[Congressional Record Volume 169, Number 123 (Tuesday, July 18, 2023)]
[Senate]
[Pages S2990-S2991]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself, Mr. Rounds, Mr. Warner, and Mr. 
        Romney):
  S. 2355. 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; to the Committee on Banking, 
Housing, and Urban Affairs.
  Mr. REED. Madam President, today I am introducing the Crypto Asset 
National Security Enhancement and Enforcement, CANSEE, Act along with 
Senators Rounds, Warner, and Romney. This bipartisan bill will close 
concerning gaps in the anti-money laundering, AML, and sanctions 
frameworks for cryptocurrency, most importantly decentralized finance, 
DeFi, and virtual currency kiosks.
  Decentralized finance or ``DeFi'' refers to cryptocurrency protocols 
and applications that purport to allow automated peer-to-peer 
transactions using blockchain technology. DeFi enables users to 
transact and trade cryptocurrency without requiring a traditional 
financial institution to broker trades, clear and settle transactions, 
or custody assets.
  Criminal syndicates, fraudsters, ransomware hackers, and rogue states 
have been quick to recognize how DeFi can be exploited to advance their 
nefarious activities. By design, DeFi provides anonymity allowing 
malicious and criminal actors to evade traditional tools that the 
government uses to enforce the AML and sanctions laws.
  According to the U.S. National Money Laundering Risk Assessment 
published in February 2022, ``DeFi services often involve no AML/CFT or 
other processes to identify customers, allowing layering of proceeds to 
take place instantaneously and pseudonymously.'' A risk assessment 
published by the Treasury Department in April 2023 specifically found 
that ``ransomware cybercriminals, thieves, scammers, and Democratic 
People's Republic of Korea (DPRK) cyber actors are using DeFi services 
[and] exploiting vulnerabilities in the U.S. and foreign AML/CFT 
regulatory, supervisory, and enforcement regimes.''
  In addition, DeFi is used in cross-border drug trafficking. 
Blockchain analytics firm Elliptic has estimated that China-based 
chemical manufacturers have received enough payments in cryptocurrency 
to sell $54 billion worth of fentanyl--enough to manufacture 8.6 
billion deadly doses.
  A series of Federal indictments unsealed in April 2023 revealed how 
these Chinese companies sell precursor chemicals to the Sinaloa drug 
cartel to manufacture fentanyl in Mexico, which is then smuggled for 
distribution in the United States. The manufacturers and cartels 
transact in cryptocurrency and no longer need to rely exclusively on 
bulk cash shipments. According to the indictments, once ``fentanyl 
proceeds are deposited into cryptocurrency wallets, that cryptocurrency 
can also be used directly to purchase additional fentanyl, without the 
need to convert the cryptocurrency back into cash.'' Wallets associated 
with a large sanctioned Chinese chemicals manufacturer have used DeFi 
to launder funds.
  DeFi is so attractive to criminals and other bad actors because the 
industry takes the position that it does not need to comply with the 
AML requirements in the Bank Secrecy Act nor the economic sanctions 
programs administered by the Treasury Department. That places DeFi on a 
different footing than traditional financial intermediaries like banks 
and securities brokers, which must monitor all transactions and report 
suspected money laundering and financial crimes to the government. 
Other participants in the cryptocurrency markets, such as U.S.-
headquartered centralized trading venues, are also expected to maintain 
AML programs and ensure that sanctioned persons do not use their 
services. Even casinos have these obligations. It is past time to end 
special treatment for DeFi and prevent this dark corner of our 
financial system from being used to fund crime and launder criminal 
proceeds.
  The bipartisan bill we are introducing closes these alarming gaps 
facilitating narco-trafficking, WMD proliferation, ransomware attacks, 
and other threats to national and economic security. Our bill simply 
requires anyone who controls a DeFi service to meet critical--yet 
basic--regulatory obligations to maintain AML policies and procedures, 
conduct due diligence on customers, and report suspicious transactions 
to the government. These requirements will curtail a tool that is used 
to disguise ownership and movement of criminal funds.
  Our legislation also makes clear that if a sanctioned person, such as 
a Russian oligarch, uses a DeFi service to evade U.S. sanctions, then 
anyone who controls that platform will be liable for facilitating that 
violation. If nobody controls a DeFi service, then--as a backstop--the 
largest investors in that project will be responsible for meeting these 
obligations.
  Our bipartisan legislation also dramatically enhances the customer 
due diligence requirements for operators of virtual currency kiosks or 
``bitcoin ATMs.'' Bitcoin ATMs are typically found in convenience 
stores, gas stations, and grocery stores, and are used to buy, sell, 
and exchange cryptocurrency. According to a report by the Government 
Accountability Office published in December 2021, ``FBI officials said 
they expect to see an increase in the use of virtual currency kiosks 
for illicit purposes, including for human and drug trafficking.'' To 
crack down on this abuse of our financial system, our legislation 
requires kiosk operators to verify the identities of both 
counterparties to every transaction. That will help prevent criminals 
from using cryptocurrency to profit from illegal activity and avoid 
detection by law enforcement.

[[Page S2991]]

  Finally, this legislation makes important updates to the Treasury 
Department's authority to require participants in the U.S. financial 
system to take special precautions against money laundering threats. 
Currently, these authorities are limited to transactions conducted in 
the traditional banking system. But as new technologies like 
cryptocurrency increasingly enable new ways to conduct financial 
transactions, it is critical to extend Treasury's authority to crack 
down on illicit financial activity that may occur without customary 
intermediaries.
  All of our constituents deserve a financial system that is protected 
from geopolitical adversaries and criminals. The CANSEE Act will 
deliver those protections by preventing DeFi services from using 
purported decentralization as a shield to avoid meeting obligations to 
prevent money laundering and sanctions evasion. That will protect the 
integrity of the U.S. financial system and help curtail the activities 
of the worst criminal organizations and malicious state actors. I urge 
my colleagues to support this important bipartisan legislation.

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