Coinbase Chief Policy Officer Faryar Shirzad is pushing back on Senator Elizabeth Warren’s claim that the CLARITY Act could weaken U.S. national security, saying the bill would instead bring more of crypto under federal compliance rules.
- Coinbase says the bill tightens oversight
- Warren says it could enable sanctions evasion
- DeFi, mixers, and non-custodial services are the pressure points
- A merged Senate draft is expected soon
On July 11, Shirzad said on X that unclear crypto rules give bad actors room to operate outside firm regulatory boundaries. His argument is simple: if Congress wants to stop illicit finance, sanctions abuse, and money laundering, it should not leave the industry stuck in a fog of overlapping, uncertain rules.
That’s the bull case for the CLARITY Act in plain English. Clearer rules can mean more accountability. Vague rules, on the other hand, are basically an open invitation for the usual crowd of scammers, sanctions dodgers, and shell-game operators to get creative.
Warren sees it very differently.
“As currently drafted, the Clarity Act is a ticket to sanctions evasion.”
She shared an analysis from former National Security Council Iran director Richard Nephew, while a Senate Banking Committee minority advisory raised similar concerns. Their warning is that the bill leaves dangerous gaps around decentralized finance, or DeFi, and non-custodial services that could be exploited by foreign actors and criminals looking to move value around U.S. restrictions.
This is not some academic fight over legal wording. The stakes are real: sanctions enforcement, anti-money-laundering rules, and the basic question of whether crypto legislation protects lawful builders without creating a giant loophole for the bad guys.
What Coinbase says the CLARITY Act does
Shirzad’s core argument is that the bill would pull more digital asset activity into a federal compliance framework instead of leaving oversight fragmented. According to The Facts: The CLARITY Act Protects Main Street, Unleashes, the proposal would apply Bank Secrecy Act duties to crypto brokers, dealers, and exchanges.
The Bank Secrecy Act is one of the main U.S. anti-money-laundering laws. In practice, it requires financial firms to help detect criminal finance, identify customers, monitor suspicious activity, and comply with sanctions rules.
Under the committee’s description, those duties would include:
- anti-money laundering programs
- customer identification checks
- suspicious activity reports
- sanctions compliance
The majority fact sheet also says the bill would allow platforms to temporarily pause suspicious transactions at law enforcement’s request. That is not a cosmetic detail. It gives authorities a possible way to freeze the flow of funds while a suspicious transfer is being reviewed, which matters when criminals are trying to sprint through the door before regulators even find the handle.
Shirzad summed up Coinbase’s view bluntly: “This isn’t a free pass for crypto, ” he wrote.
That line matters because the loudest criticism of crypto legislation in Washington is often that any pro-industry bill is really a loophole in a suit. Coinbase’s defense is the opposite: if the law is written properly, it can be stricter on bad actors than the current patchwork of unclear rules.
Why Warren and Senate Democrats are attacking it
The Senate Banking Committee minority advisory takes the opposite position and does not bother with soft language. Its claim is that the current draft leaves openings that could be used for sanctions evasion and illicit finance, especially through DeFi and non-custodial services.
DeFi refers to blockchain-based financial services that let users trade, lend, or borrow without a traditional intermediary like a bank. Non-custodial services are tools or platforms that do not directly hold customer funds. That distinction sounds technical, but it is the heart of the problem.
If no central company controls the funds, the front end, or the protocol in a meaningful way, who exactly is responsible when the system is used for laundering or sanctions evasion? That is the question critics keep hammering.
The minority advisory says the draft:
- fails to set a clear federal standard for which platforms must take basic AML steps
- exempts businesses tied to DeFi services from key illicit finance requirements
- does not close the Tornado Cash loophole
- could allow sanctions evasion through stablecoin activity by non-U.S. actors
Tornado Cash matters here because it is a crypto mixer the U.S. sanctioned over laundering concerns. Mixers are services that blend transactions to obscure their origin, and they keep showing up in enforcement debates for a reason: they are useful to legitimate privacy-conscious users, but they are also useful to people who want to hide dirty money. That tension is exactly why regulators keep eyeing them like a suspicious package left on the policy doorstep.
Warren’s point is simple: if the bill leaves too much of the system outside clear compliance obligations, then it is not real reform. It is a neatly labeled escape hatch.
The real split: clearer rules or bigger loopholes?
The CLARITY Act is a market structure bill, which means it is trying to answer a deceptively simple question: which crypto activities belong under which federal rules, and which agencies get to enforce them?
Supporters say the answer should be clarity plus enforcement. They argue that a coherent federal framework helps legitimate companies build in the U.S. without constantly guessing which regulator will show up next. That, in turn, makes life harder for bad actors who thrive in regulatory confusion.
Critics say “clarity” can become a polite word for underreach. If Congress draws the lines too loosely around DeFi or non-custodial tools, they argue, it risks creating a compliance-free corridor that sophisticated actors can exploit at scale.
Both sides are talking about the same system. They just disagree on whether the bill builds a wall or leaves a side door open.
What Treasury and FinCEN would gain
One of the strongest parts of the Senate Banking Committee majority’s case is the new authority it says the bill would give Treasury.
The draft would create a tool called Special Measure 6, which would let officials target foreign jurisdictions, institutions, or transaction types tied to major digital asset money laundering risks. In practical terms, that means Treasury could apply extra scrutiny or restrictions to crypto activity linked to especially risky cross-border flows.
That is not window dressing. It is an enforcement lever.
The bill would also increase FinCEN funding, require risk controls at digital asset firms, create a government-industry information-sharing program, regulate crypto kiosks, and require studies on mixers, illicit finance, cyber risks, and national security threats.
Crypto kiosks are the ATMs of the digital asset world, and they are often used in fraud and scam cases. The majority’s decision to include them is a sign that lawmakers are at least looking at real-world abuse, not just trading headlines and conference-panel vapor.
FinCEN, short for the Financial Crimes Enforcement Network, is the Treasury bureau that administers anti-money-laundering rules and collects suspicious activity reports. It is not a police agency in the cinematic sense, but it is a major part of the machinery that helps track financial crime.
What remains unresolved
Even with the new language and committee work, this is still not a finished deal. Open disputes remain over ethics rules, stablecoin rewards, decentralized finance protections, and legal safeguards for software developers.
That last issue is especially important. Senator Ron Wyden wants protections for developers who do not control customer funds, and that is a legitimate fault line in crypto law. Writing code is not the same thing as running a bank, and many open-source developers argue they should not be treated like financial intermediaries just because someone misused their software.
That argument has merit. At the same time, critics are right to worry that overly broad protections could become a shield for people who build or profit from systems while pretending they have no responsibility for how those systems are used.
The real policy task is separating those two cases without drafting a carveout broad enough to become a loophole.
Senate staff are working on a merged CLARITY Act draft that combines work from the Banking and Agriculture committees, and negotiators have reportedly added more than 70 pages. The Senate is trying to move while the window is still open, because once lawmakers head for recess, momentum tends to evaporate faster than a meme coin pitch after the first hard question.
Why this fight matters
This debate is bigger than one bill. It is really about what kind of crypto economy the U.S. wants to allow.
If lawmakers overcorrect, they risk smothering legitimate software development, pushing builders offshore, and leaving the U.S. stuck in a slow, reactionary posture while other jurisdictions move ahead. If they undercorrect, they risk making America a convenient place for sanctions dodgers, laundering networks, and the same fraud artists who always show up when the rules are fuzzy.
The uncomfortable truth is that both failure modes are possible. That is why this fight is so bitter. It is not about whether crypto should exist. That argument is long dead. It is about whether the U.S. can write rules that protect innovation without turning compliance into a joke.
And yes, there is plenty of hypocrisy floating around. Some politicians want to sound tough on national security while backing language that may not actually stop abuse. Some industry voices want “clarity” while quietly hoping for enough ambiguity to keep the gray areas profitable. Washington remains Washington.
Key questions and takeaways
-
Does the CLARITY Act strengthen crypto compliance?
Supporters say yes. The Senate Banking Committee majority says it would apply Bank Secrecy Act duties, including AML controls, customer checks, suspicious activity reporting, and sanctions compliance, to crypto brokers, dealers, and exchanges. -
Why are Warren and Senate Democrats attacking it?
They argue the draft still leaves gaps around DeFi, mixers, and non-custodial services that could be used for sanctions evasion and illicit finance. -
What is Special Measure 6?
It is a Treasury authority in the draft that would let officials target foreign jurisdictions, institutions, or transaction types linked to major digital asset money laundering risks. -
Why does DeFi create so much trouble for regulators?
DeFi often operates without a traditional intermediary. That makes it harder to assign compliance duties cleanly and easier for lawmakers to accidentally write either loopholes or overreach. -
Are software developers protected?
Supporters say the draft protects developers who do not control customer funds, but that protection is still politically contested and may be narrowed before final passage. -
What is the biggest unresolved issue?
How much responsibility DeFi-linked actors should bear under federal AML and sanctions rules, and whether the final language closes real loopholes without crushing legitimate software development. -
What could still change before the bill moves forward?
Ethics rules, stablecoin rewards, DeFi protections, and developer safeguards are still in play, so the merged draft could look meaningfully different from the version now being fought over.
The CLARITY Act is where crypto policy, national security, and basic legislative competence all collide at once. The final text will show whether Washington built a serious framework for digital assets, or another elegant-looking trapdoor for everyone to fall through.
Further reading
A few official and outside takes that help round out the regulatory fight around the CLARITY Act.
- National Security Advisory: Clarity Act Fails to Address
- CLARITY Act legislative text on Congress.gov
- Senate Banking Committee Releases Proposed Clarity Act
- Elizabeth Warren Criticizes Crypto Legislation, Echoes Iran
- CLARITY Act Sparks Senate Showdown: DeFi and Crypto
- Coinbase CPO Predicts CLARITY Act Senate Vote in May
- U.S. CLARITY Act 2023: Stablecoin Yield Ban Sparks Crypto
