[Congressional Record Volume 171, Number 103 (Monday, June 16, 2025)]
[Senate]
[Pages S3400-S3402]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
GENIUS Act
Mr. REED. Mr. President, I rise today to discuss S. 1582, the GENIUS
Act.
I believe that this legislation as it is currently drafted is
fundamentally flawed. It exposes taxpayers, consumers, and the
financial system to unacceptable risk, and it creates venues for
criminals, terrorists, and rogue governments to finance their illicit
activities. Despite these dangerous flaws, we will not have the
opportunity to offer one, single substantive amendment, and with a bill
of this nature, the legislative process should require a very
significant amendment process.
This legislation before us places the government's stamp of approval
on so-called stablecoins, which are crypto dollars that could be minted
by anyone--Amazon, Walmart, Facebook, X, the Trump family, and even
foreign companies. It gives stablecoin issuers an enormous privilege: a
U.S. Government license to effectively create dollars without demanding
very much of anything in return.
Here is how the business works. You give a stablecoin company a
dollar. The company gives you back an IOU that is recorded on a
blockchain. The stablecoin company takes your dollar and invests it in
various assets that generate interest and yield. The company keeps that
interest and yield, but it is supposed to give you back your dollar
whenever you ask for it. You can also take the IOU, which you receive
for your dollar, and transfer it to other people, and you can use it to
buy other things, mostly other crypto.
If this sounds similar to a bank, that is because it is. Banks allow
customers to send and receive money. Stablecoins allow customers to do
the same thing--just outside the banking system and purportedly in a
faster and cheaper way. Now, competition can force banks to do a better
job, and it should be more convenient for consumers to transfer funds.
However, I believe that competition should come from the merits of the
product and the underlying technology, not from regulatory arbitrage as
provided in the GENIUS Act.
The light-touch regulatory regime in this bill is premised on two
faulty assumptions. First, it assumes customer funds are safe because
they are fully reserved with one-to-one backing of all customer
liabilities. Second, it assumes that stablecoin issuers are inherently
risk-free because they engage in only one activity: issuing
stablecoins. But experience tells us that these kinds of assumptions
are flawed.
During the 2008 financial crisis, we saw institutions with very
similar if not these exact characteristics fail and get billions in
taxpayer bailouts. We were assured that money market funds were low
risk because they were fully reserved with shares pegged to a dollar.
We were assured that derivatives were innovative tools that didn't need
heavyhanded regulation. We were assured that Fannie and Freddie were
safe because they engaged in one simple business. However, taxpayers
needed to backstop $2 trillion in money market fund liabilities. The
government gave AIG--an insurance company
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involved with derivatives--a $200 billion bailout, and taxpayers still
stand behind $8 trillion in Fannie and Freddie liabilities.
Now, I do not believe it is appropriate to apply the full spectrum of
banking regulations to stablecoins, but many more elements of the
banking laws and the money transmission laws must be imported into this
bill in order to make it work. There are dozens of sensible and basic
rules that apply to similar firms that handle people's money. The
GENIUS bill says that stablecoin companies no longer need to comply
with many of these consumer protection laws. Instead, they can comply
with a Federal framework containing very few of them.
Now let me highlight a few specifics that I think the public should
be aware of.
First, stablecoin companies could operate with near-zero capital. The
bill says that capital requirements ``shall not exceed what is
sufficient to maintain the ongoing operations of the issuer.'' This
establishes a ceiling, not a floor, not a minimum level of capital that
regulators would deem appropriate given the business activities.
This repeats the mistakes of the 1990s and the 2000s, when nonbank
financial institutions like Lehman Brothers operated with barely 3
percent capital ratios. When the firm got into trouble, there was no
cushion to bear losses, and customers and taxpayers had to step in.
Strong capital is critical. Indeed, in March 2023, when Silicon
Valley Bank failed, taxpayers bailed out the uninsured deposits of a
stablecoin company to the tune of $3.3 billion.
Second, the audit requirement is calibrated so narrowly that it does
not cover a single existing stablecoin company--not one. Independent
audits make it harder for companies to cook the books or dip into
customer funds. I can't imagine why we wouldn't require these types of
audits for stablecoin companies holding vast amounts of cash and
securities.
Third, there are no merger or change-in-control rules. These rules,
if in place, could prohibit felons convicted of financial crimes and
fraud from acquiring a stablecoin issuer. Now, if this bill passes,
they can go ahead and acquire it.
Fourth, the enforcement provisions are dangerously weak. The
government will need to wait until wrongdoing has already occurred
before it can act. It would be powerless to intervene early to prevent
people from getting harmed in the first place, and even then, there is
no power for regulators to revoke a company's charter. If one of these
companies brazenly mishandles customer funds, the regulators will not
have adequate tools to stop them.
Fifth, when a stablecoin company fails, it must go through ordinary
bankruptcy, and that, I believe, is a mistake. We have seen other
crypto firms, like FTX and Celsius, go bankrupt recently. Customers
have waited for many, many months and in some cases years to get their
money back. Instead, we should set up a bank-like resolution regime,
guaranteeing that customers immediately get their money back up to a
limit, and the industry should pay for that insurance to satisfy those
customers who have been denied their funds.
Sixth, regulators have no express authority to issue new rules to
address emerging threats as they arise. Without the ability to issue
updated rules, the GENIUS Act will become outdated very quickly. Given
the speed of financial innovation, these regulations could be out of
date--maybe within a year or less.
Together, these flaws make the GENIUS bill worse than the status quo,
and that brings me to what I consider one of the biggest problems in
the legislation: the effect on national security.
GENIUS allows foreign-based stablecoin companies to operate freely in
the United States. Today, the world's largest stablecoin--in other
words, the world's largest cryptodollar--is issued not in the United
States but in El Salvador. This stablecoin is called Tether, and it is
the biggest beneficiary of this bill.
Let me tell you a bit about Tether. Tether was fined by U.S.
regulators in 2021 for misleading customers into thinking that their
funds were fully backed. Despite this misconduct, Tether has never
undergone an audit, and this bill would not require one.
Tether is used by North Korea. According to FBI indictments in 2023,
North Korean IT workers have ``obtained illegal employment in the tech
and crypto industry and then asked to be paid in stablecoins like
Tether. . . . After receiving payment, they funneled their earnings
back to North Korea.''
According to government reports, North Korea has used at least $5
billion of stolen crypto to fund its weapons of mass destruction
programs. This comprises between 40 percent and 50 percent of its
budget for these programs.
Tether is also used by terrorists. According to the Treasury
Department's 2024 National Terrorist Financing Risk Assessment, ``ISIS
and other terrorist groups have moved towards using stablecoins,
including Tether, to move or store funds.''
In October 2023, the Senator from Wyoming asked then-Attorney General
Garland to open a criminal investigation into Tether because it has
``facilitated significant illicit finance activity . . . including
significant terrorism financing for Hamas' malevolent attack on
Israel.''
Tether is used by Russian arms dealers. According to testimony before
the Banking Committee by the Deputy Treasury Secretary in 2024,
``[W]e've seen Russia increasingly turning to alternative payment
mechanisms--including the stablecoin Tether--to try to circumvent our
sanctions and continue to finance its war machine'' in Ukraine.
Tether is also used for human trafficking, scams, and fraud.
According to a report published by the United Nations in 2024, Tether
``has become a preferred choice for [Southeast Asian] cyber-fraud
operations and money launderers alike due to its stability and the
ease, anonymity, and low fees of its transactions.'' During a single
year, from the middle of 2022 through the middle of 2023, a blockchain
analysis company uncovered ``$17 billion of Tether transactions
connected to . . . various criminal activities,'' including human
trafficking and romance scams.
And the list goes on. Iranian diplomats, Venezuelan oil companies,
drug traffickers, ransomware attackers--all are drawn to Tether.
Under the GENIUS bill, Tether could be offered and sold in the United
States without being required to meet any U.S. anti-money laundering or
sanctions compliance requirements. Tether would just need to
demonstrate the ability to freeze its coins if they fall into the wrong
hands--a technological capability that Tether already has and that it
has apparently refused to use because it still tolerates illicit
activity.
Tether would not be subject to full-blown licensure and supervision.
Tether would instead need to meet home-country requirements in El
Salvador that are ``comparable'' to U.S. requirements, but this term is
ill-defined and may be materially weaker than the standards in the
United States. In fact, I would suggest those standards are highly
subjective given the arrangements we have seen in El Salvador with its
President and its legal system. These weak restrictions would not even
kick in for 3 years after enactment. That means business as usual for
Tether. It means more WMD proliferation, more Iranian oil sales, more
Russian arms deals, more tax evasion, more black-market drug sales, and
more human trafficking.
Further, if Tether chooses not to meet these bare requirements, then
it could not be offered or sold on centralized trading venues in the
United States.
But there is a huge exception allowing Tether to offer its stablecoin
in the United States through decentralized trading ventures, also known
as DeFi. DeFi platforms are exactly where North Korea trades crypto and
where the bulk of illicit activity occurs.
According to the Treasury Department, North Korea laundered at least
$455 million in stolen crypto on just one DeFi platform called Tornado
Cash as of 2022. Last year, North Korea laundered at least $147 million
through the same platform.
If these trades occurred with real dollars in real banks, the
government would have tools to stop them. But because these trades
occur using foreign-issued cryptodollars outside the banking system,
the government lacks
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these tools, and the GENIUS Act would not give them those tools.
As we place in effect the U.S. Government stamp of approval on
Tether, I think it is entirely sensible to be providing Treasury with
new authorities to address how Tether is used for illegal purposes
around the world.
We should also be looking at the stronger approach taken in Europe,
where Tether may not be offered or sold--full stop--unless it is fully
licensed and meets all EU laws.
If someone is in the business of creating dollars in any form, they
should be subject to full U.S. jurisdiction. If someone creates a
platform that is used by North Korea to launder stolen dollar
alternatives, they should be within the reach of U.S. sanctions laws. I
hope Republicans and Democrats can at least agree on that. But this
bill does not respect these commonsense principles.
Last Congress, the Department of Treasury sent up a legislative
package with new authorities to crack down on Tether. The Deputy
Secretary testified before the Banking Committee about that package. I
worked across the aisle with Senators Warner, Brown, and Romney on
legislation to implement some of these provisions. Unfortunately, we
could not get it enacted.
The bill before us contains none of these provisions. I have filed an
amendment to provide these tools to Treasury; but, regrettably, as I
have indicated before, we will not have an opportunity be to vote on
any amendments.
There is another aspect of this bill normalizing the operation of
Tether. It turns out that Trump's Commerce Secretary Howard Lutnick has
millions of dollars in financial interests tied to Tether. The
investment bank Cantor Fitzgerald that Mr. Lutnick ran and owned
manages Tether's reserves and generates millions of dollars in fees.
Cantor has provided Tether with working capital through a hybrid debt-
equity investment. It has been reported that Cantor owns 5 percent of
Tether--a stake worth millions of dollars. Cantor and Tether have just
announced a new Bitcoin fund for retail investors.
Mr. Lutnick--the Secretary of Commerce and someone who I think has
had some influence on how this bill has turned out and how it will be
implemented--says he is divested from Cantor. But what he has really
done is turned ownership and control over to his adult children who are
in their twenties. Now, I invite the American people to judge for
themselves whether Mr. Lutnick no longer has any financial exposure or
business ties with Tether.
Just a few month ago, the Trump family began issuing a stablecoin
called USD1. This token has already been used by a foreign government
to funnel money to Trump. Let me say that again: A foreign government
has funneled money to the President of the United States. It turns out
an Abu Dhabi sovereign wealth fund made a $2 billion investment in a
crypto company called Binance. But instead of using real dollars, they
used USD1, the Trump cryptocurrency. That raises, I think, serious
questions about a President of the United States receiving significant
money from a foreign government.
Rather than doing something about the President's obvious conflicts,
the bill expressly affirms that he is able to call his stablecoin USD1.
There is actually a provision green-lighting this name. We have given,
legislatively, the President the use of this stablecoin name for his
financial benefit.
And the bill empowers the President's handpicked regulators to write
the rules that will govern the stablecoin business. By authorizing
money creation by shadowy offshore firms associated with the President
of the United States and the Secretary of Commerce, this bill
undermines our economy's most valuable asset--and that is the U.S.
dollar. The effect may not be immediate, but I think it will happen
eventually.
The dollar is the world's reserve currency because the United States
is considered a stable, predictable, and open society with a strong
rule of law that countries and businesses want to trade and partner
with.
When the United States becomes less stable, less predictable, and
less open, when politically connected people get special treatment,
when Congress normalizes financial self-aggrandizement by the
President, all of that makes the dollar less attractive and makes this
country look like it is ruled by a despot.
However, proponents claim this bill strengthens the dollar by
stimulating demand for Treasury securities. But that cannot be
justified at this point by the data. The entire stablecoin market is
only 0.01 percent of the Treasury market. And according to an investor
letter from the Elliott hedge fund--now, that firm is run by a major
Republican donor, so I don't think this is a partisan description--the
dollar enjoys an ``immense advantage'' as the world's reserve currency.
But they point out that if the U.S. Government encourages adoption of
crypto alternatives, that will ``marginalize the dollar'' and be
``profoundly dangerous.''
Even if legislation would modestly strengthen the dollar, it could
not offset the erosion of the dollar that the administration is
engineering through actions like sky-high tariffs and a trade embargo
with China. And it could accelerate the erosion of the dollar if one
day stablecoins become ``legal tender'' that could be used to pay
taxes. And it wouldn't surprise me if one day the President sat at his
desk and wrote a Presidential order that crypto can be used to pay
taxes.
I offered an amendment in the Banking Committee, which would prohibit
this by declaring that the legal tender of the United States was the
dollar, and the amendment was defeated.
We need to apply real guardrails that will protect consumers and
provide real tools for our national security Agencies to address this
new technology--real guardrails and real tools, not words on a page
that give the false appearance of protection when things go wrong.
I would urge my colleagues to oppose this fundamentally flawed bill.
I yield the floor.
The PRESIDING OFFICER. The Senator from Indiana.