Wall Street Banks Back Elizabeth Warren's Digital Asset AML Bill

The bill, if passed, would impose the same standards and requirements on cryptocurrency businesses as banks and other financial institutions.

U.S. Senator Elizabeth Warren reintroduced the Digital Assets Anti-Money Laundering Act on July 28, with support from unexpected allies in Wall Street banks.

The Banking Policy Institute, a financial policy think tank formed by a group of banks, backed legislation aimed at mitigating the national security risks posed by cryptocurrencies. Warren has historically been a fierce critic of the Bank Policy Institute, but they seem to have found common ground in the need to crack down on cryptocurrencies.

In a press release, Warren noted that cryptocurrencies have become the “preferred payment method” for cybercriminals:

“This bipartisan bill is the toughest proposal yet to crack down on cryptocurrency crime and give regulators the tools they need to stop the flow of cryptocurrency to bad actors.”

Let crypto players comply with banking standards

First introduced in December 2022, the legislation will impose obligations under the Bank Secrecy Act (BSA) on crypto wallet providers, miners and validators. Therefore, crypto service providers and network participants will need to meet know-your-customer requirements if the legislation is passed.

The seven-page bill requires the Treasury Department to establish a compliance inspection and review process to ensure that all cryptocurrency service businesses comply with anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the BSA. The bill would also direct the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to establish similar review processes for crypto businesses within their purview.

Additionally, cryptocurrency businesses must file a Foreign Bank and Financial Account Report (FBAR) with the Internal Revenue Service. Under the bill, crypto service providers are required to file reports whenever any U.S. customer uses one or more offshore accounts to conduct crypto transactions exceeding $10,000.

The bill would direct the Financial Crimes Enforcement Network (FinCEN) to implement rules it proposed in 2020 to close the regulatory gap created by self-custodial wallets. The new rules will force banks and money services businesses to verify customer and counterparty identities, maintain records and file reports for certain cryptocurrency transactions involving self-custodial wallets or wallets hosted in non-compliant jurisdictions.

The bill also aims to reduce the risk of cryptocurrency ATMs. It will require FinCEN to ensure that ATM owners and administrators regularly report and update the physical addresses of their kiosks. ATM operators must also verify the identity of customers and counterparties for all transactions.

Finally, the bill would direct FinCEN to direct financial institutions to mitigate the risks associated with handling, using, or trading cryptocurrencies whose origin has been obscured by mixers or other anonymity-enhancing techniques.

The bill aims to regulate cryptocurrency businesses in the same way as banks. As Senator Roger Marshall, a proponent of the bill, put it:

“The reforms outlined in our legislation will help us fight back and protect our digital assets using proven methods that domestic financial institutions have followed for years.”

Senator Lindsey Graham, who also supported the bill, added that “many of the same rules that apply to the U.S. dollar should also apply to cryptocurrencies.”