[House Report 118-486]
[From the U.S. Government Publishing Office]


118th Congress }                                        {   Report
                       HOUSE OF REPRESENTATIVES                         
2nd Session    }                                        {  118-486

                                                         
======================================================================



 
                  BLOCKCHAIN REGULATORY CERTAINTY ACT

                                _______
                                

  May 6, 2024.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. McHenry, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 1747]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1747) to provide a safe harbor from licensing 
and registration for certain non-controlling blockchain 
developers and providers of blockchain services, having 
considered the same, reports favorably thereon with an 
amendment and recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
 Related Hearings................................................     3
Committee Consideration..........................................     3
Committee Votes..................................................     3
Committee Oversight Findings.....................................     5
Performance Goals and Objectives.................................     5
Congressional Budget Office Estimates............................     5
New Budget Authority, Entitlement Authority, and Tax Expenditures     5
Federal Mandates Statement.......................................     5
Advisory Committee Statement.....................................     6
Applicability to Legislative Branch..............................     6
Earmark Identification...........................................     6
Duplication of Federal Programs..................................     6
Section-by-Section Analysis of the Legislation...................     6
Minority Views...................................................     7

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Blockchain Regulatory Certainty Act''.

SEC. 2. SAFE HARBOR FOR NON-CONTROLLING BLOCKCHAIN DEVELOPERS AND 
                    PROVIDERS OF BLOCKCHAIN SERVICES.

  (a) Protection for Non-Controlling Blockchain Services and Software 
Developers.--No blockchain developer or provider of a blockchain 
service shall be treated as a money transmitter (as defined under State 
licensing laws), a financial institution (as defined under section 5312 
of title 31, United States Code), or any other State or Federal legal 
designation requiring licensing or registration as a condition to 
acting as a blockchain developer or provider of a blockchain service, 
unless the developer or provider has, in the regular course of 
business, control over digital assets to which a user is entitled under 
the blockchain service or the software created, maintained, or 
disseminated by the blockchain developer.
  (b) Effect on Other Laws.--
          (1) Intellectual property law.--Nothing in this section shall 
        be construed to limit or expand any law pertaining to 
        intellectual property.
          (2) State law.--Nothing in this section shall be construed to 
        prevent any State from enforcing any State law that is 
        consistent with this section. No cause of action may be brought 
        and no liability may be imposed under any State or local law 
        that is inconsistent with this section.
  (c) Definitions.--As used in this section:
          (1) Blockchain developer.--The term ``blockchain developer'' 
        means any person or business that creates, maintains, or 
        disseminates software facilitating the creation or maintenance 
        of a blockchain network or a blockchain service.
          (2) Blockchain network.--The term ``blockchain network'' 
        means any system of networked computers that cooperates to 
        reach consensus over the state of a computer program and allows 
        users to participate in the consensus-making process without 
        the need to license proprietary software or obtain permission 
        from any other user. The term ``blockchain network'' includes, 
        specifically, a public network of computers that cooperates to 
        reach consensus over the state of a distributed ledger 
        describing transactions in a digital asset.
          (3) Blockchain service.--The term ``blockchain service'' 
        means any information, transaction, or computing service or 
        system that provides or enables access to a blockchain network 
        by multiple users, including specifically a service or system 
        that enables users to send, receive, exchange, or store digital 
        assets described by blockchain networks.
          (4) Control.--The term ``control'' means the legal right, 
        authority, or ability to obtain upon demand data sufficient to 
        initiate transactions spending an amount of digital assets.
          (5) Digital asset.--The term ``digital asset'' means any form 
        of intangible personal property that can be exclusively 
        possessed and transferred person to person without necessary 
        reliance on an intermediary.

                          PURPOSE AND SUMMARY

    Introduced on March 23, 2023, by Representative Tom Emmer, 
along with Representative Darren Soto, H.R. 1747, the 
Blockchain Regulatory Certainty Act, provides that blockchain 
developers and providers of blockchain services that do not 
take control of consumer funds are not treated as money 
transmitters under state licensing laws as well as money 
services business or financial institutions under the Bank 
Secrecy Act.

                  BACKGROUND AND NEED FOR LEGISLATION

    The goal of H.R. 1747 is to codify previously issued 
interpretive guidance published by the Financial Crimes 
Enforcement Network (FinCEN) with respect to money 
transmitters, which would ensure regulatory clarity for 
blockchain developers and service providers in the United 
States.
    Under the Bank Secrecy Act (BSA), money services businesses 
must register with FinCEN and comply with anti-money laundering 
requirements, including filing suspicious activity reports and 
currency transaction reports with FinCEN, as well as 
maintaining adequate recordkeeping processes and an internal 
customer identification program. Generally, money services 
businesses must acquire money transmission licenses at the 
state level and comply with each state's regulatory 
requirements.
    In 2019, FinCEN issued interpretive guidance explaining 
that certain blockchain developers and service providers are 
not classified as ``money transmitters'' or engaged in ``money 
transmission services'' if they do not accept currency, funds 
(including convertible virtual currencies), or other value that 
substitutes for currency from one person and transmit such 
currency, funds, or other value that substitutes for currency 
to another location or person by any means.
    H.R. 1747 would codify this guidance and state that these 
blockchain developers and service providers do not need to be 
regulated in the same manner as money service businesses 
because they do not custody customer funds. Consequently, this 
Act would help ensure blockchain development continues to 
thrive in the United States.

                                HEARING

    Pursuant to clause 3(c)(6) of rule XIII, the following 
hearing was used to develop H.R. 1747: The Subcommittee on 
Digital Assets, Financial Technology and Inclusion of the 
Committee on Financial Services held a hearing on March 9, 
2023, titled ``Coincidence or Coordinated? The Administration's 
Attack on the Digital Asset Ecosystem.''

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
July 26, 2023, and ordered H.R. 1747 to be reported favorably 
to the House as amended by a recorded vote of 29 ayes to 21 
nays (Record vote no. FC-77), a quorum being present. Before 
the question was called to order the bill favorably reported, 
the Committee adopted an amendment in the nature of a 
substitute offered by Mr. Emmer by voice vote.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the order to report legislation and amendments thereto. H.R. 
1747 was ordered reported favorably to the House as amended by 
a recorded vote of 29 ayes to 21 nays (Record vote no. FC-77), 
a quorum being present.


                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the goal of H.R. 1747 is to ensure 
that blockchain developers and providers of blockchain services 
that do not take control of consumer funds are not treated as 
money transmitters under state licensing laws as well as money 
services business or financial institutions under the Bank 
Secrecy Act.

                 CONGRESSIONAL BUDGET OFFICE ESTIMATES

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:



   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    Pursuant to clause 3(c)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee adopts as its own the 
estimate of new budget authority, entitlement authority, or tax 
expenditures or revenues contained in the cost estimate 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1973.

                       FEDERAL MANDATES STATEMENT

    Pursuant to section 423 of the Unfunded Mandates Reform 
Act, the Committee adopts as its own the estimate of the 
Federal mandates prepared by the Director of the Congressional 
Budget Office.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    DUPLICATION OF FEDERAL PROGRAMS

    Pursuant to clause 3(c)(5) of rule XIII of the Rules of the 
House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes a program of 
the Federal Government known to be duplicative of another 
Federal program, including any program that was included in a 
report to Congress pursuant to section 21 of the Public Law 
111-139 or the most recent Catalog of Federal Domestic 
Assistance.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    This section cites H.R. 1747 as the ``Blockchain Regulatory 
Certainty Act.''

Section 2. Safe harbor for non-controlling blockchain developers and 
        providers of blockchain services

    This section prohibits blockchain developers and providers 
of blockchain services that do not take control of their 
customer's assets from being treated as money transmitters (as 
defined under State licensing laws), financial institutions (as 
defined under the Bank Secrecy Act), or any other designation 
requiring licensing or registration as a condition to acting as 
a blockchain developer or provider of a blockchain service, 
unless the developer or provider has, in the regular course of 
business, control over digital assets to which a user is 
entitled under the blockchain service or the software created, 
maintained, or disseminated by the blockchain developer. 
Blockchain developer is defined as any person or business that 
creates, maintains, or disseminates software facilitating the 
creation or maintenance of a blockchain network or service. 
Blockchain services is defined as any information, transaction, 
or computing service or system that provides or enables access 
to a blockchain network by multiple users, including 
specifically a service or system that enables users to send, 
receive, exchange, or store digital assets described by 
blockchain networks. This section also defines blockchain 
network, control, and digital asset.

                             MINORITY VIEWS

    This bill would completely exempt certain blockchain 
developers and blockchain service providers (hereinafter 
``blockchain companies'') from certain financial reporting and 
licensure requirements. This bill raises serious concerns about 
creating gaps in federal and state oversight of these entities 
with regard to anti-money laundering, national security, and 
consumer protections.
    Blockchain is a distributed ledger technology that records 
and shares every transaction that occurs among users in a 
system of networked computers. Under current law, money 
transmitters--businesses that provide money transfer services 
or payment instruments--are regulated and licensed at the state 
level and are subject to anti-money laundering registration and 
reporting requirements at the federal level. Some blockchain 
companies control their users' digital assets by providing 
services in which they store and exchange virtual currency on 
behalf of their users (such as a hosted wallet); other 
blockchain companies do not have control over customer funds 
(such as unhosted wallets, validators, miners, and software 
developers). Under H.R. 1747, blockchain companies that do not 
take control of consumer funds in the regular course of its 
business would be prohibited from being treated as money 
transmitters under state law, or as financial institutions 
under federal law, or any other state or federal legal 
designation requiring licensing or registration.
    By exempting certain blockchain companies from being 
treated as money transmitter businesses under state laws, this 
bill exempts them from Bank Secrecy Act (BSA) requirements. 
Under the BSA, covered entities are required to comply with 
certain reporting requirements to help Treasury detect and 
prevent money laundering. This may seem harmless at first 
because it is effectively codifying existing guidance\1\ from 
Financial Crimes Enforcement Network (FinCEN).\2\ However, 
FinCEN is currently working on rulemaking associated with 
unhosted wallets (among other issues) and this bill would 
permanently restrict FinCEN's flexibility to set new 
requirements in a quickly changing environment. By tying 
FinCEN's hands in this way, H.R. 1747 could result in certain 
blockchain companies that enjoy broad exemptions under the bill 
becoming the preferred avenue for bad actors to launder and 
hide their funds.
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    \1\Application of FinCEN's Regulations to Certain Business Models 
Involving Convertible Virtual Currencies, FinCEN (May 9, 2019).
    \2\FinCEN is an agency within the Treasury Department whose mission 
is to safeguard the financial system from illicit use, combat money 
laundering and its related crimes including terrorism, and promote 
national security through the strategic use of financial authorities 
and the collection, analysis, and dissemination of financial 
intelligence.
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    There are also consumer protection concerns associated with 
the broad exemptions in this bill because it could exacerbate 
the harms caused by hacks and fraud scams and leave consumers 
with fewer federal protections. Further, the bill stands in 
stark contrast with the January 2023 statement by the FDIC, 
Fed, and the OCC, and a related Fed\3\ that noted that the use 
of permissionless blockchains are likely inconsistent with safe 
and sound banking practices. There are already serious concerns 
about crypto companies operating in the shadows, and escaping 
appropriate oversight and regulation. This bill would only 
exacerbate those concerns.
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    \3\What is a cryptocurrency mixer and how does it work?, 
Cointelegraph (Mar. 27, 2022).
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    For these reasons, we strongly oppose H.R. 1747.
            Sincerely,
                                   Maxine Waters,
                                           Ranking Member.
                                   Nydia M. Velazquez,
                                   Gregory W. Meeks,
                                   Stephen F. Lynch,
                                   Emanuel Cleaver II,
                                   Brad Sherman,
                                   David Scott,
                                   Al Green,
                                   Jim Himes,
                                   Bill Foster,
                                   Juan Vargas,
                                   Sean Casten,
                                   Rashida Tlaib,
                                   Nikema Williams,
                                   Joyce Beatty,
                                   Vicente Gonzalez,
                                   Ayanna Pressley,
                                   Sylvia R. Garcia,
                                   Brittany Pettersen,
                                           Members of Congress.