CLARITY Act backers say sheriffs misread DeFi rules

Blockchain Association sent Senate Majority Leader John Thune and Minority Leader Chuck Schumer an eight page response on Aug. 3, disputing the National Sheriffs’ Association’s objections to the latest CLARITY Act draft.

The trade group argued that the July 22 Senate text does not give decentralized finance platforms, software developers, mixers or bridges a “blanket exemption” from anti money laundering and sanctions laws. It said the bill separates financial intermediaries that control assets or transactions from developers who only create neutral software.

The exchange arrived during a narrowing legislative window. The Senate ended Monday without acting on H.R. 3633. It invoked cloture on a continuing resolution vehicle and scheduled further work on that measure for Tuesday, leaving the market structure bill without a publicly announced vote.

CLARITY Act dispute turns on who controls transactions

The sheriffs’ group told Senate leaders on July 31 that the bill’s developer protections were too broad and could make financial crime investigations harder. Its attachment argued that Congress should regulate “everyone who receives revenue” from the digital asset marketplace and asked lawmakers to remove or narrow Section 10604.

Blockchain Association rejected that approach. It said revenue alone does not determine whether a person is a financial institution under the Bank Secrecy Act. FinCEN’s 2019 guidance says money transmitter status depends on a business model’s facts and circumstances. FATF guidance also focuses on whether a person performs covered financial functions for another party.

According to the association, brokers, dealers and exchanges registered or required to register under the bill would face anti money laundering programs, customer identification, suspicious activity reporting, recordkeeping and sanctions compliance. The sheriffs’ group disputes whether the framework reaches enough participants.

Developer protections leave criminal laws in place

Section 10604 would protect a noncontrolling developer from being treated as a money transmitting business merely for creating software, offering self custody tools or supplying infrastructure. To qualify, the person must lack the legal right and unilateral ability to control transactions involving users’ assets.

The Blockchain Association said the provision leaves laws covering money laundering, wire fraud, sanctions violations, terrorism financing, conspiracy, theft and aiding and abetting intact. A developer who knowingly handles criminal proceeds, controls customer funds or assists an offense could still face prosecution, according to the letter.

The draft also directs the SEC, working with Treasury, to write rules for people controlling protocols that are decentralized in name but perform intermediary functions. The association said this answers claims that controlled platforms could avoid oversight by calling themselves DeFi.

Law enforcement groups remain divided

The dispute does not represent one law enforcement position. Blockchain Association cited support from the Fraternal Order of Police, the National Organization of Black Law Enforcement Executives, the Major Cities Chiefs Association and the Federal Law Enforcement Officers Association. Major County Sheriffs of America is neutral, while 160 former law enforcement, intelligence and national security officials previously urged Senate action.

In related coverage, crypto.news examined how the law enforcement divide centers on developer protections and investigative authority. Supporters view a control based standard as necessary to avoid treating software writers like banks. Critics argue broad language could make responsible parties harder to identify when illicit funds move through decentralized systems.

The July 22 draft proposes $600 million annually from fiscal 2027 through 2031 for state and local digital asset investigations and prosecutions. It would fund training, blockchain analytics and a Digital Asset Cyber Innovation Center. FinCEN would receive another $30 million annually for five years.

Senate calendar leaves no CLARITY vote scheduled

The latest verified Senate floor update shows the chamber adjourned Monday after invoking cloture on H.R. 6500 by an 89 to 4 vote. Senators were due to resume that continuing resolution vehicle Tuesday. The official update did not list H.R. 3633 or announce a CLARITY Act cloture filing.

As crypto.news previously reported, an ordinary cloture filing by Wednesday, Aug. 5 could preserve a possible Friday procedural vote. This timing follows Senate Rule XXII rather than a leadership commitment. A petition requires at least 16 signatures, while ending debate on legislation normally requires three fifths of senators duly chosen and sworn.

Even a successful motion to proceed would not pass the bill. Senators would still need to debate the text, consider amendments and approve final passage. Any Senate changes would also require House approval before the measure could reach the president.

The Senate calendar places its state work period from Aug. 10 through Sept. 11. Leaders could still negotiate faster action or extend floor time, but no arrangement had been announced by Monday’s adjournment. The next confirmed signal would be a cloture filing, leadership notice or formal scheduling agreement.