S. 2355

[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 2355 Introduced in Senate (IS)]

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118th CONGRESS
1st Session
S. 2355

To clarify the applicability of sanctions and antimoney laundering 
compliance obligations to United States persons in the decentralized 
finance technology sector and virtual currency kiosk operators, and for 
other purposes.

_______________________________________________________________________

IN THE SENATE OF THE UNITED STATES

July 18, 2023

Mr. Reed (for himself, Mr. Rounds, Mr. Warner, and Mr. Romney) 
introduced the following bill; which was read twice and referred to the 
Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

A BILL

To clarify the applicability of sanctions and antimoney laundering 
compliance obligations to United States persons in the decentralized 
finance technology sector and virtual currency kiosk operators, and for 
other purposes.

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Crypto-Asset National Security 
Enhancement and Enforcement Act of 2023''.

SEC. 2. DECENTRALIZED FINANCE NATIONAL SECURITY ENHANCEMENT.

(a) Definitions.--In this section:
(1) Control.--The term ``control'', with respect to a 
digital asset protocol, includes the power, directly or 
indirectly, to direct a change in the computer code or other 
terms governing the operation of the protocol, as determined by 
the Secretary of the Treasury. Such power may be exercised 
through ownership of governance tokens, administrator 
privileges, ability to alter or upgrade computer code, or 
otherwise.
(2) Digital asset.--The term ``digital asset'' means any 
digital representation of value that is recorded on a 
cryptographically secured distributed ledger or any similar 
technology or another implementation, which was designed and 
built as part of a system to leverage or replace blockchain, 
distributed ledger technology, or their derivatives.
(3) Digital asset protocol.--The term ``digital asset 
protocol'' means any communication protocol, smart contract, or 
other software--
(A) deployed through the use of distributed ledger 
or similar technology; and
(B) that provides a mechanism for users to interact 
and agree to the terms of a trade for digital assets.
(4) Digital asset protocol backer.--
(A) In general.--The term ``digital asset protocol 
backer'' means any person that--
(i) holds governance tokens of a digital 
asset protocol valued at more than $25,000,000 
(subject to adjustment under subparagraph (B)); 
or
(ii) makes--
(I) an investment in the 
development of a digital asset protocol 
of $25,000,000 (subject to adjustment 
under subparagraph (B)) or more; or
(II) any combination of investments 
in the development of a digital asset 
protocol if--
(aa) any such investment is 
not less than $2,500,000 
(subject to adjustment under 
subparagraph (B)); and
(bb) such investments, in 
the aggregate, equal or exceed 
$25,000,000 (subject to 
adjustment under subparagraph 
(B)) in any 12-month period.
(B) Adjustment of thresholds.--The Secretary of the 
Treasury may adjust any dollar amount specified in 
clause (i) or (ii) of subparagraph (A) if, before the 
increase takes effect, the Secretary notifies the 
following committees of the increase:
(i) The Committee on Banking, Housing, and 
Urban Affairs and the Committee on Foreign 
Relations of the Senate.
(ii) The Committee on Financial Services 
and the Committee on Foreign Affairs of the 
House of Representatives.
(C) Valuation of governance tokens.--
(i) In general.--For purposes of 
subparagraph (A), the procedures and criteria 
to be used in determining the valuation of 
governance tokens may, as determined by the 
Securities and Exchange Commission in 
regulations--
(I) require a minimum trading 
period;
(II) rely on sales in a private 
market; or
(III) rely on secondary market 
trades through a financial institution 
(as defined in section 1010.100(t) of 
title 31, Code of Federal Regulations 
(or a successor regulation)).
(ii) Consultation required.--The Securities 
and Exchange Commission shall consult with the 
Secretary of the Treasury before prescribing 
regulations under clause (i).
(iii) Certification required.--Each digital 
asset protocol backer described in paragraph 
(4) or in section 5312(a)(2)(AA) of title 31, 
United States Code, as amended by subsection 
(c) of this section, shall submit to the 
Securities and Exchange Commission and the 
Secretary of the Treasury an annual 
certification with respect to the value of the 
governance tokens of the digital asset protocol 
held by the digital asset protocol backer, 
beginning on the earlier of--
(I) the date on which the value of 
those governance tokens equals or 
exceeds the dollar amount specified in 
subparagraph (A)(i), as may be adjusted 
by the Secretary of the Treasury; or
(II) the date on which the 
Securities and Exchange Commission or 
the Secretary of the Treasury request 
information about the valuation of the 
governance tokens.
(5) Digital asset transaction facilitator.--The term 
``digital asset transaction facilitator'' means any person 
that--
(A) controls a digital asset protocol, as 
determined by the Secretary of the Treasury; or
(B) makes available an application designed to 
facilitate transactions using a digital asset protocol.
(6) United states person.--The term ``United States 
person'' means any United States citizen, permanent resident 
alien, entity organized under the laws of the United States or 
any jurisdiction within the United States (including foreign 
branches), or any person in the United States.
(b) Applicability of Sanctions Compliance Obligations to United 
States Persons in the Decentralized Finance Sector.--
(1) In general.--In the case of a violation described in 
paragraph (2) that is conducted through the use of a digital 
asset protocol, each person described in paragraph (3) shall be 
subject to the penalties set forth in subsections (b) and (c) 
of section 206 of the International Emergency Economic Powers 
Act (50 U.S.C. 1705) to the same extent as a person that 
commits an unlawful act described in subsection (a) of that 
section.
(2) Violations described.--A violation described in this 
paragraph is a violation of a license, order, regulation, or 
prohibition issued to implement sanctions administered by the 
Office of Foreign Assets Control.
(3) Persons described.--A person described in this 
paragraph is a United States person that is a digital asset 
transaction facilitator or a digital asset protocol backer of a 
digital asset protocol used in a violation described in 
paragraph (2).
(4) Exemption for controlled decentralized finance 
protocols.--A digital asset protocol backer shall not be 
subject to paragraph (1) for a violation described in paragraph 
(2) if the Secretary has determined that the digital asset 
protocol is controlled by a digital asset transaction 
facilitator or by another person, who may be appointed by 
contract or another means.
(5) Applicability.--Paragraph (1) shall apply with respect 
to violations described in paragraph (2) that occur on or after 
the date that is 90 days after the date of the enactment of 
this Act.
(c) Bank Secrecy Act Application to the Decentralized Finance 
Sector.--
(1) In general.--Section 5312(a)(2) of title 31, United 
States Code, as amended by section 6110(a)(1) of the Anti-Money 
Laundering Act of 2020 (division F of Public Law 116-283), is 
amended--
(A) in subparagraph (Z), by striking ``or'' at the 
end;
(B) by redesignating subparagraph (AA) as 
subparagraph (BB); and
(C) by inserting after subparagraph (Z) the 
following:

``(AA) a digital 
asset transaction 
facilitator or a 
digital asset protocol 
backer of a digital 
asset protocol; or''.

(2) Effective date.--Subparagraph (AA) of section 
5312(a)(2) of title 31, United States Code, as added by 
subsection (a), shall take effect on the day after the 
effective date of the final rules issued by the Secretary of 
the Treasury pursuant to section 6110(b) of the Anti-Money 
Laundering Act of 2020 (division F of Public Law 116-283).
(3) Exemption for controlled decentralized finance 
protocols.--The Secretary of the Treasury may exercise the 
exemptive authority under section 5318(a)(7) of title 31, 
United States Code, with respect to a digital asset protocol 
backer of a digital asset protocol, if--
(A) the Secretary of the Treasury finds that such 
digital asset protocol is controlled by a digital asset 
transaction facilitator or by another person, who may 
be appointed through contract or other means; and
(B) the digital asset transaction facilitator or 
other person described in subparagraph (A) is subject 
to the requirements under this section and regulations 
prescribed under this section for transactions 
conducted through the use of such digital asset 
protocol.

SEC. 3. PROHIBITIONS OR CONDITIONS ON CERTAIN TRANSMITTALS OF FUNDS.

Section 5318A of title 31, United States Code, is amended--
(1) in subsection (a)(2)(C), by striking ``subsection 
(b)(5)'' and inserting ``paragraphs (5) and (6) of subsection 
(b)''; and
(2) in subsection (b)--
(A) in paragraph (5), by striking ``for or on 
behalf of a foreign banking institution''; and
(B) by adding at the end the following:
``(6) Prohibitions or conditions on certain transmittals of 
funds.--If the Secretary finds a jurisdiction outside of the 
United States, 1 or more financial institutions operating 
outside of the United States, 1 or more types of accounts 
within, or involving, a jurisdiction outside of the United 
States, or 1 or more classes of transactions within, or 
involving, a jurisdiction outside of the United States to be of 
primary money laundering concern, the Secretary, in 
consultation with the Secretary of State, the Attorney General, 
and the Chairman of the Board of Governors of the Federal 
Reserve System, may prohibit, or impose conditions upon, 
certain transmittals of funds (to be defined by the Secretary), 
to or from any domestic financial institution or domestic 
financial agency if such transmittal of funds involves any such 
jurisdiction, institution, class of transaction, or type of 
account.''.

SEC. 4. VIRTUAL CURRENCY KIOSK NATIONAL SECURITY ENHANCEMENT.

(a) Definitions.--In this section:
(1) Virtual currency.--The term ``virtual currency'' means 
any digital representation of value that is recorded on a 
cryptographically secured distributed ledger or any similar 
technology or another implementation, which was designed and 
built as part of a system to leverage or replace blockchain, 
distributed ledger technology, or their derivatives.
(2) Virtual currency transfer.--The term ``virtual currency 
transfer'' means a withdrawal, exchange, or other payment or 
transfer that involves a transaction in virtual currency.
(3) Virtual currency kiosk.--The term ``virtual currency 
kiosk'' means a stand-alone machine that facilitates a virtual 
currency transfer.
(4) Virtual currency kiosk operator.--The term ``virtual 
currency kiosk operator'' means any person who operates a 
virtual currency kiosk at which consumers initiate virtual 
currency transfers.
(b) Antimoney Laundering.--
(1) In general.--Except as provided in paragraph (2), 
before effecting any virtual currency transfer, a virtual 
currency kiosk operator shall verify and record, at a minimum, 
the name and physical address of the--
(A) consumer, which shall include review of an 
official document evidencing nationality or residence 
that includes a photograph of the consumer; and
(B) counterparty to such transfer.
(2) Exception.--Paragraph (1) shall not apply to a 
counterparty described in paragraph (1)(B) that conducts a 
virtual currency transfer using a wallet held at a financial 
institution, as defined in section 5312 of title 31, United 
States Code, that is subject to the requirements of subchapter 
II of title 31, United States Code.
(c) Rulemaking.--Not later than 360 days after the date of 
enactment of this Act, the Financial Crimes Enforcement Network shall 
promulgate regulations requiring each virtual currency kiosk operator 
to--
(1) furnish to the Financial Crimes Enforcement Network a 
list of the locations, including physical addresses, of all 
virtual currency kiosks that are owned or operated by such 
operator; and
(2) update the list described in paragraph (1) every 90 
days.
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