Draft Bill Would Give US Treasury Power to Ban Crypto Exchanges

It's been a while since U.S. lawmakers tucked a provision that could upend the crypto industry into a seemingly unrelated bill that was all but assured to pass.

The draft version of the America COMPETES Act of 2022, which advanced out of the House Committee on Science, Space, and Technology this week, funds a litany of measures to maintain U.S. economic superiority over China. It touches on improving medical supply chains, strengthening cybersecurity, and promoting STEM research, among many other issues.

It also would give the Treasury Secretary the power to all but shut down cryptocurrency exchanges, according to crypto-centric think tank Coin Center.

As described by Executive Director Jerry Brito and Research Director Peter Van Valkenburgh, the bill as written "empowers the Secretary to prohibit any (or indeed all) cryptocurrency transactions at financial intermediaries without any process, rulemaking, or limitation on the duration of the prohibition."

The bill's not just aimed at crypto, however. The provision applies to all regulated financial institutions in the U.S. and is designed to counter international money laundering.

To be clear, the Treasury Secretary, who is appointed by the President and confirmed by the Senate, already has the power to shut down any account he or she finds to be a money laundering concern connected to an individual or organization outside the U.S. But there are caveats. The public has to be notified and be given a chance to comment beforehand, and any prohibition can't last longer than 120 days.

The proposed bill would do away with those requirements, while also allowing the Secretary to take an additional "special measure" to conduct financial surveillance—by allowing him or her to define "transmittal of funds" to fit just about any activity related to potential money laundering.

"This amendment offers the Secretary an entirely unchecked power to secretly ban or condition any transaction at any domestic financial institution," write Brito and Van Valkenburgh. "It is a dangerously authoritarian approach to solving money laundering concerns."

Coin Center is particularly concerned about a potential chilling effect on cryptocurrencies because it sees exchanges as easy targets due to their global nature. Users come from across the globe; a transaction that begins in Des Moines might get validated by a miner in Tehran.

Rohan Grey, an assistant professor at Willamette University who drew the ire of many crypto proponents by drafting the STABLE Act in 2020, told Decrypt he shares Coin Center's misgivings. "There is a big difference between being concerned about systemic risk of monetary/financial instability and giving a blank check to dragnet-style surveillance and censorship," he said.

The draft bill comes on the heels of a report this week from blockchain data firm Chainalysis demonstrating that criminals laundered at least $8.6 billion in crypto in 2021 from darknet markets and ransomware attacks, a 30% increase from the previous year thanks to a boom in crypto usage and pricing. Most of it went through centralized exchanges.

Though the U.S. dollar remains a much more common tool for money laundering than Bitcoin and other cryptocurrencies, policymakers continue to point out BTC's potential use in crime. Treasury Secretary Janet Yellen commented during her confirmation hearing last year that digital assets' role in illicit finance was "of particular concern" and that she wanted to examine ways to ensure that "money laundering doesn't occur through those channels."

Whereas Yellen's response was measured, other politicians' views have been more persistently negative, with regard to not just crime but also environmental impact. In Coin Center's eyes, the bill "is an attempt (deliberate or not) to use the moral panic surrounding criminal usage of cryptocurrencies (as evidenced by the provision’s findings) to strip our surveillance laws of all public processes."

The crypto industry remains on high alert to such attempts. Last year, a $1.2 trillion infrastructure bill tucked in a provision that changed the definition of "brokers" to include not only cryptocurrency exchanges but also—if applied broadly—miners, stakers, wallet providers, and software developers. This technically requires such groups to file 1099 forms with personal data from their "customers," a proposition Coin Center and others have called unworkable due to decentralization.

Says Coin Center: "Like the unnecessary redefinition of 'broker' in the infrastructure bill last summer, the parts of this language aimed at cryptocurrencies are entirely unnecessary while the removal of procedures and the creation of unlimited administrative discretion is deeply consequential."

Editor's Note: An earlier version of this article stated that the Treasury Secretary already had the power to prohibit "transmittals of funds." In fact, this is a new measure being proposed. The article has been updated to clarify.