Our Only Chance to Pull the Crypto Industry From the Shadows is for Congress to Reject the “Clarity” Bill

Art Wilmarth was a member of George Washington University Law School's faculty from 1986 to 2020. Prior to joining the faculty, he was a partner in Jones Day's Washington, DC office. 

A recent Bloomberg article by Andy Mukherjee highlighted the largely hidden nature of transactions occurring in the global stablecoin market. According to that article, over 70% of the world’s two largest stablecoins — Tether’s USDT and Circle’s USDC — are held in unhosted private digital wallets, which use encrypted keys to conceal the identities of their owners. Another 26% of USDT and USDC stablecoins are held by their owners on foreign crypto exchanges, which are beyond the control of U.S. regulators. Only 3% of USDT and USDC stablecoins are held on regulated U.S. crypto exchanges that are subject to AML/BSA/CFT/KYC rules and other federal requirements.

Most stablecoin transactions occur with little transparency and limited regulatory oversight because they are conducted either between encrypted private digital wallets or on unregulated foreign crypto exchanges. As a result, most transactions involving U.S. dollar-denominated stablecoins are not subject to meaningful scrutiny by federal regulators. Other measures that would ensure compliance with U.S. civil and criminal laws are largely ineffective. It is incredibly difficult for even well-funded law enforcement agencies to trace crypto transactions that are routed through encrypted private digital wallets and multiple blockchains. Consequently, tracing these transactions is often impossible to complete in a timely and effective manner. 

The opacity of crypto transactions is a carefully designed feature — not a bug — of the crypto industry’s application of blockchain technology. Due to crypto’s opaque nature, only 2-3% of crypto owners around the world declare and pay taxes on their crypto holdings, according to a recent report.

Another byproduct of crypto’s opacity is that U.S. dollar-denominated stablecoins and other crypto-assets are routinely and systematically used to facilitate transactions that violate U.S. civil and criminal laws. As Harvard economist Gita Gopinath stated, “Stablecoins are now the predominant form of identified illicit activity.” 

A Rogue’s Gallery

Tether’s USDT, the largest player, accounts for 60% of the world’s outstanding stablecoins. Tether is headquartered in El Salvador and is not subject to any meaningful U.S. oversight. Tether stopped offering USDT stablecoins in the Eurozone because Tether was not willing to comply with the EU’s MiCAR regime. Tether has never published an independent financial audit of its assets and liabilities, including the “reserves” for its USDT stablecoins. 

Criminal gangs, rogue nations, and terrorist groups have used Tether’s USDT stablecoins to conduct illegal transactions around the world, including transactions channeled through Binance, the world’s largest crypto exchange. Binance, which is incorporated in the Cayman Islands and headquartered in Abu Dhabi, processes more than a third of all transactions on global crypto exchanges. In 2023, Binance pleaded guilty to multiple criminal violations of AML/BSA/CFT/KYC rules as well as U.S. sanctions against terrorist groups and rogue regimes. Binance also agreed to appoint two U.S. monitors. However, according to recent reports, (i) the Trump Administration has weakened U.S. monitoring of Binance’s operations, (ii) Binance has continued to allow Iran, Iranian-linked terrorist groups, and criminal gangs to launder huge amounts of funds through Binance’s global exchange in violation of Binance’s plea agreement, and (iii) Tether’s USDT stablecoins were used to make many of those illegal transfers of funds. 

In April, Iran demanded that ships passing through the Strait of Hormuz pay tolls by using Chinese yuan, Bitcoin, or USDT — a development described by TRM as “a critical deployment of cryptocurrency for state-level sanctions evasion.” According to Chainalysis and TRM, illicit crypto transactions exceeded $150 billion in 2025, and stablecoins were used in over 80% of those unlawful transactions.  

Crypto’s Expanding Costs and Dangers 

Nonbank stablecoins, Bitcoin, and other crypto-assets have failed to demonstrate any socially productive uses or other legitimate benefits that would justify their continued existence, given the enormous costs they impose on society and their growing threats to the effectiveness of law enforcement and the integrity and stability of our financial system. Two leading economists, Ryan Cummings and Jared Bernstein, warned that: 

Crypto is at best a form of private money, which has a long history of ending up in financial ruin. At worst, it is a speculative and highly volatile asset with almost no practical use, whose backers were (and still are) constantly trying to embed it into the financial system, both to increase its adoption and, should the market nosedive, stick taxpayers with the bill.

As Cummings and Bernstein also warned, the crypto industry has a long history of involvement in “crimes and scams.” Crypto’s endless parade of crimes and scams has inflicted intolerable costs on our society, economy, and financial markets.  

It’s Time to Bring Crypto Out of the Shadows

The crypto industry shuns transparency and insists on operating in the shadows. The so-called “CLARITY Act” — despite its Orwellian title — would allow the crypto industry to remain in the shadows by exempting crypto firms from essential safeguards that apply to banks and securities broker-dealers, including requirements designed to preserve financial stability and protect consumers and investors.  Congress must reject the CLARITY Act and insist that crypto firms comply with the same vital public safeguards that govern traditional financial institutions.

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

Open Banker curates and shares policy perspectives in the evolving landscape of financial services for free.

If an idea matters, you’ll find it here. If you find an idea here, it matters. 

Interested in contributing to Open Banker? Send us an email at [email protected].