[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 2355 Introduced in Senate (IS)]

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118th CONGRESS
  1st Session
                                S. 2355

  To clarify the applicability of sanctions and antimoney laundering 
 compliance obligations to United States persons in the decentralized 
finance technology sector and virtual currency kiosk operators, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             July 18, 2023

    Mr. Reed (for himself, Mr. Rounds, Mr. Warner, and Mr. Romney) 
introduced the following bill; which was read twice and referred to the 
            Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To clarify the applicability of sanctions and antimoney laundering 
 compliance obligations to United States persons in the decentralized 
finance technology sector and virtual currency kiosk operators, and for 
                            other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Crypto-Asset National Security 
Enhancement and Enforcement Act of 2023''.

SEC. 2. DECENTRALIZED FINANCE NATIONAL SECURITY ENHANCEMENT.

    (a) Definitions.--In this section:
            (1) Control.--The term ``control'', with respect to a 
        digital asset protocol, includes the power, directly or 
        indirectly, to direct a change in the computer code or other 
        terms governing the operation of the protocol, as determined by 
        the Secretary of the Treasury. Such power may be exercised 
        through ownership of governance tokens, administrator 
        privileges, ability to alter or upgrade computer code, or 
        otherwise.
            (2) Digital asset.--The term ``digital asset'' means any 
        digital representation of value that is recorded on a 
        cryptographically secured distributed ledger or any similar 
        technology or another implementation, which was designed and 
        built as part of a system to leverage or replace blockchain, 
        distributed ledger technology, or their derivatives.
            (3) Digital asset protocol.--The term ``digital asset 
        protocol'' means any communication protocol, smart contract, or 
        other software--
                    (A) deployed through the use of distributed ledger 
                or similar technology; and
                    (B) that provides a mechanism for users to interact 
                and agree to the terms of a trade for digital assets.
            (4) Digital asset protocol backer.--
                    (A) In general.--The term ``digital asset protocol 
                backer'' means any person that--
                            (i) holds governance tokens of a digital 
                        asset protocol valued at more than $25,000,000 
                        (subject to adjustment under subparagraph (B)); 
                        or
                            (ii) makes--
                                    (I) an investment in the 
                                development of a digital asset protocol 
                                of $25,000,000 (subject to adjustment 
                                under subparagraph (B)) or more; or
                                    (II) any combination of investments 
                                in the development of a digital asset 
                                protocol if--
                                            (aa) any such investment is 
                                        not less than $2,500,000 
                                        (subject to adjustment under 
                                        subparagraph (B)); and
                                            (bb) such investments, in 
                                        the aggregate, equal or exceed 
                                        $25,000,000 (subject to 
                                        adjustment under subparagraph 
                                        (B)) in any 12-month period.
                    (B) Adjustment of thresholds.--The Secretary of the 
                Treasury may adjust any dollar amount specified in 
                clause (i) or (ii) of subparagraph (A) if, before the 
                increase takes effect, the Secretary notifies the 
                following committees of the increase:
                            (i) The Committee on Banking, Housing, and 
                        Urban Affairs and the Committee on Foreign 
                        Relations of the Senate.
                            (ii) The Committee on Financial Services 
                        and the Committee on Foreign Affairs of the 
                        House of Representatives.
                    (C) Valuation of governance tokens.--
                            (i) In general.--For purposes of 
                        subparagraph (A), the procedures and criteria 
                        to be used in determining the valuation of 
                        governance tokens may, as determined by the 
                        Securities and Exchange Commission in 
                        regulations--
                                    (I) require a minimum trading 
                                period;
                                    (II) rely on sales in a private 
                                market; or
                                    (III) rely on secondary market 
                                trades through a financial institution 
                                (as defined in section 1010.100(t) of 
                                title 31, Code of Federal Regulations 
                                (or a successor regulation)).
                            (ii) Consultation required.--The Securities 
                        and Exchange Commission shall consult with the 
                        Secretary of the Treasury before prescribing 
                        regulations under clause (i).
                            (iii) Certification required.--Each digital 
                        asset protocol backer described in paragraph 
                        (4) or in section 5312(a)(2)(AA) of title 31, 
                        United States Code, as amended by subsection 
                        (c) of this section, shall submit to the 
                        Securities and Exchange Commission and the 
                        Secretary of the Treasury an annual 
                        certification with respect to the value of the 
                        governance tokens of the digital asset protocol 
                        held by the digital asset protocol backer, 
                        beginning on the earlier of--
                                    (I) the date on which the value of 
                                those governance tokens equals or 
                                exceeds the dollar amount specified in 
                                subparagraph (A)(i), as may be adjusted 
                                by the Secretary of the Treasury; or
                                    (II) the date on which the 
                                Securities and Exchange Commission or 
                                the Secretary of the Treasury request 
                                information about the valuation of the 
                                governance tokens.
            (5) Digital asset transaction facilitator.--The term 
        ``digital asset transaction facilitator'' means any person 
        that--
                    (A) controls a digital asset protocol, as 
                determined by the Secretary of the Treasury; or
                    (B) makes available an application designed to 
                facilitate transactions using a digital asset protocol.
            (6) United states person.--The term ``United States 
        person'' means any United States citizen, permanent resident 
        alien, entity organized under the laws of the United States or 
        any jurisdiction within the United States (including foreign 
        branches), or any person in the United States.
    (b) Applicability of Sanctions Compliance Obligations to United 
States Persons in the Decentralized Finance Sector.--
            (1) In general.--In the case of a violation described in 
        paragraph (2) that is conducted through the use of a digital 
        asset protocol, each person described in paragraph (3) shall be 
        subject to the penalties set forth in subsections (b) and (c) 
        of section 206 of the International Emergency Economic Powers 
        Act (50 U.S.C. 1705) to the same extent as a person that 
        commits an unlawful act described in subsection (a) of that 
        section.
            (2) Violations described.--A violation described in this 
        paragraph is a violation of a license, order, regulation, or 
        prohibition issued to implement sanctions administered by the 
        Office of Foreign Assets Control.
            (3) Persons described.--A person described in this 
        paragraph is a United States person that is a digital asset 
        transaction facilitator or a digital asset protocol backer of a 
        digital asset protocol used in a violation described in 
        paragraph (2).
            (4) Exemption for controlled decentralized finance 
        protocols.--A digital asset protocol backer shall not be 
        subject to paragraph (1) for a violation described in paragraph 
        (2) if the Secretary has determined that the digital asset 
        protocol is controlled by a digital asset transaction 
        facilitator or by another person, who may be appointed by 
        contract or another means.
            (5) Applicability.--Paragraph (1) shall apply with respect 
        to violations described in paragraph (2) that occur on or after 
        the date that is 90 days after the date of the enactment of 
        this Act.
    (c) Bank Secrecy Act Application to the Decentralized Finance 
Sector.--
            (1) In general.--Section 5312(a)(2) of title 31, United 
        States Code, as amended by section 6110(a)(1) of the Anti-Money 
        Laundering Act of 2020 (division F of Public Law 116-283), is 
        amended--
                    (A) in subparagraph (Z), by striking ``or'' at the 
                end;
                    (B) by redesignating subparagraph (AA) as 
                subparagraph (BB); and
                    (C) by inserting after subparagraph (Z) the 
                following:

                                                    ``(AA) a digital 
                                                asset transaction 
                                                facilitator or a 
                                                digital asset protocol 
                                                backer of a digital 
                                                asset protocol; or''.

            (2) Effective date.--Subparagraph (AA) of section 
        5312(a)(2) of title 31, United States Code, as added by 
        subsection (a), shall take effect on the day after the 
        effective date of the final rules issued by the Secretary of 
        the Treasury pursuant to section 6110(b) of the Anti-Money 
        Laundering Act of 2020 (division F of Public Law 116-283).
            (3) Exemption for controlled decentralized finance 
        protocols.--The Secretary of the Treasury may exercise the 
        exemptive authority under section 5318(a)(7) of title 31, 
        United States Code, with respect to a digital asset protocol 
        backer of a digital asset protocol, if--
                    (A) the Secretary of the Treasury finds that such 
                digital asset protocol is controlled by a digital asset 
                transaction facilitator or by another person, who may 
                be appointed through contract or other means; and
                    (B) the digital asset transaction facilitator or 
                other person described in subparagraph (A) is subject 
                to the requirements under this section and regulations 
                prescribed under this section for transactions 
                conducted through the use of such digital asset 
                protocol.

SEC. 3. PROHIBITIONS OR CONDITIONS ON CERTAIN TRANSMITTALS OF FUNDS.

    Section 5318A of title 31, United States Code, is amended--
            (1) in subsection (a)(2)(C), by striking ``subsection 
        (b)(5)'' and inserting ``paragraphs (5) and (6) of subsection 
        (b)''; and
            (2) in subsection (b)--
                    (A) in paragraph (5), by striking ``for or on 
                behalf of a foreign banking institution''; and
                    (B) by adding at the end the following:
            ``(6) Prohibitions or conditions on certain transmittals of 
        funds.--If the Secretary finds a jurisdiction outside of the 
        United States, 1 or more financial institutions operating 
        outside of the United States, 1 or more types of accounts 
        within, or involving, a jurisdiction outside of the United 
        States, or 1 or more classes of transactions within, or 
        involving, a jurisdiction outside of the United States to be of 
        primary money laundering concern, the Secretary, in 
        consultation with the Secretary of State, the Attorney General, 
        and the Chairman of the Board of Governors of the Federal 
        Reserve System, may prohibit, or impose conditions upon, 
        certain transmittals of funds (to be defined by the Secretary), 
        to or from any domestic financial institution or domestic 
        financial agency if such transmittal of funds involves any such 
        jurisdiction, institution, class of transaction, or type of 
        account.''.

SEC. 4. VIRTUAL CURRENCY KIOSK NATIONAL SECURITY ENHANCEMENT.

    (a) Definitions.--In this section:
            (1) Virtual currency.--The term ``virtual currency'' means 
        any digital representation of value that is recorded on a 
        cryptographically secured distributed ledger or any similar 
        technology or another implementation, which was designed and 
        built as part of a system to leverage or replace blockchain, 
        distributed ledger technology, or their derivatives.
            (2) Virtual currency transfer.--The term ``virtual currency 
        transfer'' means a withdrawal, exchange, or other payment or 
        transfer that involves a transaction in virtual currency.
            (3) Virtual currency kiosk.--The term ``virtual currency 
        kiosk'' means a stand-alone machine that facilitates a virtual 
        currency transfer.
            (4) Virtual currency kiosk operator.--The term ``virtual 
        currency kiosk operator'' means any person who operates a 
        virtual currency kiosk at which consumers initiate virtual 
        currency transfers.
    (b) Antimoney Laundering.--
            (1) In general.--Except as provided in paragraph (2), 
        before effecting any virtual currency transfer, a virtual 
        currency kiosk operator shall verify and record, at a minimum, 
        the name and physical address of the--
                    (A) consumer, which shall include review of an 
                official document evidencing nationality or residence 
                that includes a photograph of the consumer; and
                    (B) counterparty to such transfer.
            (2) Exception.--Paragraph (1) shall not apply to a 
        counterparty described in paragraph (1)(B) that conducts a 
        virtual currency transfer using a wallet held at a financial 
        institution, as defined in section 5312 of title 31, United 
        States Code, that is subject to the requirements of subchapter 
        II of title 31, United States Code.
    (c) Rulemaking.--Not later than 360 days after the date of 
enactment of this Act, the Financial Crimes Enforcement Network shall 
promulgate regulations requiring each virtual currency kiosk operator 
to--
            (1) furnish to the Financial Crimes Enforcement Network a 
        list of the locations, including physical addresses, of all 
        virtual currency kiosks that are owned or operated by such 
        operator; and
            (2) update the list described in paragraph (1) every 90 
        days.
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