On December 14, Senators Elizabeth Warren (D-Mass.) and Roger Marshall (R-Kan.) introduced the Digital Asset Anti-Money Laundering Act of 2022 (the Act) that would extend anti-money laundering and countering of the financing of terrorism requirements to cryptocurrency and digital assets. The bill follows warnings from the Treasury Department, Department of Justice, and national security and financial crime experts that digital assets are increasingly being used for money laundering, theft and fraud schemes, terrorist financing, and other crimes.
In a press release accompanying introduction of the Act, Senator Marshall stated, “[f]ollowing the September 11, 2001 terrorist attacks, our government enacted meaningful reforms that helped the banks cut off bad actors from America’s financial system. Applying these similar policies to cryptocurrency exchanges will prevent digital assets from being abused to finance illegal activities without limiting law-abiding American citizens’ access. Our common-sense bill will make it harder for criminals to finance their criminal activities, like the trafficking of illicit fentanyl through the dark web, that can harm innocent Kansans.”
The Act seeks to:
- Extend Bank Secrecy Act (BSA) responsibilities, including know-your-customer requirements, to digital asset wallet providers, miners, validators, and other network participants that may act to validate, secure, or facilitate digital asset transactions by directing the Financial Crimes Enforcement Network to designate these actors as money service businesses (MSBs).
- Address a gap with respect to “unhosted” digital wallets by requiring banks and MSBs to verify customer and counterparty identities, keep records, and file reports in relation to certain digital asset transactions involving “unhosted” wallets.
- Prohibit financial institutions from using or transacting with digital asset mixers and other anonymity-enhancing technologies and from handling, using, or transacting with digital assets that have been anonymized using these technologies.
- Strengthen enforcement of BSA compliance by establishing anti-money laundering compliance examinations and review processes for MSBs.
- Extend BSA rules regarding reporting of foreign bank accounts to include digital assets by requiring United States persons engaged in a transaction with a value greater than $10,000 in digital assets through one or more offshore accounts to file a Report of Foreign Bank and Financial Accounts with the Internal Revenue Service.
- Mitigate the illicit finance risks of digital asset ATMs by ensuring that digital asset ATM owners and administrators regularly submit and update the physical addresses of the kiosks they own or operate and verify customer identity.
The Act is unlikely to pass during this Congressional session but will likely be reintroduced in January.
Troutman Pepper will continue to monitor important developments involving cryptocurrency legislation and will provide further updates as they become available.