Law Enforcement, Catholic Groups Warn CLARITY Act Creates Crypto Loopholes

Law enforcement groups and Catholic leaders sent letters Tuesday warning that a provision in the Digital Asset Market Clarity Act would weaken the tools used to fight financial crime.

The law enforcement letter, addressed to Acting Attorney General Todd Blanche and White House digital assets adviser Patrick Witt, came from four organizations: the National District Attorneys Association, the National Association of Assistant United States Attorneys, the International Association of Chiefs of Police, and the National Sheriffs’ Association. Together they represent more than 70,000 prosecutors and sheriffs.

Their target is Section 604 of the bill, which would incorporate the Blockchain Regulatory Certainty Act. That language says a developer or infrastructure provider who cannot move or control a user’s digital assets is not a money transmitter under federal law.

Proponents say the exemption protects software developers from criminal liability. Law enforcement groups say it goes too far.

“As currently drafted, Section 604 risks creating gaps in oversight and accountability that could impede those efforts,” the groups wrote. They said their concern is “not with individuals who merely write or publish software code, nor with responsible technological innovation,” but with exemptions that could shield actors who facilitate the movement of digital assets while blocking investigators.

The groups also argued the bill falls short on anti-money laundering requirements. It does not establish suspicious activity monitoring and reporting obligations comparable to those for traditional financial intermediaries. Certain provisions could exempt mixers and some decentralized finance businesses from AML and know-your-customer rules, they said.

A separate letter sent to Senate Majority Leader John Thune and Democratic Leader Charles Schumer carried signatures from roughly 80 organizations and leaders, including the Alliance to End Human Trafficking and dozens of Catholic sisters and survivor advocates.

“Human traffickers are quick to exploit new technologies when oversight fails to keep pace,” the groups wrote. They argued the bill’s regulatory gaps could make it harder to trace financial flows tied to trafficking and child exploitation.

H.R. 3633, the Digital Asset Market Clarity Act, is the most significant crypto legislation in years. The House passed it 294-134 in July 2025. The Senate Banking Committee cleared it 15-9 in May 2026, placing it on the Legislative Calendar for a floor vote. The bill divides oversight between the SEC and CFTC and creates a framework for exchanges, brokers, stablecoin issuers, and DeFi participants – shaping the regulatory framework for the crypto market.

For Bitcoin (BTC) and Ethereum (ETH) traders, the outcome determines whether the U.S. market gets clear rules or remains in the current patchwork of enforcement actions.

The bill needs 60 votes in the Senate. The 60-vote requirement gives moderate Democrats leverage. Senators Mark Warner of Virginia and Catherine Cortez Masto of Nevada have both tied their support to law enforcement’s sign-off on Section 604. The opposition letters directly threaten the bill’s prospects.

Congress has scheduled a July 17 hearing in New York on the CLARITY Act. The Senate returns from recess next week. The hearing will give law enforcement a platform to press their case. Warner and Cortez Masto have not said whether the current letters change their position.