U.S. government removes two crypto AML rules from defense bill

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The U.S. government has removed two provisions concerning anti-money laundering (AML) issues related to cryptocurrency from the National Defense Authorization Act (NDAA).

The NDAA is a law that dictates how the U.S. Defense Department can use federal funds. These removed provisions detailed review and reporting processes of cryptocurrency activities.

The first provision concerned with examination and review systems for cryptocurrencies used by financial institutions, while the second focused on combating anonymous cryptocurrency transactions, specifically targeting crypto mixers and tumblers.

This included creating a report outlining the amount of cryptocurrency transactions associated with sanctioned entities.

The second provision aimed to prevent situations like the FTX case, where the exchange allegedly facilitated illegal trades and manipulated the market.

These two rules came from two bills introduced in 2022, the Digital Asset Anti-Money Laundering Act and the Responsible Financial Innovation Act.

The amendment came amid worldwide attempts to regulate crypto transactions and deter unlawful financial activities.

Specifically, the U.S. has shown growing concerns regarding illicit uses of crypto assets. A recent meeting on November 15 held by the U.S. House of Representatives Financial Services Committee highlighted the importance of looking into and handling illegal crypto activities.

The E.U., the U.K. and Australia have also introduced or proposed tougher rules for crypto transactions and service providers.

Aiming to strengthen AML measures for digital assets

On July 28, Senators Warren, Marshall, Joe Manchin and Lindsey Graham reintroduced the Digital Asset Anti-Money Laundering Act. This move aims to address shortcomings in the current framework for preventing money laundering and terrorism financing through digital assets.

Senators Warren and Marshall had previously introduced a similar bill in December 2022, but it didn’t gather enough support. The Digital Asset Anti-Money Laundering Act of 2023 aims to plug gaps in current Anti-Money Laundering regulations. This legislation would modify the Bank Secrecy Act, categorizing various digital asset providers as financial institutions.

“The same rules should apply to the same kinds of financial transactions with the same kinds of risks. So my new, bipartisan ​​Digital Asset Anti-Money Laundering Act will make the crypto industry follow the same anti-money-laundering standards as banks, brokers, & Western Union,” Warren said in a social media post.

Warren introduced the legislation to the U.S. Senate on July 27, along with Senators Joe Manchin, Marshall and Lindsey Graham. At the time of writing, it has not undergone a vote by the entire Senate or been forwarded to the U.S. House of Representatives for review. President Biden has yet to sign it into law.

The Bank Secrecy Act sets rules for programs, recordkeeping and reporting for certain financial institutions. The legislation proposes to categorize various cryptocurrency providers as financial institutions under U.S. regulators. This includes unhosted wallet providers, digital asset miners, validators and others involved in transactions or services related to digital assets.

They would need to comply with the same regulations as traditional financial institutions in the U.S. However, the bill does offer exemptions for those using blockchain technology for internal business needs.

If the bill becomes law, within 18 months, the U.S. Treasury’s Financial Crimes Enforcement Network would require any U.S. individual holding $10,000 in digital assets or owning digital assets overseas to file a report. In that period, the U.S. Treasury would also create measures to reduce illegal financial risks linked to digital asset mixers and privacy-focused cryptocurrencies.