Existing Law Already Covers Crypto AML. The Current Clarity Act Would Create New Gaps.

Some crypto advocates argue that Congress must pass the Clarity Act to create an anti-money laundering framework for digital assets because in their view, Congress has not to date weighed in on the specific AML requirements that should apply to crypto. That's not true. That framework already exists: the Treasury Department has authority today to impose anti-money laundering requirements on much of the digital asset ecosystem. The question is whether Congress will strengthen the law to require such coverage of the current ecosystem or weaken it by carving out major parts of the crypto market from similar AML requirements to which banks are subject, leaving gaps in the ability to track and stop the flow of illicit finance.

Strengthen the Existing Foundation - Don't Burn It Down

Congress does not need to start from scratch. The Bank Secrecy Act already gives federal regulators tools to oversee much of the crypto market, including centralized intermediaries. Many exchanges and custodians are already covered as money services businesses under the BSA and subject to its requirements, and the GENIUS Act extends AML coverage to permitted payment stablecoin issuers as a "financial institution" under the BSA. Treasury has authority today to require digital asset intermediaries that are not already subject to the BSA to comply with its obligations, although to date it has not done so.

The current Clarity Act fails to address the AML gaps that do exist:

• It does not require all digital asset service providers (DASPs) and other intermediaries, including DeFi entities, to comply with the BSA. This approach leaves significant openings for some custodians, exchanges, unhosted wallet providers and DeFi developers to operate outside the regulatory perimeter.
• It does not give Treasury clear authority to sanction mixers, tumblers and other tools used to launder money, finance terrorism and evade sanctions. Congressional action is critical to combat criminals' ability to evade detection in the cryptosphere using these tools.

The risk: bad actors will go where the rules are weakest. A framework that covers only part of the market and exempts others will push illicit finance to these unregulated corners of the ecosystem. Clarity as currently written would not plug AML gaps; it would exacerbate the problem.

Right now, Treasury has the legal authority to close current AML and sanctions gaps. Treasury could clarify when secondary market actors should be treated as financial institutions under the BSA or subject to other anti-money laundering obligations.

Congress can help, but it should do so effectively.

• Clarity should not exempt entities operating in the crypto ecosystem and should in fact require that all such entities be subject to AML/CFT requirements similar to what banks are subject to.
• Congress should give Treasury clear authority to sanction mixers, tumblers and other blockchain applications that facilitate illicit finance.

Bottom Line: If policymakers want to ensure crypto is subject to robust AML requirements, they should reinforce the AML framework authorized by existing law rather than weakening those requirements as the current legislation does. A comprehensive crypto anti-illicit finance framework depends on regulators exercising their current authority, which could be further strengthened by targeted legislative fixes. Rewriting the law in a way that exacerbates the existing regulatory gaps would enable criminals to continue to exploit the system.