A company issuing stablecoins in the US would have a number of new tasks to scare away criminals and keep government watchdogs informed about malicious actors, according to rules that the US Treasury Department will propose and which were reviewed by CoinDesk.
A joint proposal from the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) will outline the deep controls that stablecoin companies would have to implement, including capabilities to “block, freeze and reject” transactions and internal protections to comply with the Bank Secrecy Act that governs most of the US financial system.
In one of the most significant moves yet to implement last year’s Guidance and Establishment of National Innovation for US Stablecoins (GENIUS) Act, the first major crypto sector law for the US, the two branches of the Treasury Department that police illicit finance are establishing a tailored approach to stablecoin companies, which will open for a public comment period and possible revisions before it is finalized. But the agencies are also sending a message of deference to the industry, suggesting that companies better understand their own dangers.
A summary of the joint proposal reviewed by CoinDesk says it focuses on effectiveness “and that financial institutions are better positioned to identify and assess their money laundering, terrorist financing, and illicit finance risks.” The department’s effort maintains that a company that applies appropriate anti-money laundering measures is generally safe from enforcement actions unless it shows “a significant or systemic failure to maintain that program.”
On that money laundering front, FinCEN would expect stablecoin issuers’ programs to be able to stop specifically flagged transactions and know where to devote “more attention and resources toward higher-risk customers and activities.” When US authorities pursue a specific target, regulated issuers subject to this proposed rule would have to search their own records for any activity linked to individuals or entities flagged by FinCEN.
Additionally, issuers are expected to act as allies in the agency’s pursuit of entities identified as “major money laundering concerns.” As recently as 2023, the agency had tried to label cryptocurrency mixers like Tornado Cash under that label, although earlier this year, the Treasury Department changed course to suggest that the mixers could serve legitimate and legal privacy uses.
On the sanctions front, OFAC would require stablecoin issuers to apply risk-based safeguards for stablecoin activity in primary or secondary markets, and policies must detect and reject transactions “that may or would violate U.S. sanctions.” Sanctions lapses, including egregious violations in the past, have been a critical concern for critics of the cryptocurrency industry, including recent scrutiny focused on the world’s largest exchange, Binance.
Treasury Secretary Scott Bessent said in a statement that his department’s latest efforts will “protect the American financial system from national security threats without hindering the ability of American businesses to advance the payment stablecoin ecosystem.”
The cryptocurrency industry and its stablecoin leaders, including Tether, Circle, Ripple, and the company partially owned and controlled by President Donald Trump’s family, World Liberty Financial, have been waiting for regulation that will help further establish that their custom assets are safe and reliable. Some tensions remain in the broader crypto community, which has had a tumultuous relationship with governments since its inception, when its founding principles aimed to keep cryptocurrencies out of government control.
The decentralized finance (DeFi) sector remains a space that seeks to eliminate intermediaries and maintain direct interactions, but illicit finance controls for that space have not yet been resolved in ongoing negotiations between the industry, the securities sector and lawmakers over the Digital Asset Market Clarity Act in the US Senate. While the Treasury’s stablecoin proposal and others from US financial regulators are beginning to outline security barriers, broad swaths of crypto activity still need to be addressed.
Earlier this year, a third branch of the Treasury — the independent Office of the Comptroller of the Currency that regulates domestic banks and trusts — proposed its standards and procedures for issuers that it will observe as the top federal regulator. This week, its sister regulator, the Federal Deposit Insurance Corporation, followed suit with a largely parallel proposal.
The GENIUS Act is expected to come into full effect in 2027. Long before that, companies have been seeking charters and partnerships to get involved in stablecoins. Trump-linked World Liberty, for example, applied for charter as a trust bank in January and manages the $1 stablecoin.
The company is under new scrutiny this week after it was reportedly unaware that its partner AB DAO was involved in a project with possible links to Cambodia’s Prince Group, the target of major investigations, sanctions and last year’s seizure of a record $14 billion in bitcoin by the United States. . Those types of business relationships at stablecoin issuers would be under strict new industry-managed controls in the Treasury Department’s pending proposal.
