Pushing to tighten reins on the cryptocurrency market, the U.S Senate sets forth a new bill to impose stringent anti-money laundering (AML) requirements on decentralized finance (DeFi) platforms. The bipartisan bill named the Crypto-Asset National Security Enhancement Act of 2023 aims to thwart the upswing in crypto-related crimes, impede evasion of money laundering and reinforce sanctions that bolster national security.
DeFi platforms, which operate through smart contracts, allow anyone with a crypto wallet to borrow, lend, and trade cryptocurrency. Due to their operation on permissionless blockchains, they prove more challenging to regulate in comparison to centralized companies such as Coinbase. However, the bill has a plan to circumvent these difficulties, requiring those who ‘control’ a DeFi protocol or provide applications to use the protocol to comply with these requirements.
Indeed, if no one has control over a DeFi protocol, entities investing more than $25 million in the development of a protocol will shoulder these regulatory obligations. These parties would be obliged to vet and collect customer data, uphold anti-money laundering programs, report suspicious activities to the government and prohibit sanctioned individuals from using their protocols.
The bill also brings its regulatory ambitions to crypto kiosks, imposing identity verification requirements, and broadens the Treasury Department’s mandate to oversee alleged money launderers in non-traditional financial settings, including crypto.
The bill, introduced by Sen. Jack Reed and co-sponsored by Sens. Mike Rounds, Mitt Romney, and Mark Warner, signals regulators’ growing concern about the potential misuse of crypto platforms and their commitment to ensuring national security.