While the cryptocurrency world is celebrating a series of favorable decisions in the House regarding the regulation of digital currencies—dubbed “Crypto Week” by Republican legislators—financial transparency advocates and consumer protection groups are expressing worries that the proposed regulations don’t go far enough to stop illegal money from flowing across international borders.
The “Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act,” one of three pieces of legislation approved by the House, is now headed to the President’s desk after receiving bipartisan backing last week. The Senate approved the measure in mid-June.
The new law will establish national standards for stablecoins, which are cryptocurrencies designed to maintain a stable value by being linked to another asset, such as traditional currencies like the U.S. dollar or the Euro. Under the new law, “permitted payment stablecoins issuers” would have to keep reserves equal to the value of all stablecoins they offer. These reserves could include insured bank deposits, short-term Treasury bills, central bank reserves, and “any other similar government-issued asset approved by regulators.”
Furthermore, in the event of bankruptcy, stablecoin holders would take precedence over “all other claims against the issuer.” The legislation specifies that stablecoins are neither commodities nor securities and are thus exempt from regulation as such. It also clarifies that they are not federally insured.
These bills completely ignore the secondary market. This creates an obvious opportunity, a clear path, to sidestep U.S. law.
— Scott Greytak, Transparency International
In a social media post following the House vote, Senator Bill Hagerty, a Republican from Tennessee, hailed the proposed legislation as “the first step in making America the crypto capital of the world,” a phrase promoted by Republicans in Congress this week.
Last month, the President, in a social media post, urged legislators to act “LIGHTNING FAST” on the bill. “Get it to my desk, ASAP — NO DELAYS, NO ADD ONS,” he wrote. His backing for the proposed regulatory framework comes amidst increasing reports of his family’s investments and earnings from various cryptocurrency ventures.
Lawmakers who support the crypto legislation, like Republican Representative Mike Flood of Nebraska, say it will “usher in a new era of digital asset innovation” spearheaded by the United States. However, critics like Michigan Democratic Representative Rashida Tlaib, warn that allowing private companies to issue their own stablecoins backed by the dollar would “create a whole new form of shadow banking” that taxpayers would be forced to rescue in case of failure—a reference to the role played by weakly regulated financial entities in the 2008 financial crisis.
Major tech companies such as Walmart and Amazon have reportedly considered the idea of launching their own stablecoins, a move that some experts suggest could reduce competition among their vendors while allowing those companies to cut costs.
Foreign stablecoins
The GENIUS Act has prompted specific concerns among anti-corruption advocates who believe the legislation contains loopholes that could facilitate money laundering and sanctions evasion. Critics also point to a lack of clarity in addressing potential money-laundering risks, including stablecoins issued by foreign companies, decentralized cryptocurrency platforms, and services known as mixers that obscure crypto transactions.
Without addressing these vulnerabilities, “American digital assets infrastructure risks becoming a haven for kleptocrats” and other criminals, stated Scott Greytak of Transparency International.
A primary concern is what advocates are calling “the Tether loophole,” referring to what they see as the bill’s failure to adequately regulate stablecoins issued abroad by companies based outside the U.S., such as Tether, a major player in the industry. These coins can enter the U.S. market through secondary channels, such as peer-to-peer transactions. Tether, registered in the British Virgin Islands, issues the USDT stablecoin.
“If you’re selling a stablecoin through Tether directly to someone in the United States, they’re going to be covered by this law,” Greytak explained. “But what if an American travels to Mexico, or the [British Virgin Islands], or anywhere outside of U.S. jurisdiction, acquires a large amount of crypto, and then sells it in the United States? That’s what we call the secondary market, and the secondary market is completely unregulated by any of these bills. So, it’s a pretty obvious loophole, a pretty obvious map for evading U.S. law.”
In a letter sent to House leaders this month, Transparency International and other advocacy groups urged lawmakers to amend the bills to broaden the definition of stablecoin issuers to include secondary channels.
“Our idea here is quite simple,” Greytak stated. “You should simply state: if you are issuing a stablecoin directly or indirectly to someone in the United States, you should be covered by this [law].”
In a statement to the news source after the legislation passed, Tether’s CEO, Paolo Ardoino, said the GENIUS Act “represents an important step toward establishing a clear regulatory foundation for the digital asset industry in the United States.”
Dante Disparte, chief strategy officer of Circle, the company behind the USDC stablecoin, said that the legislation’s passage “sends a clear message that the U.S. will lead in the regulation of dollar-backed payment stablecoins.”
The Clarity Act: a bill prompts concerns
The House also approved the Digital Asset Market Clarity Act with bipartisan support on Thursday. This bill aims to establish a regulatory framework for determining whether a cryptocurrency coin or token is a security or a commodity, and thus regulated by the Securities and Exchange Commission or the Commodity Futures Trade Commission, respectively. The Clarity Act is now awaiting consideration in the Senate, which is expected to release its own version of a market structure bill for crypto.
Critics argue that this bill also fails to guarantee effective compliance mechanisms. Mark Hays, associate director for cryptocurrency and financial technology at Americans for Financial Reform, a non-profit organization, pointed out that many crypto platforms combine functions that are kept separate and regulated separately in traditional financial markets, acting simultaneously as custodian, broker, exchange, and clearing agent.
“That model encourages double-dealing, front-running of their clients, and conflicts of interest,” Hays said. “The industry wants a regulatory framework that allows this and many other similar practices to continue. Basically, they want to allow the crypto industry to do the same things that the current financial sector does, but with weaker, less stringent rules.”
Amanda Fischer, policy director and chief operating officer at Better Markets, another non-profit, and a former chief of staff at the SEC, described the Clarity Act as an effort to “codify the existing business models of these crypto companies,” which “places some rules and regulations around the offerings but caters far more to the company than it aligns with existing securities laws.”
Fischer noted that rules related to insider trading, market manipulation, and market surveillance are “far weaker in crypto under this bill.” Crypto exchanges like Coinbase can own their own affiliated venture capital funds, invest in crypto companies, and simultaneously list them on their platform, creating a potential conflict of interest.
The industry desires a regulatory framework that basically permits the crypto industry to operate in the same manner as the existing financial sector, but with weaker, less stringent regulations.
— Mark Hays, Americans for Financial Reform on the Clarity Act
Fischer offered an analogy: “Imagine if you’re the New York Stock Exchange, and you’re investing in one biotech startup but not a competing one, and you then decide to list your affiliated company on your exchange, giving them access to investors, but you don’t allow their competitor to list.”
“Those prohibitions are well-established in the stock market,” she continued. “Even though investors interact with crypto in a similar way that they interact with the stock market, there are drastically different levels of protection, primarily because complying with protections in the stock market is expensive.”
A third bill, known as the Anti-CBDC Surveillance State Act, which prohibits the U.S. Federal Reserve from issuing a digital currency, passed by a narrower margin than its two counterparts on Thursday. House Majority Whip Tom Emmer, a proponent of the bill, stated that it would prevent the Federal Reserve from monitoring and restricting Americans’ purchasing habits.
According to the Atlantic Council, dozens of countries, including France, Brazil, China, Australia, and India, have launched Central Bank Digital Currency (CBDC) pilots for various reasons, such as increasing accessibility to cross-border payments, supplementing cash in retail transactions, and facilitating monetary flows across financial institutions.
Cross-border scams
Crypto experts and consumer advocates have expressed concerns that the crypto legislation lacks robust consumer protections, especially as the President’s budget proposal would significantly reduce the annual funding of the Consumer Financial Protection Bureau (CFPB). Congress established the agency after the 2008 financial crisis to regulate banks, payday lenders, credit bureaus, student loan services, debt collectors, and other financial firms.
“The CFPB isn’t even mentioned in the GENIUS Act, and that agency’s sole purpose is protecting consumers,” said Aleks Ring, an advocate with Operation Shamrock, an organization focused on combating cybercrime. “Regarding anti-money laundering and illicit financing, it’s largely open to interpretation when it comes to foreign businesses. So, can they exploit the loopholes to cause greater harm to U.S. citizens?”
Ring, a forensic accountant specializing in crypto who has assisted law enforcement in tracing transactions related to scams, noted that the majority of her cases involve international borders. “I’ve yet to trace anything that’s local, within the United States,” Ring said. “Honestly, everything goes offshore.”
Scammers have increasingly turned to crypto because it’s faster, easier to use, and more difficult to recover funds even after tracing transactions, Ring explained. Unlike wire transfers, which banks can sometimes reverse with the help of law enforcement, crypto transactions are largely irreversible. Scammers can “open wallets using fake IDs” and move funds quickly. Once the money is sent, recovery becomes more challenging, especially when it’s held in foreign or uncooperative exchanges, she stated.
According to the FBI’s latest annual Internet Crime Report, crypto-related scams were a component of nearly 150,000 financial fraud complaints reported to the FBI in 2024, with victims reporting losses of $9.3 billion to cryptocurrency fraud.
Beyond stronger regulations, Jorij Abraham, managing director of the Global Anti-Scam Alliance, emphasized the need for greater collaboration among platforms commonly exploited by scammers, along with increased public awareness.
“We strongly believe that all stakeholders need to do more because it’s currently too easy to set up an online store, advertise it, create a bank account, and launder the money,” Abraham said. “We’re seeing stakeholders doing more and more… but they need to raise the bar.”
For example, Abraham cited that the online dating industry has invested significantly in fraud prevention. These platforms actively monitor for unusual behavior, such as a single person messaging hundreds of users simultaneously. “I really see them investing a lot because scammers are hurting their platform,” he said. However, not all platforms have the same incentive to intercept bad actors.
“With some crypto platforms, more transactions simply mean more money,” Abraham concluded.