National Security Advisory: Clarity Act Fails to Address Key Vulnerabilities Exploited by Criminals, Terrorists, and Foreign Adversaries
Minority Staff Release Open-Source Analysis Illustrating Urgency of Closing Illicit Finance Gaps to Protect Americans
Washington, D.C. – Today, the Senate Banking, Housing, and Urban Affairs Committee will debate and vote on the Clarity Act, legislation that would reshape the regulatory framework for cryptocurrency markets. As Congress considers crypto market structure legislation, it must protect Americans by closing known illicit finance vulnerabilities in our own system and lay the foundation for pressing other countries to do the same. It must avoid creating new carveouts that can be exploited by sanctions evaders, terrorists, cartels, child abusers, and other criminals.
Minority staff on the Committee have compiled a detailed national security advisory drawing on open-source intelligence reports, law enforcement warnings, industry analyses, and government findings that together paint a stark picture of how digital assets and decentralized finance (DeFi) services are already being exploited — and how the Clarity Act, as currently written, would make the problem worse, not better. The current draft of the Clarity Act, for example:
- Fails to adopt the global standard—supported by the first Trump Administration—for identifying which crypto platforms must take basic steps to prevent money laundering and other illicit activity like any other financial institution, leaving many transactions unmonitored for suspicious activity.
- Exempts businesses tied to DeFi services from basic illicit finance requirements, even if they make millions from a platform’s transactions.
- Fails to close the Tornado Cash loophole, allowing some of the worst crypto mixers to escape U.S. sanctions—even when we know they are laundering billions for terrorists, rogue states, cartels, or criminals.
- Fails to close a loophole in law that could allow anyone outside the United States to pay sanctioned actors in stablecoins instead of dollars to escape the reach of U.S. sanctions enforcement actions.
The Minority staff advisory documents alarming open-source evidence across six threat categories:
- Drug Cartels Increasingly Rely on Crypto to Finance Their Operations
- Terrorist Organizations Are Exploiting Crypto to Fund Violence
- Rogue States Are Using Crypto to Fund Weapons Programs and Terrorists
- Foreign Adversaries Are Evading Sanctions and Funding Military Operations
- Trends Favor Criminals Who Are Already Laundering Billions with Crypto
- Crypto and DeFi Facilitate Child Abuse, Ransomware Attacks, and Extortion.
To read the full analysis click HERE.
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