The anti-terrorist financing provisions of proposed United States legislation would grant the president authority to block access to digital assets, raising industry concerns about its potential broader implications and impact.
The Intelligence Authorization Act for Fiscal Year 2025, grants the U.S. president powers to block transactions—digital asset-related or otherwise—between U.S. persons and foreign entities identified as supporting terrorist organizations, including imposing strict conditions on foreign financial institutions maintaining accounts in the U.S., if they are found facilitating such transactions.
Specifically, the law prohibits: “any transactions between any person subject to the jurisdiction of the United States and a foreign digital asset transaction facilitator identified.”
Ostensibly, the Act, which was unanimously passed by the Senate Select Committee on Intelligence on May 22, simply authorizes funding, provides legal authorities, and enhances congressional oversight for the U.S. Intelligence Community.
“The Intelligence Authorization Act for Fiscal Year 2025 reflects the Senate Intelligence Committee’s bipartisan commitment to ensuring America’s intelligence agencies have the authorities and resources they need to protect against rapidly evolving conflicts and threats,” said Committee Chairman Senator Mark Warner (D-VA).
However, while defunding terrorists is a goal everyone can get on board with, the law also includes a rather broad definition of “digital assets” that encompasses any digital representation of value recorded on cryptographically secured distributed ledgers.
According to the law, a digital asset protocol is: “any communication protocol, smart contract, or other software… deployed through the use of distributed ledger or similar technology; and… that provides a mechanism for users to interact and agree to the terms of a trade for digital assets.”
This has drawn some consternation from certain quarters, such as finance lawyer Scott Johnsson, who criticized the law on X.
It’s hard to see how this isn’t intended to be a user-level ban power by the President on any protocol/smart contract thats deemed by the Treasury Secretary to be “controlled, operated or [made] available” by a foreign sanctions violator. Breathtaking scope and implications to… https://t.co/i36gE79lIM
— Scott Johnsson (@SGJohnsson) June 6, 2024
In other words, the concern is that the law’s broad applicability could compel users to join Know Your Customer (KYC)-compliant and permissioned blockchain networks, limiting them to regulated blockchains—it’s worth noting that some in the industry may equally argue that this is not such a bad idea.
Another blockchain industry commentator suggested that Senator Warner had inserted elements of his bipartisan Terrorist Financing Prevention Act (TFPA) into the Intelligence Authorization Act for Fiscal Year 2025.
Introduced in December 2023, the TFPA proposed measures that would require the U.S. Department of the Treasury to identify any foreign bank or foreign digital asset transaction facilitator that knowingly facilitates transactions with a Foreign Terrorist Organization (FTO) or related party.
It also contained a key provision from the previously introduced Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act, giving the Financial Crimes Enforcement Network (FinCEN)—a bureau of the U.S. Treasury Department that collects and analyzes information about financial transactions to combat money laundering, terrorist financing and other financial crimes—authority to restrict transactions with “primary money laundering concerns” that do not involve a U.S. correspondent bank account.
This latter provision would provide FinCEN with “appropriate tools to address threats involving digital assets and non-traditional finance networks, just as they currently can where correspondent accounts are involved.”
X commentator ‘Blockchain Tipsheet’ pointed out that this language mirrors that in the Intelligence Authorization Act. Specifically, the Act states that, for foreign financial institutions and foreign digital asset transaction facilitators that engage in certain transactions, there is “mandatory identification.”
“Not later than 60 days after the date of enactment of this Act, and periodically thereafter, the Secretary shall identify and submit to the President a report identifying any foreign financial institution or foreign digital asset transaction facilitator that has knowingly facilitated a significant financial transaction with— (i) a Foreign Terrorist Organization; (ii) a specially designated global terrorist organization; or (iii) a person identified on the list of specially designated nationals and blocked persons maintained by the Office of Foreign Assets Control of the Department of the Treasury… or (B) engaged in money laundering.”
Despite concerns that the move could be seen as an effort to exert control over digital assets, the Act is first and foremost an attempt to strengthen U.S. anti-money laundering and terrorist financing measures, something that has been high on the agenda for several years, and certain sections of the digital asset space have made themselves conspicuous by association with a number of high profile names on U.S. sanctions lists.
The last year alone saw the revelation, in April, that the U.S. Department of Justice (DOJ) had seized over $112 million from digital asset wallets linked to fraudulent activities; in October 2023, a report that Hamas had raised funds through the digital asset space; and earlier this year, reports that Mexican cartels were using digital assets to buy fentanyl precursors from Chinese manufacturers.
Instances such as these, added to prior concerns about crypto-funding of sanctioned countries such as Russia, Iran, Cuba, Venezuela and North Korea, likely allowed for the waving through of the Intelligence Authorization Act – despite it being broader in scope than some in the digital asset industry might like.
As Intelligence committee Vice Chairman, Senator Marco Rubio (R-FL), said: “Our Intelligence Authorization Act represents significant improvements to our national security tools, legal authorities, Intelligence Community workforce, and ensures resources are focused on the most pressing threats.”
The Act has bipartisan support and resoundingly passed committee stage (a vote of 17 to 0), but still needs to pass a full Senate vote and a vote in the House of Representatives, before being sent to the President for final approval – and at this stage it’s uncertain who exactly this president would be.
So, despite some doomsaying from the digital asset community, justified or not, and descriptions of the Intelligence Authorization Act as a “must pass,” it is by no means certain to come into force, at least in its current form.
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