NAAUSA Advocacy Update: CLARITY Act and Federal Law Enforcement Authorities
NAAUSA continues to play an active role in negotiations surrounding the Digital Asset Market Clarity (CLARITY) Act, legislation intended to establish a new federal regulatory framework for the digital-asset marketplace. NAAUSA remains opposed to the legislation in its current form as negotiations continue.
While NAAUSA supports efforts to provide regulatory clarity, our engagement has focused on ensuring that the final legislation does not inadvertently weaken authorities federal prosecutors and law enforcement rely upon to investigate and prosecute illicit financial activity.
Preserving Federal Criminal Enforcement Authorities
NAAUSA’s principal concern has centered on provisions that could affect federal prosecutors’ ability to pursue illicit money transmission, including cryptocurrency transactions involving criminal proceeds or funds intended to support unlawful activity.
These authorities can be important in investigations involving money laundering, fraud, narcotics trafficking, terrorism financing, and other criminal activity. NAAUSA and its law enforcement partners have therefore urged Congress to ensure that protections intended for legitimate developers or decentralized technologies do not inadvertently create broader safe harbors for individuals or entities engaged in unlawful financial activity.
The broader law enforcement concerns extend beyond criminal money-transmission authority. In its July 31 letter to Senate leadership, the National Sheriffs’ Association warned that provisions affecting certain decentralized-finance participants could create exemptions from registration, know-your-customer, anti-money-laundering, and sanctions requirements. NSA argues that such exemptions could impede investigations, disruption of criminal networks, asset recovery, and victim protection.
Moving From Concerns to Solutions
NAAUSA’s engagement has gone beyond opposing provisions of the legislation.
Throughout the summer, NAAUSA has worked with national law enforcement stakeholders to develop, review, and evaluate potential legislative language and compromise proposals intended to address the most significant enforcement concerns while allowing Congress to move forward with a digital-asset regulatory framework.
NAAUSA has been in regular communication with the White House, the Department of the Treasury, key Senate offices, and national law enforcement partners regarding those proposals.
As part of those discussions, NAAUSA has communicated what it believes would constitute a reasonable path forward and could permit the Association to move from opposition to a neutral position if appropriate protections for existing law enforcement authorities are incorporated. Democratic offices involved in the negotiations have expressed support for that approach.
NAAUSA’s preference remains for the broader set of law enforcement concerns to be addressed in the final legislation.
Law Enforcement Partners Continue to Raise Concerns
NAAUSA is one of several national law enforcement organizations that have raised concerns about provisions of the CLARITY Act and their potential impact on criminal investigations and enforcement. NAAUSA has remained closely aligned and engaged with our law enforcement partners throughout the legislative process as we work toward changes that appropriately preserve existing enforcement authorities.
Most recently, the National Sheriffs’ Association (NSA) sent Senate Majority Leader John Thune and Democratic Leader Chuck Schumer a detailed letter and accompanying analysis outlining its concerns and proposing specific legislative changes. NSA supports establishing a responsible regulatory framework for digital assets but argues that significant law enforcement and public-safety risks should be addressed before the Senate votes.
The accompanying 13-page analysis examines the legislation section by section, including provisions affecting registration, know-your-customer requirements, anti-money-laundering obligations, sanctions compliance, decentralized finance, and federal money-transmission laws. It also identifies potential solutions and proposed legislative changes. We encourage NAAUSA members interested in the underlying law enforcement issues to read NSA’s excellent and comprehensive analysis, which provides a useful overview of many of the concerns NAAUSA and our law enforcement partners have been working to address. Read NSA’s Letter and Detailed Analysis →
Senate Leaves Without a Vote — Negotiations Continue
The Senate ultimately departed Washington for its August recess without voting on the legislation.
For NAAUSA and its law enforcement partners, the delay provides additional time to continue working toward resolution of the outstanding enforcement concerns before the legislation advances. It also signals that negotiations remain active.
Law enforcement is only one part of the broader negotiation. Senators are also continuing discussions over ethics restrictions related to government officials’ cryptocurrency interests, as well as provisions affecting crypto rewards programs and their implications for banks. Before recess, Majority Leader Thune filed for a procedural vote, positioning the legislation for further consideration when senators return.
Looking Ahead
Our objective is straightforward: provide Congress with a workable path forward that allows lawmakers to establish a regulatory framework for digital assets without inadvertently compromising the tools prosecutors and investigators need to combat illicit finance.
NAAUSA will remain in communication with the White House, Treasury, Senate offices, and our national law enforcement partners as negotiations continue and will keep members informed of significant developments.