Headline:  What is the Digital Asset Anti-money Laundering Act?

Body:  I remember a pizzeria when I was young with a bunch of video games where you could earn tickets to get prizes.  (There was a plush rat that was the mascot, if you recall.)  One of the games involved holding a ridiculously large mallet, and in front of you were 10 wooden disks which would randomly pop up, and you then had to hammer them down.  The constant struggle between law enforcement and those who would take advantage of new technologies to scam people, is not much different.  When cryptocurrency began to appear, criminals noted that it was an exceptional method to move large amounts of value internationally in an untraceable manner.   It was Christmas and birthday for a decade, all wrapped up in one package.  It was just a matter of time before the regulators got involved, to tamp down the worst of the abuses.  Hence, the Digital Asset Anti-Money Laundering Act of 2023.

OK, so is this REALLY a big deal?

Yeah, yeah, it is a big deal.  Last year saw $20 Billion of illicit use of cryptocurrency.  The Act would do some commonsense things like extending the KYC requirements in the Bank Secrecy Act.  Let’s unpack that one a bit.   KYC stands for Know Your Customer requirements and these include basic information like name, proof of address and proof of date of birth, among other information.    The Bank Secrecy Act (BSA) requires banks to report on cash transactions exceeding $10,000 and reporting other “suspicious” transactions.  They also have to have a board-approved Anti-Money Laundering procedure.  Most importantly, the AML Act would re-cast purveyors of digital assets to be equivalent to banks, and subject to their requirements.  (In your research, you might come across a term, “Money Service Businesses.”   These are financial firms like check cashing services and the like, who are not banks, but per the IRS, transact in amounts exceeding $1,000 per person per day.   The abbrieviation MSB  isn’t so scary now, is it?)

So, this is good, right?

It depends upon your point of view.    The author brings up the point that the lion’s share of money-laundering involves good olde-fashioned fiat currency, not crypto.  He suggests that this is because the blockchain allows all to see the flows of all currency, and if dealing with regular currency, much can be hidden between national borders.  This is almost right, but he misses a few things.    First, the blockchain does allow for people to witness the flows of cryptocurrency, but the identity of persons and groups who own that particular wallet are hidden.  Further, though much confusion can be sowed, using fiat currency, it has been used for hundreds of years and law enforcement is very good at “following the money.”  It is much easier for countries to unwind a fiat currency transaction than one involving cryptocurrency.  The crux of the author’s argument is that by requiring KYC regulation like a bank, the onerous restrictions will entirely constrict the use of any cryptocurrency.   I would argue that if a person or group is so concerned about these KYC regulations, the crypto firm should be equally reticent to transact their business.

The authors did make a good point, though.  Not too long ago, some politicians tried to make a certain medical procedure illegal.  One effect was to push these most desperate people into horrific examples of back-alley operating rooms, and this significantly raised their risk.   In a similar way, if regulation goes too far, some desperate people could go to some unscrupulous people in a desperate effort to find a buyer for a very illiquid asset.  This could spawn a whole new set of problems.

What is this FBAR business I keep hearing about?

Take a breath, it’s not that bad, really.  FBAR would require all people who have $10,000 or more in a foreign bank account to declare it.  The current Act would extend this requirement to include the value of digital assets.  See, easy.

So, what’s the status right now?

It is important to note that, though sponsored by 2 Senators from different sides of the aisle, this Act has not been signed into Law.  The politicians pushing it, are beating the drum of national security, but many consider this a false narrative.  Further, almost all politicians are paying all attention to the Presidential election in 2024.    It seems unlikely that this Act will make it to the President’s desk.

The Verdict

The people against passage of this Act seem to be loudest in their action.  But, maybe we should pay more attention to the many more people who could get hurt if this Act doesn’t pass.  Even if this attempt comes to naught, I am  confident that there will be other attempts, as there are senators from both sides who are co-sponsoring this bill.  This level of co-operation has to mean something.   I think we would be foolish not to pay attention.






Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.


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