Catholic And Law Enforcement Groups Warn CLARITY Act Could Weaken Crypto Crime Safeguards
A coalition of Catholic leaders, law enforcement-aligned groups, and anti-trafficking advocates is warning that the CLARITY Act could weaken safeguards used to fight crypto-enabled crime. The criticism centers on provisions that would protect non-custodial software developers from being treated as money transmitters.
The objection highlights a key challenge in crypto regulation: distinguishing neutral software from financial intermediation. Crypto advocates argue that developers of non-custodial code should not face the same regulation as exchanges or payment processors. Critics, however, fear that broad exemptions could hinder tracking of illicit finance.
Non-custodial software is integral to DeFi, with wallets, smart contracts, and protocols enabling user transactions without company control of funds. While this architecture is a core crypto value, it also poses enforcement challenges when bad actors exploit these tools. The CLARITY Act aims to create clearer market-structure rules, but opposition shows that policy fights extend beyond investor protection to include trafficking, sanctions evasion, and fraud.
The pushback does not necessarily doom the bill but indicates that supporters may need to address concerns about potential loopholes for illicit finance. This could lead to amendments, narrower safe harbors, or additional reporting requirements. For crypto companies, clearer rules could unlock U.S. investment and product development, yet political challenges remain if the bill is perceived as weakening crime safeguards.