A company that issues stablecoins in the United States would have a series of new duties to fend off criminals and keep government watchdogs informed about malicious actors, according to rules up for proposal by the U.S. Treasury Department reviewed by CoinDesk.
A joint proposal from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) will outline the deep controls that stablecoin companies must put in place, including the ability to “block, freeze and reject” transactions and internal safeguards to comply with the Bank Secrecy Act, which governs most of the US financial system.
In one of the most significant moves yet to implement last year’s Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act — the first major crypto-sector law for the United States — the two arms of the Treasury Department, as the illicit finance police, are laying out a tailored approach to stablecoin companies that will be opened for final comment before its period opens for final comment. But the agencies also send a message of respect to the industry, suggesting that companies best understand their own dangers.
A summary of the joint proposal reviewed by CoinDesk said it is focused on efficiency “and that financial institutions are best positioned to identify and evaluate their money laundering, terrorist financing and illicit financing risks.” The department’s effort asserts that a firm that runs adequate anti-money laundering programs is generally immune from enforcement unless it demonstrates “a material or systemic failure to maintain that program.”
On the money laundering front, FinCEN would expect stablecoin issuers’ programs to be able to intercept specifically flagged transactions and to know where to devote “more attention and resources to higher-risk customers and activities.” When the US authorities pursue a specific target, the regulated issuers subject to this proposed rule would be required to search their own records for any activity linked to individuals or entities flagged by FinCEN.
The issuers are also expected to act as allies in the agency’s pursuit of entities identified as “primary money laundering concerns.” As recently as 2023, the agency had sought to label crypto mixers such as Tornado Cash under that label, though the Treasury Department reversed course earlier this year to suggest that mixers could serve legitimate and legal privacy uses.
On the sanctions front, OFAC will require stablecoin issuers to run risk-based safeguards for stablecoin activity in primary or secondary markets, and the policies must spot and reject transactions “that may violate or would violate U.S. sanctions.” Sanctions failures — including past flagrant violations — have been a critical concern of the crypto industry’s critics, including recent investigations 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 U.S. financial system from national security threats without impeding the ability of U.S. businesses to move forward in the payments stablecoin ecosystem.”
The crypto industry and its stablecoin leaders — including Tether, Circle, Ripple and the firm partially owned and controlled by President Donald Trump’s family, World Liberty Financial — have been awaiting regulation that will help further establish their bespoke assets as safe and reliable. Some tensions remain in the wider crypto community, which has had a tumultuous relationship with governments since its inception, with its founding principles aimed at keeping cryptocurrencies outside of government control.
The decentralized finance sector (DeFi) remains an area that seeks to cut out middlemen and maintain direct interactions, but the illicit financial controls for this arena remain unresolved in the ongoing negotiations between the industry, the securities sector and lawmakers on the Digital Asset Market Clarity Act in the US Senate. While the Treasury Department’s stablecoin proposal and others from US financial regulators are beginning to outline the guardrail, large swaths of crypto activity still need to be addressed.
Earlier this year, a third arm of the Treasury Department — the independent Office of the Comptroller of the Currency, which regulates national banks and trusts — proposed its standards and procedures for issuers it will see as the primary federal regulator. This week, its sister regulator, the Federal Deposit Insurance Corp., did the same with a largely parallel proposal.
The GENIUS Act is supposed to go into effect in 2027. Well before then, companies have sought charters and partnerships to get involved in stablecoins. The Trump-linked World Liberty, for example, applied for a charter as a trust bank in January and manages the USD1 stablecoin.
The company is under fresh scrutiny this week after allegedly being unaware that its AB DAO partner was involved in a project with potential ties to Cambodia’s Prince Group, the target of major US investigations, sanctions and the seizure last year of a record $14 billion in bitcoin . These types of business relationships of stablecoin issuers would be under strict new industry-led controls in the Treasury Department’s pending proposal.
