Concerning a recently proposed piece of legislation in the Senate designed to address concerns of money laundering and violations of sanctions in the realm of decentralized finance (DeFi), legal experts in the crypto space have voiced their skepticism and reservations.
The Crypto-Asset National Security Enhancement (CANSEE) Act is a piece of proposed legislation that is bipartisan in nature and aims to impose penalties on individuals who are considered to “control” a DeFi project but fail to comply with the “basic” anti-money laundering (AML) and financial reporting requirements, which are already applicable to banks and centralized cryptocurrency trading platforms.The legislation would be known as the Crypto-Asset National Security Enhancement Act (CANSEE Act).
The fact that the Secretary of the Treasury will be the only one to decide who meets the criteria for “controlling” a DeFi service raises some concerns because it could give the department more power than it needs to have.
If passed, a bipartisan bill would grant the US Treasury control of DeFi.
The crypto policy think tank Coin Centre published a blog post on Thursday stating that the bill grants the Secretary significant discretion in determining who can be labeled as having “control” over a protocol.
This information was found in the blog post. This expansive discretion could even extend to those who contribute to open-source software, which is probably something that the bill’s authors did not intend to happen.
The “decentralized” nature of DeFi, which means that no specific entities have control over a particular protocol or service, is the fundamental principle underlying the system.
However, in a report published earlier this year by the Treasury Department, it was acknowledged that many DeFi protocols are more centralized than they claim to be. These protocols exhibit clear governance structures and a concentration of voting power among wealthy holders of governance tokens.
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Coin Centre is aware of the existence of services referred to as “decentralized in name only.” Despite this, the organization is of the opinion that such services can, without significant additional complications, adhere to the regulations already in place for financial institutions.
In a recent clarification, the Director of Communications at Coin Centre, Neeraj K. Agrawal, stated that the existing rules for financial surveillance primarily apply to intermediaries.
Because a decentralized protocol only requires the participation of two parties, there is no need for any third parties to mediate the transaction.
In accordance with the CANSEE Act, it would be the responsibility of the Treasury to provide exemptions to “controlled decentralized finance protocols” that are in line with the regulations that are currently in place.
The charitable organization, on the other hand, has voiced its concern that the Treasury may decide not to grant any exemptions, which would be consistent with the broader trend of targeted regulatory actions taken against the cryptocurrency industry.
An additional cause for concern is the possibility of a constitutional breach. Individuals who “make available an application designed to facilitate transactions using a digital asset protocol” would be subject to sanctions violations under this bill, which would result in the imposition of penalties.
This has the potential to unfairly punish software developers, who, under the first amendment, have the same right to publish code as they do speech.
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This right has in the past been subject to some restrictions imposed by the government. Alex Pertsev, the developer of Tornado Cash, was taken into custody in August of the year before, shortly after the Treasury Department imposed sanctions on the Ethereum-based privacy protocol.
The protocol had become increasingly popular among criminals as a means of concealing illegally obtained funds.
In addition, in the same year, Senator Elizabeth Warren (Democratic Party of Massachusetts) introduced a bill that aimed to address violations of crypto sanctions.
In the version of the bill that she drafted, there were provisions that targeted blockchain node operators and software developers who were associated with networks that made it easier to launder money.