Senate Crypto Bill Sparks Alarm: Treasury’s Massive Surveillance Power Expansion Echoes Patriot Act

WASHINGTON, D.C., January 2025 — A draft cryptocurrency market structure bill circulating in the U.S. Senate Banking Committee has triggered significant alarm within the digital asset industry. Galaxy Digital, a leading cryptocurrency financial services firm, issued a stark warning this week about the legislation’s potential consequences. The firm contends the proposal would grant the Treasury Department surveillance authority comparable to post-9/11 Patriot Act powers, fundamentally reshaping financial oversight for blockchain transactions.

Senate Crypto Bill Creates New Treasury Surveillance Framework

Galaxy Digital’s research team published a detailed analysis on Tuesday examining the Senate Banking Committee’s updated draft legislation. Consequently, their findings reveal substantial expansions of regulatory authority beyond existing frameworks. The House-passed CLARITY Act established initial parameters for digital asset regulation. However, the Senate version introduces several novel provisions that concern industry advocates.

Specifically, the legislation creates a crypto-specific “special measures” authority for the Treasury Department. This mechanism allows regulators to designate foreign jurisdictions, financial institutions, or entire categories of digital asset transactions as primary money-laundering concerns. Following such designations, Treasury officials could restrict or condition cryptocurrency fund transfers without traditional judicial oversight.

Galaxy’s analysis draws direct parallels to surveillance tools created under the USA PATRIOT Act of 2001. That legislation emerged following the September 11 terrorist attacks, granting law enforcement expanded surveillance capabilities including easier wiretapping authority and enhanced digital communication tracking. The Patriot Act has remained controversial for two decades due to ongoing civil liberties debates.

Transaction Freeze Powers Without Court Orders

The Senate proposal introduces a formal “temporary hold” framework specifically for digital asset transactions. Under this provision, Treasury or other covered agencies could request that stablecoin issuers and digital asset service providers freeze transactions for up to 30 days. Furthermore, regulators could extend these holds without first obtaining court orders.

This represents a significant departure from traditional financial oversight mechanisms. Typically, asset freezes require judicial approval based on demonstrated probable cause. The cryptocurrency industry has expressed particular concern about this aspect, noting its potential impact on legitimate transactions and market liquidity.

Expanding Regulatory Reach to DeFi and Front-End Interfaces

Another critical provision explicitly extends sanctions and Anti-Money Laundering (AML) compliance requirements to cryptocurrency front-end interfaces. The bill defines “distributed ledger application layers” as web-hosted tools used to interact with blockchains or decentralized finance (DeFi) protocols. Subsequently, Treasury would issue guidance requiring these interfaces to screen wallets, block sanctioned activity, and implement risk-based AML controls.

Galaxy’s research highlights particularly concerning language targeting “DeFi in name only” protocols. Under this provision, regulators could impose Bank Secrecy Act obligations on individuals or groups maintaining meaningful control over a DeFi protocol’s functionality or access. This represents a substantial expansion of regulatory reach into decentralized systems.

Key provisions of the Senate draft legislation include:

• Special measures authority for Treasury designation power
• 30-day transaction freeze capability without court orders
• AML requirements for blockchain front-end interfaces
• Control-based regulation of DeFi protocols
• Enhanced sanctions screening mandates

Industry Response and Legislative Timeline

The Crypto Council for Innovation (CCI), an industry advocacy group, acknowledged the Senate Banking Committee’s continued engagement with cryptocurrency policy. In a statement shared with media outlets, CCI emphasized the importance of preserving consumer choice and supporting responsible competition within any final regulatory framework.

Meanwhile, legislative progress faces timing challenges. The U.S. Senate Agriculture Committee delayed its markup of the crypto market structure bill until the final week of January. Chairman John Boozman cited the need for additional time to secure broad bipartisan support, indicating ongoing negotiations about the legislation’s specific provisions.

Industry experts note the complex balance between legitimate regulatory concerns and innovation preservation. Effective AML and counter-terrorism financing measures remain crucial for cryptocurrency adoption. However, excessive surveillance powers could potentially stifle technological development and drive innovation offshore.

Historical Context: Financial Surveillance Evolution

The current debate occurs within a broader historical context of financial surveillance expansion. The Bank Secrecy Act of 1970 established foundational AML requirements for traditional financial institutions. Subsequently, the Patriot Act dramatically expanded government authority following the 2001 terrorist attacks.

Cryptocurrency presents unique challenges for existing regulatory frameworks. Blockchain technology enables pseudonymous transactions across borders with unprecedented speed. Consequently, regulators worldwide have struggled to develop appropriate oversight mechanisms that address legitimate concerns without stifling innovation.

Several countries have implemented cryptocurrency-specific regulations with varying approaches. The European Union’s Markets in Crypto-Assets (MiCA) framework establishes comprehensive rules for digital asset service providers. Meanwhile, Singapore and Switzerland have developed more innovation-friendly regulatory environments while maintaining robust AML standards.

Conclusion

The Senate crypto bill represents a pivotal moment for digital asset regulation in the United States. Galaxy Digital’s warning about Treasury surveillance power expansion highlights fundamental tensions between security concerns and innovation preservation. As legislative deliberations continue through January 2025, stakeholders across government, industry, and civil society will closely monitor developments. The final legislation’s balance between effective oversight and technological progress will significantly influence the global cryptocurrency landscape for years to come.

FAQs

Q1: What specific powers does the Senate crypto bill give the Treasury Department?
The legislation grants Treasury “special measures” authority to designate foreign jurisdictions, financial institutions, or transaction classes as money-laundering concerns. It also provides transaction freeze powers for up to 30 days without court orders and extends AML requirements to blockchain front-end interfaces.

Q2: How does this compare to the Patriot Act?
Galaxy Digital describes the proposed powers as “the single largest expansion to financial surveillance authorities since the USA PATRIOT Act.” Both frameworks significantly expand government surveillance capabilities with limited judicial oversight, though applied to different technological contexts.

Q3: What are “DeFi in name only” protocols?
These refer to decentralized finance protocols where individuals or groups maintain meaningful control over functionality or access. The Senate bill would allow regulators to impose Bank Secrecy Act obligations on such entities, potentially affecting many current DeFi implementations.

Q4: How does the Senate bill differ from the House CLARITY Act?
The Senate version includes more extensive illicit finance provisions, particularly regarding Treasury surveillance authority and transaction freeze powers. The House legislation focused more on market structure definitions and jurisdictional clarity between regulators.

Q5: What is the current legislative timeline?
The Senate Agriculture Committee delayed its markup until late January 2025 to secure broader bipartisan support. The Banking Committee continues reviewing the draft, with final legislation likely requiring reconciliation between House and Senate versions.