Bipartisan Legislation Introduced to Address Crypto Money Laundering | Practical Law

Bipartisan Legislation Introduced to Address Crypto Money Laundering | Practical Law

US Senators Elizabeth Warren (D-MA) and Roger Marshall (R-KS) introduced the Digital Asset Anti-Money Laundering Act of 2022 (DAAMLA), which would authorize the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) to designate digital asset wallet providers, miners, validators, and certain other market participants as money service businesses (MSBs). This would extend anti-money laundering (AML) obligations under the Bank Secrecy Act (BSA) to these parties.

Bipartisan Legislation Introduced to Address Crypto Money Laundering

Practical Law Legal Update w-038-0003 (Approx. 5 pages)

Bipartisan Legislation Introduced to Address Crypto Money Laundering

by Practical Law Finance
Published on 21 Dec 2022 • USA (National/Federal)
US Senators Elizabeth Warren (D-MA) and Roger Marshall (R-KS) introduced the Digital Asset Anti-Money Laundering Act of 2022 (DAAMLA), which would authorize the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) to designate digital asset wallet providers, miners, validators, and certain other market participants as money service businesses (MSBs). This would extend anti-money laundering (AML) obligations under the Bank Secrecy Act (BSA) to these parties.
On December 14, 2022, US Senators Elizabeth Warren (D-MA) and Roger Marshall (R-KS) introduced the Digital Asset Anti-Money Laundering Act of 2022 (DAAMLA), which would authorize the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) to designate digital asset wallet providers, miners, validators, and other select network participants as money service businesses (MSBs) (see Practice Note, FinCEN Regulation of Virtual Currency: Overview).
That designation would extend anti-money laundering (AML) responsibilities under the Bank Secrecy Act (BSA) to these parties (see Practice Note, FinCEN Regulation of Virtual Currency: Overview). Unhosted wallets, miners, and validators are not currently required to register with FinCEN as MSBs.
A joint press release issued by Senators Warren and Marshall indicated DAAMLA would:
  • Mitigate the risks that digital assets pose to national security by closing loopholes in the existing AML and countering of the financing of terrorism (CFT) framework.
  • Bring the digital asset ecosystem into greater compliance with the rules applicable to the broader financial system.
Specifically, DAAMLA would:
  • Direct FinCEN to designate digital asset wallet providers, miners, validators, and other select network participants that may act to validate, secure, or facilitate digital asset transactions as MSBs. This would extend BSA responsibilities, including know-your-customer (KYC) requirements, to these parties (see Practice Note, USA PATRIOT Act and Know Your Customer Requirements for Lenders).
  • Direct FinCEN to finalize and implement its December 2020 proposed rule, which would require banks and MSBs to verify customer and counterparty identities, keep records, and file reports in relation to certain digital asset transactions involving unhosted wallets or wallets hosted in non-BSA compliant jurisdictions (see Legal Update, FinCEN Proposes Regulatory Framework for Certain Convertible Virtual Currency and Digital Asset Transactions). This would address a major regulatory gap with respect to unhosted digital wallets, which allow individuals to bypass AML and sanctions checks.
  • Prohibit financial institutions from using or transacting with digital asset mixers and other anonymity-enhancing technologies and from handling, using, or transacting with digital assets that have been anonymized using these technologies (see Legal Updates, Updated: OFAC Issues Sanctions Against Virtual Currency Mixer Tornado Cash and Updated: OFAC Issues FAQs Clarifying Sanctions Against Virtual Currency Mixer Tornado Cash).
  • Direct the US Treasury Department to establish an AML/CFT compliance examination-and-review process for MSBs and direct the SEC and CFTC to establish AML/CFT compliance examination-and-review processes for the entities they regulate.
  • Require US persons who engage in a transaction with a value greater than $10,000 in digital assets through one or more offshore accounts to file a Report of Foreign Bank and Financial Accounts (FBAR) with the Internal Revenue Service. This would extend BSA rules on reporting of foreign bank accounts to include digital assets.
  • Direct FinCEN to ensure that digital asset ATM owners and administrators regularly submit and update the physical addresses of the kiosks they own or operate and verify customer identity to attempt to mitigate illicit finance risks of digital asset ATMs.