Warren, Marshall introduce bill to tighten money laundering rules for crypto

Sens. Elizabeth Warren, D-Mass., and Roger Marshall, R-Kan., introduced legislation to tighten U.S. anti-money laundering rules to digital assets.

The bill would expand know-your-customer rules to wallet providers, miners, validators and other network participants, according to a joint release from the senators. It would also prohibit financial institutions from using or interacting with transaction mixers — decentralized applications that obscure transaction sources on distributed ledger networks like Ethereum.

“The crypto industry should follow common-sense rules like banks, brokers, and Western Union, and this legislation would ensure the same standards apply across similar financial transactions,” said Warren.

The bipartisan legislation faces long odds to become law during this Congress but will likely be reintroduced after the next one starts in January. The bill, which would further extend rules that are anathema to many cryptocurrency users and advocates, may also hasten rulemaking processes already underway within federal agencies.

The Massachusetts Democrat and Kansas Republican want the Treasury Department to establish an exam, similar to what bank regulators perform with banks, for money service businesses, the payments service classification that crypto firms typically register under. The U.S. The Securities and Exchange Commission and Commodity Futures Trading Commission would also be required to establish their own for the businesses they regulate, like broker-dealers and digital asset exchanges.  

“Following the September 11, 2001 terrorist attacks, our government enacted meaningful reforms that helped the banks cut off bad actors’ from America’s financial system,” Marshall said in the release. “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.”

The pair of senators also want the Financial Crimes Enforcement Network to finalize a rule to require banks and money service businesses to report and keep records on counterparties and transactions involving unhosted digital asset wallets, or wallets hosted in jurisdictions that don’t comply with U.S. anti-money laundering rules.

The bill also includes information filing requirements for offshore digital asset transactions of $10,000 or more, and a mandate that cryptocurrency ATMs in the U.S. verify customer identity and regularly provide the locations and number of machines they own to federal authorities.