Crypto▼ Bearish
Law Enforcement: CLARITY Act Aids Criminals; Industry Fights Back
The National Sheriffs' Association repeats its warning that Section 604 of the CLARITY Act could create gaps for illicit actors, as the Senate has four days to vote before recess.
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The National Sheriffs’ Association sent a third letter to Senate leaders this month warning that the CLARITY Act’s decentralized-finance provisions would create exemptions from registration, know-your-customer, anti-money-laundering, and sanctions requirements, potentially letting illicit actors exploit platforms designed to obscure transactions. The August letter repeats a complaint the group first made in May and then joined a four-organization coalition to reiterate in late June. The core argument has not changed: Section 604 of the bill, the Blockchain Regulatory Certainty Act, carves out protections for developers who build non-custodial software, wallets, and protocols without ever taking control of user funds. Law enforcement groups say that carve-out is written broadly enough to let genuinely custodial or laundering-facilitating operations claim the same shield, weakening KYC and AML standards relative to traditional financial institutions.
The Blockchain Association immediately pushed back. Lindsay Fraser, the trade group’s chief policy officer, called the reading of Section 604 a “fundamental misunderstanding” of what the provision does. She said the section “does one narrow thing: it prevents non-custodial software developers from being misclassified as money transmitters when they do not custody assets or control transactions.” Fraser added that the provision “does not immunize criminals,” “does not limit sanctions enforcement,” and “does not stop prosecutions for money laundering, fraud, or terrorist financing.”