The United States Senate recently approved an $886 billion defense bill, a move that resonates across various sectors, including the cryptocurrency industry. The legislation, known as the National Defense Authorization Act (NDAA), includes anti-money laundering (AML) provisions targeting cryptocurrency mixers.
Cryptocurrency mixers, or tumblers, are privacy tools designed to mix potentially identifiable or ‘tainted’ cryptocurrency funds with others, making it difficult to track the original source. Although these services are lawful, they have attracted regulatory scrutiny due to their potential misuse by criminals seeking to obscure the origin of illicit funds.
The NDAA’s AML provisions aim to address such concerns. In particular, in consultation with other relevant federal entities, the bill directs the Secretary of Defense to conduct a study on the use of cryptocurrency mixers and privacy coins by terrorists and other illicit actors. The focus of the investigation is expected to include potential strategies to counteract criminal use of these technologies without stifling their legal applications.
A group of U.S. Senators, including Kirsten Gillibrand (D-N.Y.), Cynthia Lummis (R-Wyo.), Elizabeth Warren (D-Mass.), and Roger Marshall (R-Kan.), introduced the amendment in a bipartisan effort. According to a press release, they stated that this action is one of the most significant steps taken by Congress regarding crypto assets.
The amendment was created using provisions from two acts introduced in 2022 and 2023: the Lummis-Gillibrand Responsible Financial Innovation Act and the Digital Asset Anti-Money Laundering Act by Senators Warren and Marshall.
Crypto regulation trend
This initiative has sparked debate within the crypto community. On the one hand, proponents believe it will deter illegal activities and strengthen national security. On the other hand, critics express concerns about the potential for overreach and invasion of privacy.
The inclusion of the AML provisions reflects the growing recognition of cryptocurrency’s role in the global financial system. It underscores the fact that digital currencies, initially seen as a marginal, disruptive technology, are now considered a mainstream financial tool, demanding regulatory attention.
It should be noted that the bill’s passage does not automatically translate into law. The NDAA must still pass through the House of Representatives before reaching President’s desk for signature. The House is scheduled to discuss the bill in the coming weeks.
In the wider context, the NDAA’s AML provisions form part of a broader trend toward increased regulation in the cryptocurrency space. Governments worldwide are working to balance the need to encourage innovation and protect consumers with the need to prevent illicit activities. This is particularly important given the rapid growth of the digital currency market, which now boasts a total value exceeding $2 trillion.
For instance, the European Union recently proposed a new set of rules known as the Markets in Crypto Assets (MiCA) regulations to create a comprehensive framework for digital assets across its member states. Similarly, the Financial Action Task Force (FATF), an intergovernmental body established to combat money laundering and terrorism financing, has issued guidelines to assist countries in regulating cryptocurrencies effectively.
