As part of CoinDesk's State of Crypto 2023 event in Washington, D.C., U.S. Senators Kirsten Gillibrand (D-N.Y.) and Cynthia Lummis (R-W.Y.) discuss why they're urging the inclusion of an illicit finance amendment to the final version of the Senate's defense spending package.
The crypto industry is waiting with bated breath as lawmakers discuss how best to regulate the future of the digital economy. Joining us now, for more insights are Senators Cynthia Lumus and Kirsten Gillibrand. Welcome to the show. Senators Lus and Gillibrand. Thank you. Thanks for being here. Now, let's just set the stage here. What needs to happen? This is the question I've been asking all of my guests this morning to get more regulatory clarity here in the United States for crypto firms. Um We'll, we'll start with you, Senator Lois Chin. Uh Senator Gillibrand and I have um put together a bill that's very comprehensive with regard to crypto regulation. Uh It will create the regulatory framework that we need in the United States in order to be the world leader in digital assets. So that needs to pass. Now, we're finding that it's more acceptable to our colleagues to try to pass it in segments. So Senator Gillibrand and I already got the segment with regard to uh antiterrorism into the National Defense Authorization Act in the Senate. We're hoping that will be adopted on the House side and then we think we're gonna be able to move forward on the stable coin component. I'm hopeful that that'll set the stage for the, the most important components which are how the SEC and the CFTC regulate. On that note, Senator Gillibrand maybe break down the proposal, the amendments to the act on illicit finance. What were those exact amendments? So it directs the Treasury to create regulations concerning how to prevent illicit finance and terrorism financing. It directs that to assess how best to regulate things like mixers and Tumblr, which are technology that can create anonymity. And so it places the regulatory authority in the hands of the Treasury and agencies that can do the work now so that we can have a set of principles and a set of regulations in the United States to really prevent terrorism financing. The discussion around mixers and tumblers were really highlighted by the sanctions on tornado cash earlier this year. Um Talk to us about your reaction to the discourse from within the industry about the sanctions on uh tornado cash. Why are sanctions like these needed? Why do we need to be looking at uh mixers and tumblers when it comes to preventing illicit financing? One of the reasons uh that Senator Gillibrand and I have encountered obstacles in the Congress uh about regulating digital assets is people don't understand the use case. And when people who are not familiar with the use of digital assets, see it being used uh in illicit finance. Uh they have a knee jerk reaction that this is its primary use. Uh, so it's very important, uh, that, uh, we address this first, I think Cynthia is quite right. Um, you know, we've met with stakeholders across the country on what they use, uh, digital assets for what type of, um, business models they have, what type of, uh, regulatory frameworks they're looking for. Uh, there's a lot of digital assets that are securities, there's a lot of digital assets that are commodities and there's a lot of appropriate uses and really benefit uses. Uh There's a lot less friction, a lot less taxing of, of resources, ability to transfer assets around the globe to family through their remittances without the predatory lending schemes that a lot of families in the United States have to face. So there's so many positive things that uh Blockchain technology as well as digital assets can be used for. And so if it gets lost in discussion of illicit finance or terrorism financing, it, it, it, it really places the entire industry at risk for something that is used the same way us dollars are used, us dollars are used for terrorism financing and illicit use too. And credit cards are used for those things. And so are every other financial instrument that's used to convey value. So it's absurd to say that because all financial instruments are used for illicit finance that all should be banned. That's absurd. But if you apply it to crypto and the way the conversation is proceeding, that's what it's doing. It's saying because this set of bad people use Cryptocurrency for bad purposes. The whole industry should be banned. That's an absurdity. Uh Moreover, what the United States needs more than anything is regulation because if we have a highly regulated, fully functioning market, then the good guys and people who wanna do business and have really new innovative ways to have financial services as well as using Blockchain for many many uses from health care to community organizing, to concert tickets. Um It's really unlimited in its application. Um If we have a regulated market in the United States, then we can have really good commerce here. And then countries that don't regulate, that's where bad actors will go but not regulating the United States is like saying, let's put our head in the sand and hope it goes away. Well, it will not be going away, it will just be going abroad. Senator Lama says it looked like you wanted to jump in there. People forget that when cocaine was being used uh in the United States, it almost um crisis proportions that there was a measurable amount of cocaine residue on us dollars in the United States. The fact that uh FTX for example, uh used digital assets to commit fraud um has caused people to have a knee jerk reaction against crypto assets, not against fraud in general. People forget that dollars. Art cars, boats have been used to commit fraud yet we're not trying to ban those things. So it's been fascinating to both of us. I believe that we've had to go back and plow some of the ground that we have in order to uh bring this very maturing industry into the mainstream. It sounds like that's probably the biggest challenge you're facing as you try to get um clear legislation is that the biggest challenge is it to do with perception and some of the bad actors that have the lack of knowledge. I mean, I have to say this is not an area of great interest for a lot of our colleagues. They haven't delved into facts, they haven't delved in, delved into what markets structure would actually look like how current regulatory frameworks can accommodate cryptocurrencies and different digital assets. Um And so there's just not a high bar of knowledge, which is a shame because this is an industry that can be understood and it should be regulated. And most industry players from our states are the industry players that are seeking regulation. They're the more mature in the country and they want to be able to compete with Asia and Europe and other jurisdictions. And they want to have businesses that are located in the United States and we should allow for businesses to grow here in America with appropriate safeguards, safety and soundness, consumer protections. All the regulatory framework that this industry needs to thrive that lack of education is such a shame to hear about. How are you both thinking about bridging that, that education gap to, I guess, be heard amongst your colleagues. We have regular sessions with staffers from other offices. We also have conversations at the staff level and at the member level. Uh trying to explain how we're moving this legislation through Congress. The good thing is it's bipartisan and it's bicameral. We both have really good working relationships with our colleagues in the house. So once they reestablished them and get their land legs under them, uh we will be poised to move forward. And Patrick mchenry who chairs the House Financial Services Committee has been a great partner working with us. Of course, he's distracted now because he's currently the speaker pro TEM of the house. But as soon as as they get them selves reorganized, we think we'll be able to move forward and we've been working to tee it up uh on our side of the Capitol. Uh So part of it can move forward, cross your fingers before the end of this calendar year. That was my next question. Do you think that we'll see anything move forward by the end of this year? It's October now, Christmas is around the corner. Well, we were hoping that the stable coin bill would be ready that this is something that Cynthia and I have written in a discreet form so that it could be taken up, for example, by the banking committee, we were hoping there might be able to be a hearing between now and the end of the year. We know the House is ready to act on a stablecoin provision. So we're just hoping the Senate can keep up with the house's ambition on this. And we've asked for those hearings and we've been socializing our colleagues on the Senate Banking Committee. Cynthia serves on that committee. I've already met with the chairman. And so we're gonna keep working with our colleagues to say this is timely and this is a good first step on a regulatory framework. And the other thing that's happening in the world of traditional financial assets is there's some pretty credible rumors that uh the green will be given to Bitcoin ETF S uh early next year. And as you see traditional asset players enter this space, uh I think it's, it signals to members of congress that this is a legitimate industry uh that uh mainstream uh uh financial institutions are entering this space. And that too will I think create more uh emphasis and um help people understand that it's time to regulate, it's time to define what is a commodity, what is the security, what the space is for ancillary assets when we see the sec using enforcement act actions to regulate instead of having a regulatory framework like our bill, uh the industry is ready to embrace responsible regulation. And so I think the timing, the confluence of events, both because the industry is matured and because the Congress is seeing uh it being more uh adopted and embraced by uh traditional finance uh is is going to create uh the um enthusiasm and support to move forward. Senators Lomas and Gillibrand. Thank you so much for joining me this morning and good luck with the rest of the event. I know you got to get back to a vote on Capitol Hill. Thank you so much. Thank you. Thank you Senators Lomas and Glabra. That was Wyoming, Senator Cynthia Lummis and New York, Senator Kirsten Gillibrand.