DeFi Platforms and Bitcoin ATMs Face Major KYC Hurdles After New US Law

A new bill introduced in the U.S. Senate proposes to tighten know-your-customer (KYC) and anti-money laundering (AML) regulations for decentralized finance (DeFi) services.

The Crypto Assets National Security Enhancement and Enforcement (CANSEE) Act aims to prevent money laundering, stop cryptocurrency-facilitated crime and sanctions violations, and ensure that DeFi services comply with the same regulations as other financial companies, including centralized cryptocurrency exchanges, casinos, and pawnshops. anti-money laundering and economic sanctions compliance.

The new CANSEE Act puts DeFi services under the same rules as banks

According to the press release, the DeFi application aims to facilitate peer-to-peer financial transactions recorded on the blockchain, providing anonymity and enabling malicious and criminal actors to evade traditional financial regulatory tools.

Criminals, drug dealers, and hostile state actors like North Korea have been quick to exploit DeFi’s vulnerabilities to launder criminal proceeds and fund more criminal activity.

The CANSEE Act targets money laundering and sanctions evasion involving DeFi by applying the same national security laws that apply to other cryptocurrency companies such as banks and securities brokers, casinos, pawnshops, and centralized trading platforms.

DeFi services need to meet basic obligations, including maintaining an anti-money laundering program, conducting due diligence on customers, and reporting suspicious transactions to the Financial Crimes Enforcement Network (FinCEN).

The legislation also requires operators of crypto kiosks (also known as crypto ATMs) to use the kiosks to verify the identity of each counterparty to each transaction, thereby increasing the traceability of funds.

Cryptocurrency ATMs are often found in convenience stores, laundromats, and gas stations, where users can insert cash or debit cards into the machines to convert real money into cryptocurrencies.

In addition, the CANSEE Act updates the Treasury Department’s powers, requires participants in the U.S. financial system to take special measures to deal with the threat of money laundering, and expands the Treasury Department’s power to combat illegal financial activities that may occur outside the banking industry.

The bill’s co-sponsors, Democratic Senators Jack Reed, Mike Lowndes, Mark Warner and Mitt Romney, argue that transparency and sound rules are critical to protecting the financial system from crime.

They believe these focused measures will help maintain strong anti-money laundering and sanctions enforcement, while allowing “rule-abiding” players to continue to leverage the potential of distributed ledger technology. Senator Jack Reed recently issued a statement on the social media platform Twitter:

Cryptocurrency ATMs and decentralized finance (DeFi) services are used as tools by money launderers and sanctions evaders. To reduce national and economic security risks, my colleagues and I introduced the CANSEE Act to support US Treasury authorities and protect the integrity of the financial system.