While some people in the crypto industry may be disappointed that an industry ally was not chosen as the speaker of the House this week, there may be reason for optimism. The the National Defense Authorization Act, Congress’ annual defense policy bill, is being negotiated between the House and Senate, and there is potential for crypto-related measures to be included in the final version.
Whether or not these provisions make the cut is up in the air, largely because the legislative priorities differ between the House and Senate. House Republican legislation has focused on creating a stablecoin and market structure regulatory framework. On the other hand, the bills with the most success in the Senate would establish new anti-money laundering regulations for digital asset businesses.
The Senate’s NDAA draft included an amendment to impose some of these new AML requirements. The AML measure was co-sponsored by members ranging from crypto critics such as Senators Elizabeth Warren (D-Mass.), to advocates like Cynthia Lummis (R-Wyo.). The proposal did not get a standalone vote but was instead part of a block of amendments known as a manager’s amendment, suggesting it was not controversial in the upper chamber. In addition to extending the AML requirements, the measure would require a report on anonymization services, such as mixers.
Warren, a proponent of stricter AML regulations on the crypto industry, told Politico this amendment is “a good first start” but that “it only builds part of a fence.” Senators Warren and Roger Marshall (R-Kan.) have a bill that would go further than the amendment but has gained less traction. In the interview with Politico, Warren noted there has been “some conversation” about adding more AML-related provisions to the NDAA. The spotlight on illicit crypto uses has risen recently after a Wall Street Journal report, which has since been disputed by blockchain forensic firm Elliptic, that Hamas used digital assets as a financing source.
The House included no comparable amendment in its NDAA draft, nor did it have any other crypto-related measures. Still, Rep. Andy Barr (R-Ky.) floated the possibility of attaching the bills passed by the House Financial Services and Agriculture Committees to the compromise draft. House Financial Services Committee Chair Patrick McHenry (R-N.C.) and Rep. French Hill (R-Ark.) — who chairs the House Financial Services Committee Subcommittee on Digital Assets, Financial Technology and Inclusion — were less committal, emphasizing the situation was in flux.
Adding these bills to the NDAA would be a major coup for the crypto proponents in the House GOP, but it is doubtful that will happen as there still does not appear to be any agreement with Democrats. House Financial Services Committee Ranking Member Maxine Waters (D-Calif.) told Politico she did not feel the legislation was ready to advance when asked about this GOP effort. In addition, these measures remain nonstarters in the Senate, with top lawmakers still prioritizing AML regulation.
As one of the few bills likely to pass Congress for the rest of the year, the NDAA often turns into a “Christmas tree” measure — a term for legislation with wide-ranging amendments. This year is likely no different, and it is not surprising that congressional sponsors are angling for ways to attach their bills. However, including the crypto measures advanced in the House is likely a bridge too far for a must-pass NDAA bill, given the opposition among Democrats in both chambers.
The AML measures could be a different story and have a reasonable chance of making the final cut. The noncontroversial nature of the Senate amendment and support across the spectrum of lawmakers’ views on the industry suggests the policy has real legs. The only unknown is whether House members will be willing to back it. No equivalent legislation has been prioritized in the lower chamber, leaving no good markers to evaluate off of.
Discussions on the final NDAA draft are ongoing and will likely stretch into December. If any crypto legislation is to be passed this year, using the NDAA as the vehicle will likely be the best chance. The tight floor schedule between now and the end of the year will make it difficult for measures to get standalone votes. That is why lawmakers sponsoring crypto bills are trying to hitch a ride on these bigger packages. Only time will tell if they are successful.
