The recent provision in the Senate’s intelligence committee’s spending package targeting crypto ties to terrorism has caused a stir in the digital assets industry. Many industry insiders were caught off-guard by the provision, which aims to prevent the use of cryptocurrency to support terrorism. The legislation, if passed, could require significant changes within the crypto industry to identify users’ identities and prevent sanctions. Despite the lack of public discussion about its merits, the provision could have far-reaching implications for the industry.
The Senate bill included in the Intelligence Authorization Act would automate the process of sanctioning “foreign digital asset transaction facilitators” linked to users supporting terrorism groups. While the bill passed the committee vote unanimously, the provision on crypto wasn’t highlighted in the announcement. Senator Mark Warner’s office has since been meeting with industry stakeholders to discuss the provision, raising questions about its future as it moves through the Senate and potentially into the National Defense Authorization Act.
Industry insiders have raised concerns that the language in the spending bill may inadvertently impact a wider range of crypto interests, including central banks issuing CBDCs and software developers. The provision could also affect users of the Tether stablecoin, which has been under U.S. scrutiny for its use by bad actors. While some in the industry support the goal of preventing illicit use of cryptocurrency, there are concerns about the guidelines for identifying violators and the lack of a proportional sanctions system.
The House of Representatives may be hesitant to embrace a provision that could restrict the industry, especially after passing legislation to regulate the crypto market without stifling innovation. The bipartisan support for crypto regulation in Congress signals a challenging path for the illicit-finance legislation, especially without an open debate and amendment process. Industry lobbying groups are working to engage policymakers in discussions on preventing illicit use of cryptocurrency while ensuring that regulations are fair and effective.
The crypto industry is still recovering from the unexpected inclusion of a crypto tax provision in an infrastructure bill in 2021. The industry is now more focused on building a strong lobbying presence in Washington to prevent similar surprises in future legislation. While some support the goal of cutting off funding for foreign terrorist organizations, there are concerns about the broad scope of the provision and the amount of authority granted to the U.S. Treasury Secretary. As the spending package progresses through the Senate, the industry will continue to engage with policymakers to shape legislation that protects against illicit use without stifling innovation.
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