The U.S. Treasury is urging Congress to consider creating a digital asset-specific “hold law” that would allow crypto platforms to temporarily freeze funds linked to suspected illegal activity.
The recommendation has appeared in a Treasury report to Congress on technologies used to counter illicit finance involving digital assets, produced under the Guiding and Establishing National Innovation for U.S. Stablecoins, or GENIUS Act.
“Lawful users of digital assets may leverage mixers to enable financial privacy when transacting through public blockchains,” the report reads, adding that a measure for the hold law would create a legal safe harbor allowing financial institutions to “temporarily and voluntarily hold digital assets involved in suspected illegal activity” during an investigation.
The authority could allow institutions to pause suspicious transfers before funds are moved or converted through other crypto services.
“Exchanges often detect suspicious funds using blockchain intelligence, but there is not always a clear legal framework that allows them to hold those assets long enough for investigators to act,” Ari Redbord, global head of policy and government affairs at TRM Labs, told Decrypt.
The move could help “create a defined window for platforms to pause those funds while law enforcement moves through the legal process,” Redbord added.
If adopted, it could “strengthen how exchanges handle suspicious transactions,” Redbord explained, adding that in practice, it would give law enforcement “time to catch up to the speed of blockchain transactions,” and “strengthen public-private partnerships.”
The recommendation comes as Congress debates broader legislation on the structure of the crypto market, with President Donald Trump pressing lawmakers to move faster on crypto rules amid a clash between banks and digital asset firms.
While exchanges can report suspicious activity, holding the funds is legally harder, Andrew Rossow, public affairs attorney and CEO of AR Media Consulting, told Decrypt.
“Banks already have the ability to delay a suspicious transaction, but that power is very narrow and legally awkward,” he said.
Institutions can file a suspicious activity report, yet there is no “clean statutory safe harbor allowing the bank to hold the funds while the investigation unfolds” without a court order, sanctions authority, or risking liability.
“For crypto exchanges, this problem is even more awkward because there is no ‘pending state’ or ‘freeze’ that is ‘clean,’” he added, noting that while the Bank Secrecy Act protects institutions that file suspicious activity reports in good faith, it does not clearly authorize them to freeze the funds tied to those reports.
Exchanges that detect suspicious crypto flows would then need to choose between allowing the funds to move or freezing them, risking legal exposure.
If a hold law gets adopted, crypto platforms will have clear authority to pause the assets while authorities review the case, Rossow explained.
But the Treasury’s report has “left a number of vulnerabilities unresolved,” Rossow noted, pointing to questions around the reliability of blockchain analytics and the “tipping off” restrictions tied to current suspicious activity reporting rules.
The proposal could create a paradox where transparency rules require disclosing a freeze, while suspicious activity reporting (SAR) rules prohibit explaining the underlying investigation, he warned.
“If you freeze someone’s assets and then must be transparent about it, but cannot tell them you filed a SAR, you now have a structural paradox. The customer will know they’re frozen; but they won’t know why. This creates a legal gray zone that would need to be exploited.”
Still, the recommendation could help create a “practical and important tool in the fight against crypto fraud and money laundering,” TRM Labs’ Redbord said.
“Criminals move quickly, and digital assets move even faster,” he said. “A narrowly tailored hold authority helps close that gap.”
