FinCEN Hearing Sheds Light On Its Digital Assets Strategy; Closing “The Revolving Door”

FinCEN hearing

Yesterday’s House Financial Services (HFS) hearing focused on U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) included attention to digital asset matters.

Republicans expressed skepticism (see Chair Patrick McHenry’s comments) about some FinCEN processes and largely focused on the unnecessary data grab and resources required by FinCEN with programs such as those enabled by the Corporate Transparency Act (CTA). The CTA requires businesses to register their beneficial owners by the end of the year. So far, according to FinCEN witnesses Treasury Undersecretary Brian Nelson and FinCEN Director Andrea Gacki, 500,000 out of 32 million have complied thus far.

Among the digital assets highlights…

Crypto gadfly Rep. Brad Sherman (D, CA) said during his Q&A time that pro-crypto advocates were trying to “de-fang” the U.S. government with cryptocurrency.

Rep. Bill Foster (D, IL) explored the efficacy of secure digital IDs and suggested that it would have “huge benefits to the federal taxpayer” in its ability to stop fraud.

Rep. Sean Casten (D, IL) explored illicit finance and digital assets during his Q&A time. He wanted Treasury’s Nelson to highlight why “bad guys like mixers” – Nelson and Director Gacki said that mixers essentially anonymize transactions that “shield illicit finance.” Casten introduced the phrase “chain hopping” and said it was a problem with illicit finance.

Majority Whip Tom Emmer (R, MN) brought up “the erroneous Wall Street Journal report” on October 10 regarding Hamas, illicit finance and crypto. He asked Undersecretary Brian Nelson about how much crypto was actually received by Hamas. Nelson demurred and said he could share info privately which the Whip took him up on.

See Emmer’s 5-minute Q&A on X.

Emmer reminded the witnesses of a letter he and a bipartisan group of members had sent in November about getting the correct data on digital assets involvement in Hamas and terrorist financing. The Majority Whip stated “Treasury has the data to paint the correct narrative” on digital assets and wondered why Treasury doesn’t offer a more informed opinion.  In so many words, Nelson said they do.

Rep. Ritchie Torres (D, NY) followed Whip Emmer and asked about Hamas and sanctions by Treasury. He then moved to Treasury’s proposed CVC mixing rulemaking and asked what more the rule would provide Treasury. Director Gacki didn’t answer directly, but she said they’re reviewing comments of the just-closed rulemaking.

Miners are not money services businesses was a point that Rep. Warren Davidson (R, OH) wanted to drive home for those who wanted to entangle miners in money services rules and regulation. The witnesses concurred.  The Congressman also highlighted how transparent the blockchain was for FinCEN’s work.

In his dialogue with Rep. Brittany Pettersen (D, CO), Undersecretary Nelson mentioned that his department is seeing a “disturbing trend” with the use of crypto in the purchase of fentanyl. Rep. Pettersen and Nelson discussed what can be done in concert with China to inhibit the distribution of fentanyl.

Rep. Bryan Steil (R, WI) wanted to know about how FinCEN coordinates with foreign countries on digital assets regarding “concentration” of digital assets and illicit finance with countries such as Russia. Director Gacki began to answer that the agency does coordinate – and then Steil’s time ended.

Rep. Scott Fitzgerald (R, WI) brought up his new bill on illicit finance and digital assets – “Combating Money Laundering in Cyber Crime Act of 2024 [H.R.7156]” – which includes a bipartisan list of 5 co-sponsors.

Rep. Fitzgerald wanted to know about the role that the Secret Service played in digital asset work. Nelson said it was a critical role. Director Gacki emphasized the renewal of the FinCEN Exchange program and said the Secret Service is an important partner that highlights the risks important to law enforcement and has strong investigative capabilities.

closing “the revolving door”

Former Rep. Sean Patrick Maloney (D, NY), who signed on as a member of Coinbase’s Global Advisory Council (see the Council) after he lost a key 2022 Congressional election, has told Senator Elizabeth Warren (D, MA) that if he joins the Biden Administration as ambassador to the Organization for Economic Cooperation and Development, he will recuse himself from any involvement in digital assets. Politico reports that a letter from Maloney to Warren also said he would “extend recusals under the Biden administration ethics pledge and [commit] to not accept employment, board service or compensation from any crypto company or organization for four years after his OECD tenure.” Read more.

Lummis on EIA

“[Department of Energy’s] plan to start a database to track crypto-mining operations is incredibly concerning. The Biden admin cannot say it is concerned about crypto mining’s energy use when it is pushing an EV mandate that will increase grid demand by nearly 40%.” – Senator Cynthia Lummis (R, WY) on X

more tips:

podcast for today’s hearing

Today’s House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion 2 p. ET hearing, “Crypto Crime in Context Part II: Examining Approaches to Combat Illicit Activity,” features five witnesses from industry including Carole House, a former White House National Security Council official who is now active in the private sector.

In a “TRM Talks” podcast released at the end of January, House discussed the mechanics involved in the creation of the digital assets Executive Order issued by the White House in March 2022.  She says [at 18:11], “Not everyone was happy with the Executive Order. Some people felt it was too generous. Some, too mean. Overall, I was very pleased – the interagency was very happy with it.” Listen to it.

new co-sponsors

Majority Whip Tom Emmer’s (R, MN) CBDC Anti-Surveillance State Act [H.R.5403] added 9 Republican co-sponsors in the past week: Reps. Juan Ciscomani (AZ), Wesley Hunt (TX), Mike Ezell (MS), James Baird  (IN), Carol Miller (WV), Trent Kelly (MS), Gus Bilirakis (FL), Michael Guest (MS) and John Curtis (UT). There are now 92 Republican co-sponsors.

still more tips

Citibank Tests Tokenization of Private Equity Funds on Avalanche – CoinDesk

Bitcoin Regains $1 Trillion Market Cap – The Wall Street Journal

Robinhood reports crypto revenue of $43M – Blockworks