Elizabeth Warren cultivates anti-crypto coalition

“I want to emphasize how great her office has been to work with,” Sen said. Roger MarshallThe Kansas Republican who was a co-sponsor Warren’s legislation.

Crypto advocates oppose Warren’s push, and some dismiss her as an outsider. But her budding partnership with GOP lawmakers reflects broader forces poised to unite progressives and conservatives, watchdog groups and bankers, who share common cause in wanting to derail the unbridled growth of crypto.

That’s in stark contrast to last year, before the crypto market meltdown, when digital currency lobbyists had made serious inroads with lawmakers crafting friendlier, bipartisan legislation with industry input.

“It’s up to the crypto sector to prove at this point that they’re safe, secure and superior, and I don’t think they’ve made that case,” said Paul Merski, who heads congressional relations at the Independent Community Bankers of America.

The loosely-knit camps of crypto-skeptics have been emboldened by last year’s collapse of the FTX exchange, which exposed widespread mismanagement in the industry and led to the arrest of former CEO Sam Bankman-Fried.

“What matters to me is [Bankman-Fried] spreading money around Capitol Hill like it was dishwater, and no one stopped at the time to ask relevant questions about this company,” Sen said. John Kennedy, a The Louisiana Republican who has joined Warren’s efforts to investigate crypto-friendly bank Silvergate, which is under scrutiny for its ties to FTX.

Crypto advocates have sought to vehemently reject Warren’s anti-money laundering bill, criticizing it as a broad, unconstitutional threat to privacy that could sweep into a range of software products beyond just finance-focused digital assets. Some former regulators also take issue with the bill.

The Treasury Department’s Financial Crimes Enforcement Network has already been policing illicit finance in crypto for years. Centralized crypto exchanges that register as money transmitters are required to verify the identity of their customers. Warren’s bill would extend this type of liability to other entities, including digital asset providers and crypto miners.

“It’s so vague and far-reaching that just understanding and implementing the ramifications could take years,” said Hogan Lovell partner Liz Boison, a former federal prosecutor who also worked at the Consumer Financial Protection Bureau when Warren launched the agency.

Lobbyists also try to brush it off for similar reasons.

“We have several senators who would probably filibuster something like this,” Blockchain Association CEO Kristin Smith said.

But Warren’s attempt to outline a clear position and a well of support for crypto regulation will be a factor that top lawmakers will have to contend with if they want to advance new legislation targeting digital currencies.

“The crypto industry has an army of lobbyists and Washington insiders fighting bipartisan regulations to prevent the laundering of crypto money by criminal and rogue nations like Iran and North Korea,” said Warren spokesperson Alex Sarabia. “There is no reason why crypto should be held to a lower standard and not adhere to the same rules for the same activities to address the same risks.”

Warren takes into account national security concerns as her focus for potential crypto legislation, even as she raises red flags about a range of issues in the space, from consumer protection to environmental impact.

Warren said in an interview that regulators have tools to deal with consumer fraud, but that “money laundering is in a different place.”

“The current legal structure is essentially holding up a giant sign over crypto that says money laundering is done here,” she said.

It’s a concern that reverberates across the aisle. Warren said she tried to recruit Marshall as a co-sponsor of the bill in December after seeing his questions at a Senate hearing, where he raised concerns about crypto’s use in ransomware cyberattacks and drug trafficking. Warren has also cited sanctions evasion as a risk.

“I heard his questions and thought, that’s the partner I need to get a meaningful anti-money laundering bill,” she said.

Marshall is now part of the effort to build support for the bill, which Warren plans to reintroduce.

“The doctor in me says the risk [of crypto] doesn’t outweigh the benefits,” said Marshall, an OB-GYN. “Until they address the national security issues, I don’t see the benefits outweighing the risks.”

Marshall said he hopes to get support from bankers, who must also comply with illegal finance measures.

Merski, with the Independent Community Bankers of America, said the plan “hits on trying to solve a key problem” and that strengthening anti-money laundering regulations around crypto activities is “an important approach.”

Sen. Mike Rounds (RS.D.), who sits on the Banking Committee with Warren, said in an interview that he also has national security concerns.

“There’s a group of us talking about it right now,” he said, referring to money laundering. Rounds said he is a crypto-skeptic, but sees the potential of so-called stablecoins as a payment method.

Senate Banking Chair Sherrod Brown (D-Ohio) — another outspoken crypto critic — has talked about trying to put together a digital asset regulation bill in the wake of the FTX meltdown. Brown is also focused on financial crime involving crypto, but it’s unclear how, if at all, Warren’s proposal will factor into his plans.

Brown told POLITICO that he hopes to have a crypto-skeptic bipartisan coalition to work with, and he indicated that Sen. Tim Scott (RS.C.) — the top Senate banking Republican — may be more amenable to that view than his predecessor, former Sen. Pat Toomey (R-Pa.).

“Better than before because Toomey wasn’t skeptical,” Brown said.

Scott hasn’t said much about crypto regulation, but his priorities for the new Congress call for a bipartisan regulatory framework, citing “several high-profile failures [that] resulted in lost consumer value, exposed regulatory loopholes and highlighted concerns with illicit finance.”

The leadership of the Ohio Bankers League, the trade group for lenders in Brown’s home state, is encouraged by the senior senator’s approach in advocating for regulation of crypto activities and making it clear that banks can offer digital asset services.

“[Brown] has asked for banking insights, and a lot of that is really defining what crypto is,” said the group’s president and CEO Michael Adelman. “We don’t necessarily have strong feelings about who should regulate it, but just somebody needs to oversee it, just like banks. … Let’s level that playing field.”

Eleanor Mueller contributed to this story.