On July 13, U.S. Senators Cynthia Lummis (R-WY), Kirsten Gillibrand (D-NY), Elizabeth Warren (D-MA), and Roger Marshall (R-KS) introduced an amendment to the National Defense Authorization Act (NDAA) that seeks to examine the adequacy of current anti-money laundering obligations (set forth in the Bank Secrecy Act (BSA)) as applied to crypto assets, crypto asset kiosks, payment stablecoin issuers, and crypto asset mixers.
Anti-Money Laundering Examination Standards
The amendment would task the Secretary of the Treasury, the Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC) with establishing a “dedicated risk-focused examination and review process” for entities they regulate, such as broker-dealers, swap dealers, and money services businesses.
Within two years of the amendment’s enactment, each agency would be required to assess: (1) the adequacy of reporting obligations and anti-money laundering (AML) programs under subsection (g) and (h) of § 5318 of the BSA as applied to entities they regulate; and (2) compliance of those entities with anti-money laundering and countering the financing of terrorism (CFT) requirements under subchapter II of chapter 53 of the BSA.
Crypto Asset Kiosks
The amendment also introduces new measures targeting crypto asset kiosks, defined as a “stand-alone machine, including a crypto asset automated teller machine, which facilitates the buying, selling, or exchange of crypto assets.”
The amendment would afford the Financial Crimes Enforcement Network (FinCEN) two years from enactment to institute certain measures mandating that crypto asset kiosk owners and administrators: (a) submit and regularly update the physical addresses of their kiosks every 120 days; (b) collect specific details from each counterparty to a transaction, including name, physical address, phone number, and date of birth; and (c) verify each customer’s identity using a valid form of government-issued identification or other approved methods.
Additionally, within 180 days after the enactment of the amendment, FinCEN would be required to issue a public report identifying unlicensed kiosk operators and administrators.
Sanctions Compliance for Payment Stablecoin Issuers
The amendment would require the Secretary of the Treasury to establish, within 120 days from the enactment of the amendment, clear guidance on the sanctions compliance responsibilities of payment stablecoin issuers. These responsibilities concern downstream transactions related to the stablecoin that occur after it has been provided to a customer.
Crypto Asset Mixers and Tumblers
Crypto asset mixers and tumblers are open-source software services that pool potentially identifiable cryptocurrency funds with the funds of others to obscure the trail that might otherwise lead to the original source of the funds.
The amendment would require the Director of FinCEN to submit a report to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services within one year of enactment.
The Director of FinCEN’s report must analyze: (a) the current typologies of crypto asset mixers and tumblers and their historical transaction volume; (b) estimated percentage of transactions relating to mixers and tumblers which are used by actors engaged in illicit finance; (c) potential non-illicit uses of mixers and tumblers; (4) regulatory approaches being employed by other jurisdictions with respect to mixers and tumblers; and (5) recommendations for legislation of mixers and tumblers.
Our Take:
The amendment proposes a significant ramping up of regulatory measures within the crypto asset landscape, aiming to tighten AML/CFT measures, improve customer data collection and identity verification of users of crypto ATMs, and resolve whether crypto mixers and tumblers can be used for non-illicit purposes as industry stakeholders have advocated. If it becomes law, this amendment could usher in a new era of federal governance and oversight in the rapidly evolving world of digital assets and distributed ledger technologies.