United States Sen. Jack Reed sponsored a bipartisan invoice launched into the Senate on July 18 that might tighten Know Your Buyer (KYC) and Anti-Cash Laundering (AML) rules and sanctions necessities for decentralized finance (DeFi). In line with a information launch on Reed’s web site, the invoice is titled the Crypto-Asset Nationwide Safety Enhancement and Enforcement (CANSEE) Act.
The invoice would topic DeFi operations to the identical necessities as “different monetary corporations, together with centralized crypto buying and selling platforms, casinos, and even pawn retailers.” The invoice would make “anybody who controls that mission” accountable for the usage of the DeFi service by sanctioned individuals. Moreover:
“If no person controls a DeFi service, then — as a backstop — anybody who invests greater than $25 million in growing the mission shall be chargeable for these obligations.”
The invoice would additionally “modernize” Treasury Division AML powers by extending them past the normal monetary system. In line with the assertion:
“As new applied sciences like cryptocurrency more and more allow new methods to conduct monetary transactions, it’s essential to increase Treasury’s authority to crack down on illicit monetary exercise which will happen outdoors the banking sector.”
The invoice additionally set new necessities for operators of crypto kiosks (or ATMs) to forestall their use in cash laundering. Kiosk operators can be required to confirm the identities of each counterparties in a transaction.
The invoice has not been published on the time of writing. A member of Reed’s employees contacted by Cointelegraph couldn’t say when the invoice can be printed. A textual content purporting to be the draft invoice has been posted on GitHub.
The definition of “management” is so broadly worded that it is meaningless. No thresholds, no specifics, simply “management,” as decided by the Secretary of the Treasury. Fully and completely unworkable.https://t.co/rVk26MJwfA
— Meat (,) (@MeatEsq) July 19, 2023
Crypto Twitter has wasted no time in condemning the invoice. One commenter called it “an existential risk to DeFi” and a “nonstarter.” One other said that “imposing management duty for a $25mm funding goes to sit back VC funding into DeFi b/c passive tokenholding does NOT equal management.”
The Crypto Council for Innovation mentioned in a press release, “The proposal fails to supply precise steerage on technical methods for decentralized protocols to adjust to BSA [Bank Secrecy Act] reporting necessities.” That group favors an strategy that “requires distinguishing numerous parts inside the DeFi know-how stack. It additionally entails leveraging the transparency and programmability inherent in blockchain techniques to derive applicable compliance measures distinctive to the crypto ecosystem.”
Amy James, founding father of business advocate Web3 Working Group, informed Cointelegraph, “Sadly, the US is changing into much less and fewer supportive of web3 innovation. […] Though some argue any quantity of regulatory readability is a win, it must be proper or it’s not a long-term win. We commend these legislators on attempting to offer regulatory readability, and we hope to see them modify points of this invoice based mostly on business suggestions to make the US a long-term aggressive market in web3.”
Sens. Mike Rounds, Mark Warner and Mitt Romney are cosponsors of the invoice. Reed and Warner were cosponsors of a bill introduced by Sen. Elizabeth Warren — the Digital Asset Sanctions Compliance Enhancement Act — in March 2022.
Replace (July 19, 19:10 UTC): This text has been up to date to incorporate the commentary of Amy James.