Written by Hazel J. Greene, Senior Analyst

A new bill proposed in the US Senate aims to tackle the growing concerns surrounding money laundering and illicit activities in decentralized finance (DeFi) services. The Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act calls for increased scrutiny and compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations within the DeFi space. This legislation seeks to bring DeFi services under the same rules and obligations as traditional financial institutions, such as banks and centralized crypto trading platforms.

In recent years, DeFi applications have gained popularity for their ability to facilitate peer-to-peer financial transactions recorded on blockchains. However, the anonymity provided by these platforms has also attracted malicious actors, enabling them to exploit regulatory loopholes and engage in criminal activities. The CANSEE Act was introduced to address these vulnerabilities and ensure that the essential AML and security measures apply to DeFi as they do to other financial entities.

One of the primary focuses of the CANSEE Act is combating money laundering and sanctions evasion within the DeFi space. By extending the application of national security laws to DeFi services, the legislation aims to hold them accountable and prevent illicit financial activities. DeFi platforms would be obligated to establish robust AML programs, conduct due diligence on customers, and report any suspicious transactions to the Financial Crimes Enforcement Network (FinCEN).

The CANSEE Act also addresses the role of crypto automated teller machines (ATMs) in facilitating potential illicit activities. These machines, often found in convenience stores and gas stations, allow users to convert cash or debit card funds into cryptocurrencies. The Act proposes requiring operators of crypto ATMs to verify the identity of each counterparty involved in transactions conducted through these kiosks. Such a measure would enhance the traceability of funds and make it more difficult for criminals to exploit these machines for money laundering purposes.

To further tackle money laundering threats, the CANSEE Act enables the Treasury Department to extend its authority beyond traditional banking institutions. This update empowers the Treasury Department to combat illicit financial activities that may occur across various sectors, including DeFi and other cryptocurrency entities. By doing so, the bill seeks to maintain the integrity of the financial system and protect national and economic security.

The CANSEE Act has garnered support from both sides of the aisle, with Senators Jack Reed, Mike Rounds, Mark Warner, and Mitt Romney pushing for its implementation. These co-sponsors emphasize the importance of transparency and sensible regulations to safeguard the financial system from criminal activity. By enforcing stricter AML and sanctions enforcement, they believe participants who abide by the rules can continue to leverage the potential of distributed ledger technologies and protect the integrity of the financial system.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.