In a notable move, the U.S. Senate passed the 2024 National Defence Authorisation Act (NDAA) on Thursday evening, which includes a provision aimed at enhancing oversight over financial institutions involved in cryptocurrency trading. Additionally, the amendment takes aim at crypto mixers and "anonymity-enhancing" crypto assets. The amendment, brought forward by a bipartisan group of Senators, signifies a significant step in congressional actions related to crypto assets.
The provision was championed by Democratic Party Senators Kirsten Gillibrand and Elizabeth Warren, as well as Republican Senators Cynthia Lummis and Roger Marshall, who jointly stated in a press release that this amendment is one of the most substantial actions taken by Congress concerning crypto assets. The amendment's foundations were drawn from the 2023 Lummis-Gillibrand Responsible Financial Innovation Act, as well as Senator Warren's and Senator Marshall's Digital Asset Anti-Money Laundering Act, initially introduced in 2022.
The key elements of the amendment focus on ensuring enhanced oversight in the crypto sector. It mandates the Secretary of the Treasury to establish examination standards specifically for crypto assets. These standards are designed to assist examiners in better assessing risk factors and ensuring compliance with anti-money laundering and sanctions laws. Furthermore, the Treasury Department will conduct a comprehensive study on "combating anonymous crypto asset transactions," which will include an examination of crypto mixers used to obscure fund origins.
In light of this development, Senator Lummis emphasised the importance of curbing illicit finance within the crypto asset industry. She stated that such measures are crucial for identifying and deterring bad actors, ensuring that crypto assets are not misused to evade sanctions or fund illegal activities like terrorism.
Adding non-defence-related amendments to the NDAA is a common practice. Following the Senate's approval, the House also passed its version of the NDAA earlier this month. The next step involves negotiations between both chambers to reach a mutually acceptable version that can pass through both houses.
The securitisation of crypto
The addition of this bill, however, could signal how important crypto is becoming to not only regulators, but to legislators and governments as well.
Whether or not crypto is a security, commodity, or currency is no longer the primary concern. Instead, the key concern is one of high politics- the security of the nation as a whole.
In particular, it is a sign that legislators believe that crypto has a money laundering problem serious enough to constitute a threat to its national defence.
And in some ways, these legislators have a point.
The use of crypto mixers, chain hopping, and many other means of obfuscating the origin of funds can mean that money laundering is much easier in the crypto space than in traditional finance.
Combine this with the ethos of decentralisation and distrust of government that is pervasive in the crypto space, and we have the perfect storm. We would be hard pressed to find a more attractive vehicle for centralised organisations to exploit for their own benefit, through means that are less than ethical.
After all, in a world without police or law enforcement, one has little recourse when they are targeted for hacks, scams, or other forms of criminal activity. Countries like North Korea have taken full advantage of this, even training elite units to deploy malware and target politically important objectives.
Even tacit involvement, such as the Russian government turning a blind eye to crypto criminal organisations within their borders, can mean that crypto crime goes unpunished and criminals are able to launder the funds easily.
Of course, there are legitimate purposes for cryptocurrencies to exist- as an investment, as a hedge against inflation, and much more.
But it is also true that many of the US’ enemies are using crypto in ways that are detrimental to its interests, and legislators have finally decided that it cannot go on indefinitely.
Moving forward, we may see similar pieces of legislation that talks about crypto as not just something ‘important’, but something that might be ‘critical’ or ‘existential’. Crypto has now entered high politics, and in all likeliness, until crypto can shed its reputation for shady business, it is likely to remain in the sights of those concerned with national security.
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