US Senator Jack Reed has put forth a bipartisan bill to the Senate on July 18, known as the Cryptoassets National Security Enhancement and Enforcement (CANSEE) Act, aimed at tightening know-your-customer (KYC) and anti-money laundering (AML) regulations while Imposing sanctions requirements on decentralized finance (DeFi). The bill would subject DeFi businesses to the same regulations as traditional financial firms, including centralized cryptocurrency exchanges, casinos, and pawn shops. Those in control of DeFi projects would be held liable for any sanctioned individuals using their services. In the absence of a clear controller, investors contributing over $25 million to the project would bear these obligations as a fallback.
Additionally, the CANSEE Act seeks to modernize the Treasury's anti-money laundering powers, extending its scope beyond the conventional financial system to address illicit financial activities that may occur outside the banking sector. Cryptocurrency kiosk operators, or ATMs, would also face new requirements to prevent money laundering. They would need to verify the identities of both parties involved in a transaction.
Upon news of the bill's introduction, Crypto Twitter expressed strong criticism, with some labeling it an "existential threat to DeFi" and asserting that it is practically impossible to implement. Concerns were raised about the potential cooling effect on venture capital in investments in DeFi projects due to the imposed duty of control on a $25 investment.
The Cryptocurrency Innovation Council also voiced its concerns, noting that the bill lacks practical guidance for decentralized protocols to comply with Bank Secrecy Act reporting requirements. The council advocates for an approach that differentiates various elements in the DeFi techno logy stack and leverages the transparency and programmability of blockchain systems to create tailored compliance measures unique to the crypto ecosystem.
Amy James, founder of the Web3 Task Force industry advocate, expressed disappointment over diminishing support for web3 innovation in the US while recognizing the need for regulatory clarity. The hope is that legislators will adjust aspects of the bill based on industry feedback to establish a competitive and sustainable market for web3 in the US Co-sponsors of the bill include Senators Mike Rounds, Mark Warner, and Mitt Romney, with Warner and Reed also co-sponsoring another bill introduced by Senator Elizabeth Warren in March 2022, the Digital Asset Sanction s Compliance Enhancement Act.
