The CLARITY Act Would Open Doors to Crypto Corruption

By John Walsh

As Colorado’s U.S. Attorney during the Obama Administration – and today as Denver’s District Attorney – my job has always been to protect our community and to ensure the fair and just enforcement of the law. The work I do is grounded in the fundamental Constitutional principle that justice must apply equally to everyone. Whether we are tackling an organized crime ring or fighting sophisticated financial fraud, the wealth or status of the accused has no bearing on how my office treats them under the law.

Unfortunately, a bill now before the U.S. Senate called the CLARITY Act would set up rules for cryptocurrency that benefit bad actors who use crypto to commit crimes. Even worse, it turns a blind eye to public corruption. 

The CLARITY Act gives special treatment to the cryptocurrency industry by carving it out of the rigorous anti-money laundering and anti-fraud rules that have applied to traditional banks for decades. From my own experience, I can tell you that the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) regulations are vital tools used by prosecutors and law enforcement to track criminal networks, stop drug trafficking, and disrupt terrorist financing. The bill would hamper the ability of federal and state law enforcement who are working to fight crypto fraud and scams every single day.

In 2024 alone, consumers lost $9.3 billion to crypto crime—a staggering figure the FBI acknowledges is a massive undercount. How does it serve the public and protect consumers to further limit the tools law enforcement has to go after crypto related crime?

Even more concerning, the CLARITY Act hands sophisticated criminals a digital roadmap to evade detection by creating a special exemption for what’s known as “decentralized finance platforms” or “DeFi.” This exemption would essentially bless the creation of a parallel, unregulated financial system where money laundering, fraud, and all variety of scams can run rampant without leaving a financial trail for law enforcement to trace.

The International Association of Chiefs of Police, National Sheriffs’ Association, and other law enforcement and prosecutorial organizations from across the country have come out in overwhelming opposition to the CLARITY Act. They are explicitly warning lawmakers that the bill would prohibit appropriate registration and compliance requirements for some of the very entities most closely tied to illicit finance involving cryptocurrency.

The CLARITY Act has another fatal flaw: it completely lacks strong anti-corruption guardrails and ethics rules for public officials and their family members. Too many elected officials today have forgotten that public service is a public trust. Instead, according to extensive media reports, all too many are using their office as a vehicle for private enrichment. Bloomberg News and others recently reported that a crypto venture tied directly to President Trump and his family is on track to generate nearly $150 million this year from its own stablecoin, contributing to an eye-popping $2.6 billion digital fortune that President Trump has amassed in short order.

Why is that important? Because as a recent New York Times investigation reported, powerful crypto firms have actively “steamrolled” federal regulators like the Commodity Futures Trading Commissioner (CFTC). This investigation found that crypto executives are using their relationships with President Trump and his administration to steer government personnel and enforcement decisions that benefit them, the crypto industry, and their bottom line. If a Coloradan is scammed through a crypto platform and loses their life savings, they can’t count on protection or action from the CFTC. 

Currently, Colorado can prosecute crypto schemes under the Colorado Consumer Protection Act. The CLARITY Act gives companies and individuals an argument that federal law controls and local prosecutors cannot take action — leaving Coloradans dependent on federal agencies that are, at best, already extremely backlogged. Essentially, our state could be left powerless. This would directly undermine what Coloradans have worked hard to build to protect ourselves from bad actors and gives those same bad actors plenty of time to take advantage of it.

But that’s not all.  As of January 1, Colorado law puts into place even stronger transparency requirements for AI used in financial decisions. The CLARITY Act could create a conflicting crypto and decentralized finance platform. A company can argue they are exempt from a compliance standard federally even though the Colorado Attorney General could prove they are violating Colorado’s AI transparency laws. 

If lawmakers don’t step up and add robust ethics rules to the CLARITY Act, I fear it will be an invitation to corruption. Given the level of self-dealing that journalists are reporting and that the public is witnessing, it seems unthinkable that lawmakers would accept a bill that falls short of prohibiting all elected and appointed public officials and their family members from promoting, issuing, or sponsoring crypto products, directly or indirectly.

Coloradans have long trusted Senators Hickenlooper and Bennet to stand up for transparency and the fair and equal enforcement of the law. Today, I’m urging both Senators to do so once again. Senators – hold the line against this special interest carve out, heed the warnings of law enforcement working to keep Coloradans safe every day, and vote no on the CLARITY Act unless it includes significant changes that protect consumers and crack down on corruption.

John Walsh is the Denver District Attorney, and formerly served as U.S. Attorney for Colorado.