The Digital Asset Market Clarity Act, which was approved by the Senate Banking Committee on May 14, will set the rules of the road for an industry that has grown faster than the laws intended to regulate it.
Almost everyone agrees that cryptocurrency regulation is necessary. But as the bill moves toward a vote on the Senate floor, it contains five loopholes that threaten to undermine the structure and stability the legislation hopes to achieve.
The decentralized finance or “DeFi” gap
A platform or intermediary that moves, exchanges, hides, or otherwise facilitates the transfer of value should not be able to avoid oversight simply by calling itself “decentralized.” North Korean hackers have repeatedly exploited mixers and other virtual asset laundering infrastructure to move stolen cryptocurrencies and help fund the regime’s weapons programs. The Treasury has discovered that Tornado Cash was used to launder more than $455 million stolen by the Lazarus Group, and UN experts have reported that North Korea subsequently laundered another $147.5 million through the same platform. These are exactly the blind spots that Congress must close: When a digital asset platform or intermediary performs financial functions, it must be subject to adequate anti-money laundering and sanctions safeguards.
The legal loophole called “Tornado Cash”
Some crypto tools are designed to continue working automatically, even when it becomes clear that they are being used to launder money. When anti-money laundering rules apply to a person but evaporate the moment the software performs the same task, the result is not a safeguard: it is a workaround written into the law. The urgency is not hypothetical. Last May, FinCEN warned US banks that Iran’s Islamic Revolutionary Guard Corps had built a multi-jurisdictional shadow banking network (combining digital asset infrastructure with front companies and exchange houses) to launder oil revenues and finance weapons procurement and terrorism. Congress should give the Treasury Department’s Office of Foreign Assets Control (OFAC) the explicit authority it needs to take action against anonymization tools used to evade sanctions.
The stablecoin gap
The GENIUS Act, passed earlier this year, established the core framework for stablecoin issuers, but allowed illicit actors to bypass that framework through DeFi protocols, offshore platforms, mixers, or other services that move stablecoins without meaningful controls. Sanctioned Russian entities have already used stablecoins, including through platforms that do not impose identity verification requirements, to move funds and sustain financial networks. The Clarity Act should require stablecoin issuers to implement reasonable monitoring of the entire ecosystem to identify and report suspicious activity. Without that broader visibility, stablecoins risk becoming the preferred lane for sanctions evasion, fraud, ransomware, trafficking, and corruption-related money laundering.
The jurisdictional gap
A platform that serves US clients or conducts activities through the US financial system should not be able to shed its anti-money laundering and sanctions obligations simply by registering its headquarters abroad. The Department of Justice recently charged a Venezuelan national with allegedly laundering approximately $1 billion through a network that used bank accounts, cryptocurrency exchange accounts, private wallets, shell companies, and transactions in and out of the United States. Cross-border flows like that are precisely what escape when platforms choose the jurisdiction with the least scrutiny. If a platform or intermediary facilitates illicit financing, it must be isolated from the legitimate financial system.
The gap between ethics and conflict of interest
Four days before the 2025 inauguration, a member of President Trump’s immediate family reportedly signed a deal to sell a 49% stake in his crypto company, World Liberty Financial, to an Abu Dhabi-backed entity for $500 million. According The Wall Street JournalThe Trump Administration later approved giving the United Arab Emirates access to 500,000 of the world’s most advanced AI chips, overcoming long-standing national security objections. The Clarity Act now moves forward under an administration whose family has direct financial interests in the same digital asset companies that the bill would govern. No unbiased cryptographic framework can be built on that foundation. The Clarity Law must prohibit public officials and their immediate family members to own, promote, sponsor, support or solicit investments in digital asset companies while the official is in office.
These five gaps are not abstract concerns. Each of them relates to activity that is already occurring: sanctioned states moving money, foreign officials laundering bribes, hostile actors funding weapons programs, and the family of a sitting president selling stakes in the industry the legislation is intended to regulate. Congress has the opportunity to write rules that protect the integrity of the American financial system. You also have the opportunity to write rules that quietly adapt to those who want to exploit you. The version of the Clarity Law that is now advancing to the Senate floor still does not distinguish clearly enough between the two.
The election before the Senate is not whether to regulate cryptocurrencies. It’s about whether the rules Congress writes will be strong enough to do what regulation is supposed to do: protect consumers, defend America’s national security and ensure that public offices cannot be used for personal or family gain. There are five gaps between this bill and that rule. They can and should be closed.
