United States Senator Jack Reed is sponsoring a bipartisan bill that was introduced to the Senate on July 18 that would tighten Know Your Customer and Anti-Money Laundering (KYC/AML) and sanction requirements for decentralized finance (DeFi). According to a news release on Reed’s website, the bill is title The National Crypto Asset Security Enhancement and Enforcement Act (CANSEE).
The bill would subject DeFi operations to the same requirements as “other financial companies, including centralized crypto trading platforms, casinos and even pawnshops.” The bill would make “whoever controls the project” responsible for the sanctioned person’s use of DeFi services. What’s more:
“If no one controls DeFi services, then—as a proponent—anyone who invests more than $25 million to develop a project will be held liable for this obligation.”
The bill would also “modernize” the Treasury’s AML authority by extending it beyond the traditional financial system. According to the statement:
“As new technologies such as cryptocurrencies increasingly enable new ways of carrying out financial transactions, it is imperative to expand the Department of Finance’s authority to crack down on illicit financial activity that may occur outside the banking sector.”
The bill also sets new requirements for crypto kiosk (or ATM) operators to prevent their use in money laundering. Kiosk operators will be required to verify the identities of both counterparties in a transaction.
Related: Centralized exchange to become gateway for DeFi — CEO of dYdX Foundation
The bill has not published at the time of writing. A member of Reed’s staff contacted by Cointelegraph could not say when the bill would be issued. Text purporting to be a draft bill has been posted on GitHub.
The core problem:
The definition of “control” is so broad that it’s meaningless. There are no limits, no specifics, just “controls”, as determined by the Minister of Finance. Completely and utterly unworkable.https://t.co/rVk26MJwfA
— Meat (,) (@MeatEsq) July 19, 2023
Crypto Twitter wasted no time condemning the bill. A commenter on the phone it’s an “existential threat to DeFi” and a “nonstarter”. Other said that “imposing control responsibilities to a $25 million investment will reduce VC investment into passive DeFi token holdings b/c is NOT the same as control.”
Senators Mike Rounds, Mark Warner and Mitt Romney are cosponsors of the bill. Reed and Warner are cosponsors of a bill introduced by Senator Elizabeth Warren — the Enhanced Digital Asset Sanctions Compliance Act — in March 2022.
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