The Clarity Act isn't a ticket to sanctions evasion, actually

Last week, Democratic Senator Elizabeth Warren took to X to suggest that the Digital Asset Market Clarity Act, at least as it is currently drafted, is a "ticket to sanctions evasion," joining a small-but-loud chorus of critics expressing concern about the impact the pending legislation could have on national security. Because some of the scrutiny is coming from people who have spent time in the sanctions and national security space, their questions about where enforcement gaps might sit deserve careful engagement.

Let me be clear. The Clarity Act is not, as Senator Warren put it, a ticket to sanctions evasion. It is a way to stop sanctions evasion, and stop it at scale, because the bill builds directly on tools already producing results in the field.

Ironically, some critics of the bill have pointed to recent reporting by the Wall Street Journal on the Hong Kong exchange CoinEx as evidence of the risk. CoinEx is actually a story of how to use a public ledger to track, trace, and disrupt nation state activity.

Investigators traced roughly 3.84 billion dollars in transactions tied to Iran, connecting wallets controlled by Iran's central bank to sanctioned military networks and to funds stolen separately by North Korean hackers. That level of detail is knowable today because it happened on a public blockchain, the same visibility critics are treating as the risk.

What the Clarity Act actually contains

Clarity contains nearly twenty distinct provisions addressing anti-money laundering, sanctions, and law enforcement authority.

As the bill is currently drafted, digital asset service providers get brought fully under the Bank Secrecy Act for the first time, with risk assessments, internal controls, a compliance officer, training, audits, and suspicious activity reporting all required.

Real-time information sharing between exchanges and law enforcement gets written into statute as recognized practice --- the Beacon Network model of real time interdiction, seizure and disruption --- replacing voluntary industry coordination with a legal standard.

An independent working group gets tasked with developing AI-powered tools to detect and disrupt terrorist financing and money laundering in digital asset markets. Kiosk operators face wallet pinning, hold periods, and daily transaction caps for first-time users, paired with blockchain intelligence requirements to catch scammers before funds leave the platform.

The Treasury Department gains explicit authority to act against jurisdictions of primary money laundering concern at the source, cutting off illicit flows at the country level rather than chasing them transaction by transaction.

A digital assets hold law gives digital asset service providers and stablecoin issuers explicit authority to hold and, where warranted, freeze funds tied to suspected illicit activity, extendable well beyond the initial hold period, with every existing reporting obligation and sanctions authority preserved.

Non-custodial developers who never touch user funds get a clear legal shield under the Blockchain Regulatory Certainty Act, a provision within Clarity, while explicitly preserving law enforcement's ability to charge money laundering conspiracy against anyone who knowingly facilitates the transfer of criminal proceeds, custodial or not.

A driving force behind Clarity has been to offer U.S.-based crypto companies the guidelines they need to operate safetly and legally, therefore keeping builders inside the United States. By keeping builders here, instead of pushing them offshore, we keep them inside the Bank Secrecy Act, inside US courts, and inside reach of US law enforcement. A developer building non-compliant software offshore sits far harder to compel, subpoena, or hold accountable than one operating under this statute at home.

A great deal has been written about law enforcement organizations opposed to Clarity. Three major ones, the National Organization of Black Law Enforcement Executives, the Major County Sheriffs of America, and the Federal Law Enforcement Officers Association, have instead come out in support, pointing to the Bank Secrecy Act coverage, the sanctions authority, and the transaction hold authority as the provisions that matter most for investigators.

Sure, crypto, blockchain, and AI are being used by illicit actors. Bad actors have always been early adopters of transformative technology, from the telegraph to the internet to encrypted messaging. The solution to the criminal abuse of technology is not to ban or stifle the technology. It is to use it, and use it wisely. It is to provide legal clarity to those building and using the technology.

We have to stay a step ahead of illicit actors by leveraging the same innovations they use for bad, for good, whether that means real-time information sharing across exchanges and law enforcement, or a digital assets hold law that lets issuers act on illicit funds in hours rather than years. The Clarity Act is not a ticket to sanctions evasion. It provides legal clarity to builders, and it gives law enforcement the tools to stop bad actors abusing transformative technology.

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