Israel. The media then incorrectly reported that the terrorist group raised upwards of $93 million via digital assets prior to the Oct. 7 attack. This claim turned out to be false, and the media quietly issued a correction. Nevertheless, some in Congress and the Department of Treasury saw the political opening to use this tragedy to push flawed policies that amount to an effort to kill any future presence for the digital asset ecosystem in the United States.
Treasury recently sent policy suggestions to Congress that unsurprisingly includes a proposal that mirrors what Sen. Elizabeth Warren (D-Mass.) seeks with her Digital Asset Anti-Money Laundering Act. Treasury’s proposal will define a new cryptocurrency-related category of “financial institution” under the Bank Secrecy Act, which would include digital asset wallet providers, miners, validators, and other network participants. As such, these digital asset businesses and network participants would be subjected to the same reporting standards as traditional financial institutions.
The policy proposal shows a shockingly poor understanding of how information is (or isn’t) transmitted on a blockchain network. Treasury and Warren’s claim that validator node operators “pose national security concerns” and possess consumer information represent a degree of ignorance unbecoming of any policymaker. However, this is not a case of willful ignorance on their part. Rather, it’s an attempt to capitalize on others’ ignorance by pursuing a backdoor pathway to effectively ban digital assets in the United States through a crushing and entirely unworkable compliance burden.
Second, their dishonest argument that says digital wallet providers must be considered in the same realm as a financial institution opens the door to an overly enhanced intermediated financial system. According to Treasury’s rationale, American Security — the manufacturer of safes — should also be designated as financial institution because an American Security safe protects a persons’ tangible assets. Just as a self-hosted wallet protects a person’s intangible assets. Obviously, their argument is disingenuous, much like the proposals coming from some of my colleagues and the Treasury Department.
Facts matter. If Congress wants to coalesce around a serious proposal to combat illicit finance, we must acknowledge that digital assets on a blockchain are not the preferred method for terrorism financing. Further, the on-ramps and off-ramps to or from the digital asset ecosystem are already subject to the Bank Secrecy Act today and blockchain provides an immutable record of all on-chain activity. Unfortunately, that’s not enough for those who want to control a person’s ability to transfer their own property (digital assets) between peers or apart from third-party intermediaries. Anyone attacking self-custody clearly wants someone to control your assets on their behalf.
Some try to criticize my Keep Your Coins Act, which would ban any agency attempt to interfere with a person’s right to personally hold their digital assets in a self-hosted wallet. My bill simply preserves what should be unanimously accepted as an inalienable property right. However, red herring arguments like those put forward by Warren and Treasury are detracting from the serious work we are doing to bring regulatory clarity to the ecosystem.
The first step in any approach to combating illicit finance should focus on bringing more digital asset firms to the United States. U.S. based companies will be subject to U.S. law and regulation. Their purposefully unworkable framework will drive companies and capital offshore. Instead, we should bring clarity to the market by advancing legislation by the House Financial Services Committee and House Agriculture Committee to the floor as swiftly as it is finalized.
Warren Davidson represents Ohio’s 8th District and is the vice chairman of the Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion.