Changes in U.S. Stablecoin Legislation: Will Tether be Excluded Due to the Bank Secrecy Act?

Original Title: Stablecoin Legislation Shouldn’t Force Issuers to Comply With Bank Secrecy Act: Rep. Tom Emmer

Original author: Sander Lutz

Source:

Compiled by: Daisy, Mars Finance

House Majority Whip Tom Emmer believes that the stablecoin bill currently being discussed in Congress should remove the provisions requiring issuers to comply with strict anti-money laundering laws.

Amid concerns that key provisions of multiple stablecoin bills circulating in Congress could spark tension, Republican Congressman Tom Emmer from Minnesota stated this week that he believes stablecoin issuers like Tether should not be required to comply with the anti-money laundering Bank Secrecy Act. This is a major point of contention in the Senate's GENIUS bill related to stablecoins and the parallel STABLE bill in the House.

Including such provisions in the bill could marginalize foreign issuers while favoring American companies, as entities within the United States are currently better equipped to meet these stringent requirements. This legislator believes that, regardless of the jurisdiction, stablecoin issuers should not be bound by the strict anti-money laundering regulations under the Bank Secrecy Act.

Emmer said on Wednesday night to Decrypt: "The so-called 'Bank Secrecy Law' was originally designed for cash, whereas this is a technology based on blockchain. More importantly, everything on the blockchain is public and transparent to those who know how to follow the code."

He added, "Speaking of the 'Bank Secrecy Act' - it doesn't even take into account this technology, digital assets - it is quite interesting that it should be the law we are using."

Stablecoins are digital assets that are typically pegged to the US dollar and are designed to maintain a stable price.

They are used by cryptocurrency traders to enter and exit the market without the need for US dollars and are also used as dollar equivalents in markets where the dollar is restricted or unavailable.

The latest GENIUS Act and STABLE Act drafts classify all stablecoin issuers as financial institutions under the Bank Secrecy Act. This law, enacted in 1970, established a set of stringent proactive anti-money laundering rules that U.S. banks must comply with in order to operate.

For example, the Bank Secrecy Act requires regulated institutions to conduct suspicious activity monitoring, undergo routine audits, hire compliance officers, and implement customer identification procedures under the Patriot Act — a controversial law that extended the government's surveillance powers shortly after the Sept. 11, 2001, terrorist attacks.

These requirements pose a significant barrier to existing foreign stablecoin issuers such as Tether. Tether is the company behind the USDT stablecoin and is the undisputed leader in the market. Tether's USDT stablecoin has a market capitalization of over $144 billion, is headquartered in the British Virgin Islands, and plans to relocate to El Salvador, but it remains one of the largest buyers of U.S. Treasury bonds globally, using these bonds as collateral for its dollar-pegged stablecoin.

Under the current operating model, Tether is subject to far less regulation than what is required by the Bank Secrecy Act. The company's leadership has suggested that mandating all stablecoin issuers to comply with these rules would harm the company and benefit its competitors. In contrast, Circle, the issuer of the second largest stablecoin USDC, is already registered in the United States. Although Circle has not yet fully complied with the Bank Secrecy Act, the company has been recognized as a money transmitter by the New York Department of Financial Services.

Circle has also complied with the European Union's complex MiCA regulatory framework, while Tether has taken a stance of resistance.

As the legislation on stablecoins in the United States approaches, questions are beginning to arise about whether Tether will relocate to the U.S. if it must comply with the Bank Secrecy Act, or what will happen if the market leaders are excluded from the U.S. financial markets.

Emmer does not want to exclude Tether or any other foreign issuer from the booming stablecoin market in the United States.

"We must make sure everyone competes in this field," he said.

This does not mean that TEDA does not need to follow certain rules when operating in the United States. For Emer, the key issue is Proof of Reserves – proving to the government that your token has enough collateral to ensure that the pegged value to the U.S. dollar can be maintained even during periods of market volatility.

To this end, Emmer believes that Tether has done quite well in this regard. In 2021, the company partnered with Wall Street firm Cantor Fitzgerald to help custody its claimed holdings of $92 billion in U.S. Treasury reserves.

"Tether has done very well over the past four years," said Emmer.

The House Financial Services Committee plans to review the STABLE Act at its meeting next week. Meanwhile, the GENIUS Act received strong bipartisan support from the Senate Banking Committee earlier this month and retains relevant provisions of the Bank Secrecy Act. A full Senate vote is expected in the coming months.