CLARITY Act Hits New Roadblock As Ethics Agreement Collapses In Senate Talks

The CLARITY Act has run into another hurdle as senators from both parties wrestle with ethics language tied to the already delayed crypto market structure bill. 

Eleanor Terrett of Crypto In America reported that Democratic senators left a Tuesday meeting disappointed when Republicans walked back elements they had previously reached in negotiations, an outcome that pushed lawmakers further from a potential path toward moving the measure to the Senate floor.

Republicans Pivot On CLARITY Act Ethics

According to sources familiar with the discussions cited in Terrett’s latest report, the bipartisan group had reconvened for the first time since reaching a provisional ethics deal before the Senate Banking Committee’s markup of the bill in May. 

That earlier tentative agreement included Senators Kirsten Gillibrand, Ruben Gallego, Bernie Moreno, and Cynthia Lummis, alongside Patrick Witt, the White House Crypto Council Executive Director. 

One of the most significant sticking points centered on a CLARITY Act provision that would have allowed state attorneys general to sue the Department of Justice (DOJ) if the department failed to enforce ethics requirements connected to President Trump. 

Sources told Crypto In America that Republican members and the White House walked back that authority during the Tuesday meeting, citing concerns raised by senators outside the group that similar power could be used by either party to pressure lawmakers in future disputes. 

As an apparent olive branch, Republicans reportedly proposed limiting enforcement authority to the Attorney General and floated impeachment as an alternative possible remedy for ethics violations. 

Democrats characterized the latest ideas as an “about face” from the earlier tentative terms reached ahead of the Banking Committee CLARITY Act markup. With the meeting ending without progress, the group is expected to reconvene on Thursday to try again to break the impasse.

Democrats Link Votes To Law Enforcement Beliefs

The other major hurdle preventing a full Senate vote involves law enforcement groups, which remain concerned that certain CLARITY Act provisions could limit their ability to investigate and prosecute criminals who use blockchain technology to support money laundering and other illicit activity. 

In an effort to address those concerns, the report says the White House Crypto Council will host representatives from the National Sheriffs’ Association, the Fraternal Order of Police, the National District Attorneys’ Association, and other groups on Wednesday, alongside officials from the DOJ, Treasury, and members of Congress.

The meeting is expected to focus on the Blockchain Regulatory Certainty Act (BRCA). That section is intended to clarify that certain non-custodial software developers are not liable for how third parties use their code unless the developers intended for it to facilitate illicit activity. 

Even with that framing, law enforcement groups worry that CLARITY Act language could make it harder to pursue bad actors who operate on-chain, meaning through blockchain-based activity rather than traditional financial channels. 

Administration officials are expected to argue that the language does not shield criminals from prosecution and that it preserves law enforcement’s ability to combat money laundering, sanctions evasion, and other illegal behavior.

The report also notes that Democrats who are key to winning passage have tied their support to law enforcement concerns as well as ethics. Senators Mark Warner and Catherine Cortez Masto have signaled that they will not back the CLARITY Act unless law enforcement believes the concerns have been addressed adequately.

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