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Bipartisan senators called for a new regulatory framework for the crypto industry during a Senate Banking Committee meeting on Tuesday.
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Republican Senator Thom Tillis (R-N.C.) stressed that a “light” regulatory framework is needed to both prevent illicit crypto financing and help the industry grow.
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Deputy Treasury Secretary Wally Adeyemo is asking Congress for increased powers to go after crypto crime.
U.S. Senator Thom Tillis (R-N.C.) said on Tuesday that the crypto industry needs a “light” regulatory framework put in place to both combat risks – including another FTX-like collapse and illicit terrorism financing – and create a “hospitable environment” in which digital assets can thrive.
The remarks came during a Senate Banking Committee meeting with Deputy Treasury Secretary Wally Adeyemo on Tuesday, who testified about the Treasury’s efforts to counter illicit finance, terrorism and sanctions evasion. Adeyemo also pressed the members of the Committee for “additional tools” to fight crypto crime, following legislative requests he made last November.
“One thing I’d tell people in the crypto or digital assets space that say ‘Nothing to see here, everything is fine’ – they’re wrong,” Sen. Tillis said. “There needs to be some light regulatory regimen put into place, otherwise there are risks…We want to create the most hospitable environment for digital assets to thrive. We don’t want to overreach and lose the opportunity to be that jurisdiction.”
Tillis added that if there is a change of administration following the presidential election in November, the view of how to regulate crypto will be “vastly different.”
“I, for one, would like to look at the possibility of working with [the Treasury Department] to address some of the things in your punch list that we agree with, so that we may be able to get regulations on the books in this Congress that will certainly not go as far some of my colleagues on the other side of the aisle want to go, but [will be] far short of the wild, wild West that we find ourselves in now,” Tillis said.
On Monday, Tillis and Sen. Bill Hagerty (R-Tenn.) released a discussion draft of a new bill – the Ensuring Necessary Financial Oversight and Reporting of Cryptocurrency Ecosystems (ENFORCE) Act – aimed at making sure centralized cryptocurrency companies are adhering to Bank Secrecy Act (BSA) and anti-money laundering (AML) standards.
Democratic members of the Senate Banking Committee, including Sen. Elizabeth Warren (D-Mass.), Sen. Mark Warner (D-Virginia) and Sen. Bob Menendez (D-N.J.) also called for more crypto regulations.
“Name your bad guy, and crypto is the way they can move money around,” Sen. Warren said.
Warren added that validators – which validate transactions on proof-of-stake blockchains – are not subject to the same anti-money laundering (AML) and know-your-customer (KYC) laws that banks are.
“Stablecoins make it easier to convert dollars into crypto and crypto into dollars, so they are an onramp into the crypto world,” Warren said. “If we’re going to create new onramps…then we need a regulatory framework that will put the rules for anti-money laundering into place so that we do not have new opportunities for Iran and terrorists and drug lords and human traffickers to make more money.”
Expanded powers
During the hour-long hearing, Adeyemo maintained that the Treasury needs expanded powers to effectively crack down on illicit crypto financing.
Adeyemo told the Committee that, as the Treasury has improved its ability to cut foreign enemies – including state actors like Iran, Russia and North Korea, as well as terrorist groups like Hamas and Al-Qaeda – off from the traditional finance system, they are increasingly turning to crypto as a workaround.
He has asked Congress for three legislative reforms. First, a “secondary sanctions tool” against exchanges that facilitate illicit finance, which would “help Treasury evolve its targeting capabilities.”
Second, Adeyemo asked for an expansion of the Treasury’s reach to “explicitly cover the key players and core activities of the digital assets ecosystem.”
Lastly, he requested a reform to address the “jurisdictional risk from offshore cryptocurrency platforms,” which would allow the Treasury to “clarify that our authorities can reach extraterritorially when digital asset entities harm our national security while taking advantage of our financial system.” In addition to countering illicit financing, Adeyemo added that this reform would “ also promote a level playing field for U.S.-based VASPs.”