In an effort to navigate the evolving landscape of crypto assets, U.S. Senators Bill Hagerty and Cynthia Lummis have introduced the Preventing Illicit Finance Through Partnership Act of 2024. The bill, designed to combat the misuse of crypto assets, aims to foster collaboration between federal regulators and the private sector. Senators Hagerty and Lummis, both members of the Senate Banking Committee, emphasize the importance of distinguishing bad actors without stifling the growth of the emerging crypto industry.

The Preventing Illicit Finance Through Partnership Act proposes the establishment of an information-sharing pilot program dedicated to combating the illicit use of crypto assets. The primary focus is on enhancing communication between federal law enforcement agencies and private companies, allowing regulators to gain insights into the crypto world and identify and eliminate bad actors.

Senator Lummis underscores that while bad actors exist in every industry, crypto itself is not the problem. Instead, the proposed public-private partnership seeks to inform regulators about crypto asset use cases, paving the way for the establishment of federal rules that support innovation in the American crypto industry.

The pilot program outlined in the legislation will be chaired by the Attorney General and comprise 20 voluntary participants, including money services businesses and cryptocurrency companies. With ten participants from each sector, the program aims to create a diverse collaboration that represents the interests of both federal regulators and the crypto industry. The pilot program is set to conclude after five years from the date of the bill’s enactment.

The announcement comes amid other legislative efforts addressing the illicit use of crypto, including Senator Elizabeth Warren’s Digital Asset Anti-Money Laundering Act. However, critics have labeled Warren’s bill as a “crypto ban” initiative, leading to counter-efforts such as the “Stop the Crypto Ban” petition on Change.org. Senator Warren, along with 100 other lawmakers, has also urged the Biden administration to tackle the role of crypto in illegal activities and terrorism.

Senator Lummis emphasized the need to differentiate between the illicit use of crypto assets and the industry itself. She stated, “There are bad actors in every industry, and crypto assets are no exception, but make no mistake – crypto itself is not the problem.”

The Preventing Illicit Finance Through Partnership Act seeks to address concerns about the misuse of crypto assets through enhanced communication between federal law enforcement agencies and private companies. Senator Lummis expressed optimism about the public-private partnership, saying, “This partnership will help inform regulators about the use cases for crypto assets and clear the way to establishing federal rules of the road that will keep the industry in America and solidify crypto’s role as the next frontier of financial innovation.”

The pilot program outlined in the legislation will be chaired by the Attorney General and include 20 voluntary participants from both money services businesses and cryptocurrency companies. The program aims to foster collaboration for five years to effectively combat illicit activities in the crypto space.

Contrary to the concerns raised, recent data from blockchain analytics firm Chainalysis reveals a significant drop in the value received by illicit cryptocurrency addresses in 2023. The share of all crypto transaction volume associated with illicit activity also decreased from 0.42% in 2022 to 0.34% in 2023, according to Chainalysis.

As the legislative landscape evolves, the Preventing Illicit Finance Through Partnership Act stands out as a unique approach to balance regulatory oversight and industry growth. The proposed collaboration between federal regulators and the private sector reflects a commitment to understanding and harnessing the potential of crypto assets while addressing concerns related to illicit activities.

In the spirit of innovation and collaboration, the Preventing Illicit Finance Through Partnership Act signals a proactive effort to shape the future of the crypto industry in the United States. By fostering an open dialogue between regulators and industry stakeholders, the legislation aims to create a framework that supports responsible innovation, ensuring that the crypto industry continues to contribute positively to the broader financial landscape.