Republican Sen. Tillis Calls for ‘Light’ Crypto Regulatory Framework Ahead of Presidential Election

On Tuesday, U.S. Senator Thom Tillis (R-N.C) proposed that a regulatory framework, which he described as “gentle” or “light,” be implemented for the crypto industry. This framework would aim to mitigate potential risks, such as another collapse of a platform like FTX and illegal financing of terrorism. At the same time, it would provide a welcoming environment where digital assets can grow and prosper.

During a Senate Banking Committee hearing on Tuesday, Deputy Treasury Secretary Wally Adeyemo spoke about the Treasury Department’s initiatives to combat illicit finance, terrorism financing, and sanctions evasion. He urged committee members for more resources to tackle crypto-related crimes, having made similar requests in November.

“One thing I’d tell people in the crypto or digital assets space that say ‘Nothing to see here, everything is fine’ – they’re wrong,” Sen. Tillis said. “There needs to be some light regulatory regimen put into place, otherwise there are risks…We want to create the most hospitable environment for digital assets to thrive. We don’t want to overreach and lose the opportunity to be that jurisdiction.”

Tillis added that if there is a change of administration following the presidential election in November, the view of how to regulate crypto will be “vastly different.”

“I personally advocate for collaborating with the Treasury Department to tackle the items from your list that we concur on. This way, we can pass regulations during this Congress, which won’t satisfy all my colleagues’ demands but will still provide some structure instead of the current chaotic situation.” (Tillis’s statement paraphrased)

On Monday, Senators Tillis and Hagerty (R-Tenn) introduced a proposed bill named ENFORCE Act as a discussion draft. This new legislation is designed to ensure that centralized cryptocurrency companies comply with the Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations.

Democrats on the Senate Banking Committee, such as Senators Elizabeth Warren of Massachusetts, Mark Warner of Virginia, and Bob Menendez of New Jersey, advocated for stricter cryptocurrency regulations.

“Name your bad guy, and crypto is the way they can move money around,” Sen. Warren said.

Validators, who verify transactions on proof-of-stake blockchains according to Warren, don’t face the same regulations as banks regarding anti-money laundering (AML) and know-your-customer (KYC) compliance.

“Warren stated that stablecoins facilitate the conversion of dollars to cryptocurrency and vice versa, serving as a entry point into the crypto market. However, if we aim to establish new access points, it is crucial to have a regulatory framework in place to implement anti-money laundering regulations, preventing illicit activities such as those conducted by Iran, terrorists, drug dealers, and human traffickers from profiting further,” is one possible way to paraphrase the given text.

Expanded powers

At the lengthy session lasting an hour, Adeyemo argued for broader authority granted to the Treasury to effectively put a stop to unlawful cryptocurrency financing.

Adeyemo explained to the Committee that the Treasury’s enhanced capacity to isolate foreign adversaries, such as Iran, Russia, North Korea, and terrorist organizations like Hamas and Al-Qaeda, from the conventional financial system has led them to seek alternatives. Now, they are resorting to cryptocurrencies as a means to bypass these restrictions.

He has requested Congress to pass three laws. The first one is a “punitive measure” against financial exchanges that support illegal financing, allowing the Treasury Department to expand its ability to identify and target such activities.

Secondly, Adeyemo proposed broadening the Treasury’s jurisdiction to explicitly include “the major actors and essential functions of the digital asset marketplace.”

To put it simply, he proposed a change to tackle the risk posed by offshore cryptocurrency platforms to our jurisdiction, enabling the Treasury to make clear that it can extend its authority beyond borders when digital asset companies threaten our security while exploiting our financial system. This action would not only help in preventing illicit financing but also ensure fair competition for U.S.-based Virtual Asset Service Providers (VASPs).