December 11, 2023

A bipartisan group of U.S. senators has proposed the CANSEE Act to regulate DeFi platforms to curb money laundering and other financial violations.

Senators Against DeFi

U.S. Senator Takes Hard Stand on Money Laundering and Cryptocurrency Crime, Introduces New Legislation to Combat Money Laundering and Cryptocurrency Crime adjust Decentralized finance (DeFi) services. The Crypto Assets National Security Enhancement and Enforcement (CANSEE) Act requires DeFi platforms to comply with the same anti-money laundering (AML) and economic sanctions obligations as traditional financial companies.

The bipartisan team of senators behind the CANSEE Act includes Jack Reid (D-RI), Mike Rounds (R-SD), Mark Warner (D-VA) and Mitt Romney (R-UT).

DeFi becomes more centralized

The CANSEE Act will introduce stricter regulations and laws for DeFi, comparable to the level of governance of centralized institutions such as banks, securities brokers, casinos, and centralized cryptocurrency trading platforms. As a result, DeFi services must establish anti-money laundering programs, conduct due diligence on customers, and report suspicious transactions to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Senator Warner noted,

“I believe these focused measures will help maintain the robust anti-money laundering and sanctions enforcement we need to protect our national security, while allowing rule-compliant players to continue to leverage the potential of distributed ledger technology.”

The legislation will also apply to all individuals and entities that facilitate the use of DeFi platforms by sanctioned individuals. The bill’s provisions also hold accountable any investor who puts more than $25 million into a DeFi project without a clear person in charge.

Crypto ATMs Are in Trouble

The CANSEE Act also expanded its scope to include cryptocurrency ATMs, claiming that they are more likely to be used for money laundering. Under the legislation, cryptocurrency ATM operators across the country will be required to conduct identity checks on all participants involved in any single transaction.

Senator Reed said,

“Our bill will also ensure that law enforcement has access to better information about cryptocurrency transactions, which they need to fight crimes such as cross-border drug trafficking, weapons proliferation and ransomware attacks.”

Industry Criticizes DeFi Bill

The bill was strongly condemned by crypto-twitter, with experts calling it an “existential threat to DeFi.” Others have questioned the responsibility for control imposed by the bill, claiming that it will prevent venture capital institutions from making DeFi investments.

The Crypto Innovation Council said the proposal lacks specific guidance on how decentralized protocols will comply with Bank Secrecy Act (BSA) reporting requirements. They advocate an alternative approach that involves unique elements in the DeFi tech stack and leverages blockchain transparency and programmability to establish compliance measures appropriate for the crypto ecosystem.

Disclaimer: This article is for informational purposes only. It does not provide or be intended to be used as legal, tax, investment, financial or other advice.