[House Report 118-486]
[From the U.S. Government Publishing Office]
118th Congress } { Report
HOUSE OF REPRESENTATIVES
2nd Session } { 118-486
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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.