On December 14, 2022, Senators Elizabeth Warren (D-Mass.) and Roger Marshall (R-Kan.) introduced the Digital Asset Anti-Money Laundering Act of 2022 (the “Act”). According to the statement announcing the Act, the legislation is intended to mitigate the risks that digital assets pose to U.S. national security by bringing the digital asset ecosystem into greater compliance with the anti-money laundering and countering the financing of terrorism (“AML/CFT”) rules that govern the rest of the financial system. The Act comprises a series of prescriptions for regulators to establish rules, largely dealing with digital assets. It sets specific timelines by which such rules must be established.
This post summarizes the provisions of the Act.
Summary of the Act
Actions Specific to Digital Assets
- Money Service Business Designation. The Act requires the Financial Crimes Enforcement Network (“FinCEN”) to promulgate a rule designating the following business types as “money service businesses” (“MSBs”):
- custodial and unhosted wallet providers,
- cryptocurrency miners,
- validators,
- other nodes that may act to validate or secure third-party transactions,
- independent network participants, including MEV searchers, and
- other validators with control over network protocols.
These entities either have been explicitly stated not to be MSBs by FinCEN in its 2019 convertible virtual currency guidance or have not been discussed, leaving their current treatment ambiguous.
- Under FinCEN’s rules implementing the Bank Secrecy Act, MSBs have AML program, suspicious activity reporting and currency transaction reporting requirements, among others.
- Adoption of the unhosted wallet proposed rule. The Act requires FinCEN to finalize within 120 days of the Act’s enactment one of FinCEN’s previously proposed digital asset rules, which required banks and MSBs to submit reports, keep records, and verify the identity of customers engaged in certain digital asset activities involving an unhosted wallet or a wallet hosted in a jurisdiction identified by FinCEN.
- Reports on foreign digital asset accounts. Also within 120 days, the Act requires FinCEN to promulgate a rule that requires US persons engaged in digital asset transactions with a value greater than $10,000 through accounts outside of the United States to file reports on those accounts.
- Banning anonymity-enhancing technologies from financial institutions. The Act requires the Secretary of the Treasury (the “Treasury”) to promulgate within 120 days a rule prohibiting financial institutions, as defined under the Bank Secrecy Act, from (i) using or transacting business with digital asset mixers, privacy coins, and other anonymity-enhancing technologies specified by the Treasury or (ii) handling, using or transacting business with digital assets that have been anonymized by or using such anonymity-enhancing technologies.
- Digital asset kiosk (i.e., digital asset ATM) locations. Within one year of enactment, FinCEN must require digital asset kiosk owners and administrators to submit the physical locations of their kiosks and to and update that information every three months.
- Digital asset kiosk customer verification requirements. The Act mandates that FinCEN issue guidance within one year of enactment requiring digital asset kiosk owners and administrators to verify customers’ identities and collect certain information about transaction counterparties.
- Digital asset kiosk reports. Within 120 days, the Act requires FinCEN to issue a report on unlicensed kiosk operators and administrators, including specific identities and estimates. Within one year, the Drug Enforcement Administration is required to issue a report with recommendations to reduce drug trafficking with digital asset kiosks.
Actions Not Specific to Digital Assets
- Dedicated examination and review processes for AML/CFT compliance. Not later than two years after enactment, (i) Treasury (in consultation with the Conference of State Bank Supervisors and Federal Financial Institutions Examination Council), (ii) the Securities and Exchange Commission, and (iii) the Commodity Futures Trading Commission each must establish a dedicated risk-focused examination and review process for entities regulated by them that will assess the adequacy of AML programs and compliance with AML/CFT requirements.
The Act, if passed, would not actually have any immediate application for industry members until the rules required to be promulgated are formally adopted by the regulators referred to in the Act.
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For more discussion and analysis of developments regarding digital asset legislation or money services business see our previous posts:
- Bill Breakdown: Important Provisions in the Lummis-Gillibrand Crypto Bill
- Webcast – Deep-Dive into the Lummis-Gillibrand Responsible Financial Innovation Act with Staff Members Chris Land and Arjun Ghosh
- The State of Money Transmission Regulation and Digital Assets in 2022
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