Once enacted, the law would empower the President to restrict any transactions between US residents and foreign entities flagged as linked to terrorism.
Members of the crypto community are expressing significant concern over a new law proposed by United States Senator Mark Warren aimed at combating terrorism and other illicit activities.
On Thursday, Scott Johnsson, a finance lawyer and strong advocate for the emerging crypto economy, highlighted the implications of this new law on social media. According to him, the legislation, already submitted to the Senate for review, would grant the President the authority to block access to digital assets.
Borrowing Elements From Existing Legislation
Johnsson expressed his concerns on X (formerly known as Twitter), suggesting that the law could serve as a tool for the President to impose user-level bans on decentralized finance (DeFi) protocols deemed problematic by the US Department of Treasury.
“It’s hard to see how this isn’t intended to be a user-level ban power by the President on any protocol or smart contract that’s deemed by the Treasury Secretary to be ‘controlled, operated or [made] available’ by a foreign sanctions violator,” Johnsson wrote.
Johnsson’s concerns were sparked by a post on X revealing that Senator Warren had incorporated clauses from the Terrorist Financing Prevention Act [S.3441] to modify the proposed law.
This act, introduced in December 2023 by US Senators Mitt Romney, Mark Warner, Mike Rounds, and Jack Reed, allows the Treasury to block transactions to a “foreign digital asset transaction facilitator” flagged as a sanctioned entity.
The finance lawyer believes that the addition of the new clause could spell trouble for the crypto sector, giving the Treasury the power to dictate the future of the industry and potentially undermine decentralized finance.
Implications for the Crypto Sector
Johnsson’s theory is that the law’s broad applicability could force users to migrate to Know Your Customer (KYC)-compliant and permissioned blockchain networks, thereby restricting them to regulated blockchains only.
Furthermore, Johnsson suggested that the proposed law might be part of a broader US strategy to control the crypto economy under the guise of anti-terrorism measures.
The proposed law defines crypto assets as any digital representation of value secured by cryptographic ledgers, including communication protocols and smart contracts. It reads:
“[…] any communication protocol, smart contract, or other software […] deployed through the use of distributed ledger or similar technology; and […] that provides a mechanism for users to interact and agree to the terms of a trade for digital assets.”
Once enacted, the law would empower the President to restrict any transactions between US residents and foreign entities flagged as linked to terrorism.
Additionally, American financial institutions would face stringent conditions if found facilitating such transactions under the law.
Political Climate and Crypto Legislation
Meanwhile, the rollout of the proposed law comes at a time of significant political discord in the United States.
On one hand, there have been legislative actions favorable to cryptocurrencies, such as the Financial Innovation and Technology for the 21st Century Act, which received bipartisan support.
Recently, Congress passed a bill aimed at the SEC’s Staff Accounting Bulletin No. 121 (SAB 121). This measure prohibits banks from holding digital assets and requires companies that custody cryptocurrencies to record customer crypto holdings as liabilities on their balance sheets.
However, after vetoing the law, President Joe Biden concluded that the bill does not support the success of the American people. According to him, his administration “will not support measures that jeopardize the well-being of consumers and investors.
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