Blockchain Association counters National Sheriffs' group claims as pivotal week for Clarity Act unfolds

The Blockchain Association said cryptocurrency legislation would support law enforcement, countering claims made by the National Sheriffs' Association that the bill would make it harder to protect against financial crimes.

On Monday, in a letter sent to Senate Majority Leader John Thune and Senate Minority Leader Chuck Schumer, the crypto industry group said the NSA misconstrued the Clarity Act's approach to regulating decentralized finance.

The letter comes amid a consequential week in Washington as the Senate is set to go on recess on Friday, leaving just a few days for any movement on the Clarity Act.

"I think because a vote on the Senate floor is in the near future, it's really important to correct the record on any kind of existing misconceptions about the bill," said Lindsay Fraser, BA's chief policy officer, in an interview with The Block.

The Clarity Act, which would regulate the crypto industry comprehensively for the first time at the federal level, is entering a pivotal week in the Senate. Lawmakers are set to leave on Friday for an August recess and then will be focused on elections in November, leaving little time to pass the bill.

Last week, the NSA, which represents over 3,000 sheriffs and 10,000 public safety officials, sent a letter to Thune and Schumer outlining concerns about the bill being overly broad in carve-outs when it comes to anti-money laundering, sanctions law and know-your-customer rules.

In the letter, NSA said the Clarity Act would exempt DeFi protocols from AML rules, and said lawmakers should regulate all entities in the crypto industry, adding that no one should get a "blanket exemption."

BSA pushed back and said the bill imposes "rigorous obligations" on intermediaries while also giving tools to law enforcement to fight against financial crimes.

BRCA

The NSA specifically pushed back on what has become a controversial section in the bill, Section 10604 or the Blockchain Regulatory Certainty Act — which creates a safe harbor for non-custodial developers and clarifies that they are not money transmitters. The sheriff's association asked for it to be deleted or narrowed.

Fraser said the bill preserves a line between "financial intermediation and neutral software development."

In the case of people who control protocols and say they are decentralized, the BA said the bill would not be able to evade rules just because they say they are decentralized. A section of the Clarity Act directs the Securities and Exchange Commission to start crafting rules, the group said.

BA also pointed to support from other facets of law enforcement, including a letter from last month signed by 160 former law enforcement and national intelligence officials that urged Schumer and Thune to advance Clarity.

"That record forecloses any suggestion that NSA’s interpretation reflects the consensus of the law enforcement community," BA said in its letter.

Final week

Sen. John Thune has not yet set a date for a procedural vote — which would have to happen before a vote to advance the bill. On Monday, he told Bloomberg that he still expects the Senate to hold that initial vote ahead of the August recess.

One of the other key sticking points has been around ethics. Democrats have demanded stronger language to address Trump’s crypto interests, including a memecoin he launched before Inauguration Day and his family’s involvement in World Liberty Financial. Financial disclosures released last month revealed that Trump received millions of dollars tied to WLF.

New bipartisan language was sent to the White House last week, but as of Monday afternoon, a deal has not yet been made. 

Fraser said the BA's letter is meant to wrap up issues so that when ethics is resolved, the bill is set.

"This letter symbolizes we've been trying to do what we can to help close out all the other existing issues so that when an ethics deal is reached, we're ready to hit the floor and get as many votes as we can," she said.