A company issuing stablecoins in the United States would have a series of new tasks to fend off criminals and keep government watchdogs informed of bad actors, according to rules about to be proposed by the U.S. Department of the Treasury and reviewed by CoinDesk.
A joint proposal from the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) will outline the extensive controls stablecoin companies would need to put in place, including the ability to “block, freeze and reject” transactions and internal protections to comply with the Bank Secrecy Act that governs most of the U.S. financial system.
In one of the most significant steps yet to implement last year’s Guiding and Establishing National Innovation for Stablecoins in the United States (GENIUS) Act – the first major legislation on the crypto sector in the United States – the two branches of the Treasury Department that control illicit finance are defining a tailored approach for stablecoin companies, which will be open to a period of public comment and potential revisions before being finalized. But the agencies also send a message of deference to the industry, suggesting that it is companies that best understand their own dangers.
A summary of the joint proposal reviewed by CoinDesk says it is focused on efficiency “and that financial institutions are best positioned to identify and assess their money laundering, terrorist financing, and illicit financing risks.” The department’s efforts maintain that a company that implements appropriate anti-money laundering prevention measures is generally immune from enforcement action unless it demonstrates “a significant or systemic failure in maintaining that program.”
On the money laundering front, FinCEN expects stablecoin issuers’ programs to be able to stop specifically flagged transactions and know where to devote “more attention and resources to higher-risk customers and activities.” Where U.S. authorities pursue a specific objective, regulated issuers subject to this proposed rule should search their own records for activity related to individuals or entities reported by FinCEN.
Additionally, issuers will be required to act as allies in the agency’s pursuit of entities identified as “primary money laundering concerns.” As recently as 2023, the agency had sought to label crypto mixers such as Tornado Cash under this label, although earlier this year the Treasury Department changed course to suggest that mixers could serve legitimate, legal privacy purposes.
Regarding sanctions, OFAC would require stablecoin issuers to implement risk-based safeguards for stablecoin activity in primary or secondary markets, and that policies must spot and reject transactions “that may or would violate U.S. sanctions.” Sanctions missteps — including past egregious violations — have been a major concern among crypto industry critics, including recent scrutiny focused on the world’s largest exchange, Binance.
Treasury Secretary Scott Bessent said in a statement that his department’s latest efforts “will protect the U.S. financial system from national security threats without hindering the ability of U.S. businesses to move forward in the stablecoin payments ecosystem.”
The crypto industry and its stablecoin leaders – including Tether, Circle, Ripple and the company partially owned and controlled by President Donald Trump’s family, World Liberty Financial – are awaiting regulation that will help them further establish their bespoke assets as safe and reliable. Some tensions remain within the broader crypto community, which has had tumultuous relationships with governments since its beginnings, when its founding principles aimed to keep cryptocurrencies outside government control.
The decentralized finance (DeFi) industry remains a space that seeks to eliminate middlemen and maintain direct interactions, but controls on illicit finance in this area remain unresolved in ongoing negotiations between the industry, securities industry and lawmakers over the Digital Asset Market Clarity Act in the U.S. Senate. While the Treasury’s stablecoin proposal and other proposals from U.S. financial regulators begin to outline the guardrails, large swathes of crypto activity still need to be addressed.
Earlier this year, a third branch of Treasury — the independent Office of the Comptroller of the Currency that regulates domestic banks and trusts — proposed its standards and procedures for issuers that it will oversee as the top federal regulator. This week, its sister regulator, the Federal Deposit Insurance Corp., did the same with a largely parallel proposal.
The GENIUS Act is expected to come into full effect by 2027. Long before that, companies have been seeking charters and partnerships to get involved in stablecoins. The company World Liberty, linked to Trump, for example requested a trusted bank charter in January and manages the stablecoin at 1 USD.
The company is facing new scrutiny this week after apparently ignoring that its partner AB DAO was involved in a project with potential ties to Cambodia’s Prince Group, the target of major U.S. investigations, sanctions and last year’s seizure of a record $14 billion in bitcoin. . These types of business relationships at stablecoin issuers would be subject to strict new industry-managed controls in the Treasury Department’s pending proposal.
