New York Attorney General Letitia James has led 17 bipartisan state attorneys general in urging the US Senate to reject the Clarity Act, warning that the proposed cryptocurrency legislation could weaken their ability to protect investors and pursue fraud.
In a letter sent on Monday, one day before a key procedural vote in Washington, the attorneys general said the bill would “muddy the waters” around enforcement and make it more difficult for state prosecutors to hold companies that break the law accountable.
“As written, the Clarity Act would embolden scammers and potentially strip attorneys general of our authority to protect our states’ investors and their wallets,” James said in a statement. “Together with my attorney general colleagues, I urge Congress not to pass the Clarity Act.”
The letter was addressed to Senate Banking Committee Republican chair Tim Scott and the committee’s top Democrat, Elizabeth Warren. The full Senate is due to hold an initial procedural vote on Tuesday, with the legislation requiring 60 votes to advance.
Senate Republicans released the latest version of the more than 600-page bill on Sunday night. The changes included several requests from Democrats in an effort to win support for the measure.
One amendment would give state attorneys general a role in enforcing conflict-of-interest rules for public officials. The issue had been a significant concern for some Democrats because of President Donald Trump’s cryptocurrency interests. His crypto wealth has grown to hundreds of millions of dollars through links to World Liberty Financial and his TRUMP memecoin.
Earlier versions of the bill would have left enforcement of those rules to the federal Justice Department.
Changes to the cryptocurrency bill
The revised legislation would also allow the Treasury secretary to impose an 18-month “circuit breaker” on stablecoin rewards if payment stablecoins caused substantial deposit outflows from community banks. The provision is intended to give the Treasury secretary a temporary means of limiting the effects of large-scale withdrawals on smaller banks.
It would amend the Blockchain Regulatory Certainty Act by narrowing money-transmission registration requirements for certain software developers and creating a civil safe harbour. It would also introduce Agriculture Committee safeguards covering affiliate trading and conflicts of interest, while clarifying when state consumer-protection laws would apply.
James and the other attorneys general said those changes did not resolve their concerns. They argued that the bill could allow the Securities and Exchange Commission to “preempt state registration authorities”, while unclear wording could lead to future legal challenges to the states’ power to combat fraud.
“This unprecedented grant of authority would not only apply to digital assets but would also broadly grant unilateral discretion to SEC to reset the scope of federal preemption, potentially upending the state securities regulatory regime,” the New York attorney general said.
James had previously called on Congress to strengthen the wording of the Clarity Act, arguing that it would reduce the states’ ability to police the cryptocurrency industry. She had also sought stronger anti-money-laundering and ethics protections.
Attorneys general from California, Illinois, Arizona, Kansas, Ohio and Wisconsin were among those who signed Monday’s letter.
