The U.S. Senate is considering the CLARITY Act, which includes provisions to expand anti-money laundering requirements for certain cryptocurrency intermediaries. This legislative action follows an alert issued in May by the Financial Crimes Enforcement Network (FinCEN), stating that Iran was using digital currencies to evade sanctions and support terrorist groups.

Section 201 of the CLARITY Act specifically addresses the expansion of anti-money laundering requirements for some crypto intermediaries. The U.S. Treasury Department has sought to sanction Iran's attempts to collect cryptocurrency tolls over the last three months. Iran has attempted to coerce ships exiting the Strait of Hormuz into paying tolls using cryptocurrency.

FinCEN's May alert warned that "uneven and often inadequate regulation and supervision of digital assets—including a lack of implementation of FATF standards—across jurisdictions also enables Iranian facilitators to access digital assets through international [digital asset service providers]."

The Fraternal Order of Police, which represents sworn law enforcement officers, has expressed concern regarding certain provisions in the CLARITY Act. The organization stated that carve-outs granted to crypto firms "would strip prosecutors and law enforcement of the statutes used to track and take down criminals using these digital assets to commit crimes."

Why It Matters

The proposed CLARITY Act addresses a current challenge in international financial enforcement. The use of digital currencies by entities like Iran to bypass sanctions and fund illicit activities has led to calls for increased regulatory oversight. The Financial Action Task Force listed the risks of "virtual currency" as one of its top three priorities in 2018, the same year the U.S. held its presidency.