A new bipartisan bill introduced in the Senate aims to hold venture capital firms and other large investors responsible for sanctions violations occurring on decentralized finance (DeFi) platforms. The legislation, co-sponsored by two Democrats and two Republicans, seeks to prevent criminals from using DeFi for money laundering and sanctions evasion.
Under the proposed bill, if a sanctioned individual, like a Russian oligarch, utilizes a DeFi service to circumvent US-imposed restrictions, the person in control of the DeFi project would be held liable for facilitating the violation. In cases where no specific entity controls the platform, the liability would be transferred to investors who have contributed more than $25 million to the project.
DeFi platforms have gained significant popularity in the crypto market as they enable peer-to-peer transactions. As the Securities and Exchange Commission increases its enforcement actions against centralized exchanges like Coinbase and Binance, these platforms have come under regulatory scrutiny. The agency has stated that DeFi platforms should also adhere to securities regulations, but they have not faced the same level of crackdown as centralized exchanges.
The bill's co-sponsors argue that DeFi and crypto ATMs are part of a largely unregulated sector that requires stronger oversight to combat rampant money laundering and sanctions evasion. The proposed legislation would mandate DeFi platforms to implement anti-money laundering programs, verify their customers' identities, and report suspicious transactions to the Treasury Department's Financial Crimes Enforcement Network. These requirements align with the existing regulations applicable to banks and securities brokers.
Additionally, the bill also introduces new standards for crypto kiosk operators or crypto ATMs in verifying user identities.
Senator Reed emphasizes the need to protect the financial system from emerging threats posed by criminal organizations and malicious state actors, stating that it is crucial to safeguard the integrity of the financial system. Senator Rounds sees this legislation as the start of an important debate on how to protect the financial system and provide law enforcement with the necessary tools to prosecute bad actors.