The New CANSEE Act: A Game Changer?
On July 18, United States Sen. Jack Reed took a significant leap into the complex world of decentralized finance (DeFi) by introducing a bipartisan bill aimed at tightening Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. Dubbed the Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act, this legislation seeks to bring DeFi operations under the regulatory umbrella that includes traditional financial institutions.
Who’s in Charge? The Broad Definition of ‘Control’
The legislation proposes a rather elastic interpretation of ‘control’ that has raised a few eyebrows. Essentially, anyone controlling a DeFi project will be held responsible if that project is mishandled, especially if it involves sanctioned individuals. And if no one can be pinpointed as a ‘controller’? Buckle up—those who invest more than $25 million in developing the DeFi service will be roped in as well.
The definition of “control” is so broadly worded that it’s meaningless. No thresholds, no specifics, just “control,” as determined by the Secretary of the Treasury.
Waving the Regulatory Wand: Extending Treasury’s Powers
Considering the rapid evolution of cryptocurrency as a medium of financial transactions, the bill proposes to modernize the Treasury Department’s authority. This means extending their grasp beyond traditional banks, effectively allowing them to clamp down on illicit activities emerging in the crypto space.
Kiosks Under the Spotlight
The CANSEE Act also seeks to impose new requirements on crypto kiosks (or ATMs) to curb their potential use for money laundering. So, if you’re thinking of hitting up your local crypto ATM, get ready for some identity verification—both for you and the other party in the transaction.
Twitchy Reactions from the Crypto Community
As is often the case in the crypto space, reactions have been swift. Critics have labeled the bill an “existential threat to DeFi” and a “nonstarter.” One concerned citizen expressed that imposing control responsibility for substantial investments could “chill VC investment into DeFi.”
Voices for Reform
The Crypto Council for Innovation has stepped forward, arguing that the proposal lacks clear technical guidelines for decentralized protocols to comply with existing laws. Instead, they advocate for a more nuanced approach that capitalizes on the blockchain’s inherent transparency to create compliance measures suitable for crypto. As Amy James of the Web3 Working Group puts it, the U.S. is becoming less of a supportive environment for web3 innovation, despite the legislators’ attempts to clarify regulations. The hope is that feedback from the industry will lead to a bill that fosters a competitive market instead of stifling innovation.
Who’s on Board?
Alongside Reed, Sens. Mike Rounds, Mark Warner, and Mitt Romney have put their names down as cosponsors of the CANSEE Act—a legislative team that clearly sees the value in enhancing structures around crypto regulation.
