The Digital Asset Market Clarity Act, which cleared the Senate Banking Committee on May 14, will set the rules of the road for an industry that has grown faster than the laws meant to govern it.
Almost everyone agrees that crypto regulation is overdue. But as the bill moves toward a Senate vote, it contains five loopholes that threaten to undermine the very structure and stability the legislation otherwise hopes to provide.
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 money-laundering infrastructure to move stolen crypto and help fund the regime’s weapons programs. The Treasury Department has found that Tornado Cash was used to launder more than $455 million stolen by the Lazarus Group, and UN experts have reported that North Korea later laundered another $147.5 million through the same platform. These are exactly the blind spots Congress needs to close: When a digital asset platform or intermediary performs financial functions, it should be subject to appropriate anti-money laundering safeguards and sanctions.
The so-called “Tornado Cash” loophole
Some crypto tools are designed to keep working automatically even when it is clear they are being used to launder money. When anti-money laundering rules attach to a person but disappear the moment software performs the same task, the result is not a protection – it’s a solution written into the law. The urgency is not hypothetical. In 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 proceeds and finance arms purchases and terrorism. Congress should give the Treasury Department’s Office of Foreign Assets Control (OFAC) the explicit authority it needs to act against anonymization tools used to circumvent sanctions.
The stablecoin gap
The GENIUS Act, passed earlier this year, established the core framework for stablecoin issuers, but allowed illegal actors to circumvent that framework via DeFi protocols, offshore platforms, mixers or other services that move stablecoins without meaningful control. Sanctioned Russian entities have already used stablecoins, including through platforms that do not require identity verification, to move funds and maintain financial networks. The Clarity Act should require stablecoin issuers to implement reasonable ecosystem-wide monitoring to identify and report suspicious activity. Without that wider visibility, stablecoins risk becoming the preferred rail for sanctions evasion, fraud, ransom, trafficking and corruption-related money laundering.
The jurisdictional gap
A platform serving US clients or routing activity through the US financial system should not be able to escape 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. Such cross-border flows are precisely what slip through the cracks when platforms can choose the jurisdiction with the lightest control. If a platform or intermediary promotes illegal financing, it should be cut off 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 their crypto venture, World Liberty Financial, to an Abu Dhabi-backed entity for half a billion dollars. According to 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 longstanding national security objections. The Clarity Act is now advancing under an administration whose family has direct financial interests in the same digital assets the bill would regulate. No unbiased crypto framework can be built on this foundation. The Clarity Act must block public officials and their immediate family members from owning, promoting, sponsoring, endorsing or soliciting investments in digital assets while the official is in office.
These five holes are not abstract concerns. Each one charts an activity that is already happening: sanctioned states moving money, foreign officials laundering bribes, hostile actors funding weapons programs, and the family of a sitting president selling shares in the industry the law is supposed to regulate. Congress has the ability to write rules that protect the integrity of the U.S. financial system. It also has the ability to write rules that quietly cater to those who would exploit it. The version of the Clarity Act now moving toward the Senate floor does not yet distinguish clearly enough between the two.
The choice before the Senate is not whether to regulate crypto. It’s 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 office cannot be used for personal or family gain. There are five gaps between this bill and that standard. They can and must be closed.
