United States Senate Republicans added new ‘ethics’ language to their crypto market structure bill, but Democrats say it amounts to giving President Donald Trump a pass on his crypto profiteering.
On July 22, Senate Republicans released a new draft of their digital asset market structure legislation (CLARITY Act), including a new ‘ethics’ section crafted following lengthy negotiations with the White House and President Trump. Notably, this ethics compromise was concluded without any input from Senate Democrats.
Trump previously resisted any attempts to include language that might limit his ability to go on earning over a billion dollars per year from various crypto ventures. But with CLARITY needing 60 votes to pass, buy-in from Dems will be crucial, and many Dems had signaled that they’d vote ‘no’ without language preventing public officials and their families from profiting off crypto operations over which they had regulatory sway.
The new 616-page draft contains a new ‘ethics requirement’ section (starting on page 603) that would apply to public officials or employees and their spouses, but not their children. So the president’s three sons—Don Jr., Eric, and Barron, all of whom are involved in crypto ventures like World Liberty Financial—wouldn’t be covered.
Covered individuals would be prohibited from issuing or sponsoring digital assets during their terms of service. Crypto platforms would be prohibited from listing any tokens issued in defiance of this restriction.
Penalties for officials who violate the ethics rules include disgorgement of any crypto profits and fines of up to $500,000. Platforms would be fined a maximum of $250,000 per violation.
However, there are safe harbor exemptions for officials who place digital assets in which they have a direct interest into a qualified blind trust or divest themselves of said assets before their term of service commences.
Similarly, any official who lent their name, image, or likeness to a digital asset project prior to their term of service won’t be held liable if a platform/project continues to use their name/image/likeness, provided the related assets have been placed in a trust or divested.
Officials can also make statements or take government actions related to digital assets, provided these are “not made in expectation of receiving consideration,” which seems a somewhat large and ill-defined loophole.
And in what is proving the biggest dealbreaker for many Dems, state attorneys general can’t bring charges against officials who violate the ethics provisions. That role is limited to the U.S. Attorney General, a role currently filled by Acting AG Todd Blanche, who until recently was (and secretly may still be) the president’s personal lawyer. And the AG can only bring charges if the accused can be proven to have “knowingly and willfully” violated the rules.
The ethics provisions wouldn’t take effect until 360 days after CLARITY is signed into law, or 60 days after the final implementing rule is crafted, whichever comes quickest. But the provisions would also sunset on January 20, 2029, which just happens to be the final day of Trump’s second term. (Subtle, they’re not.)
And a ‘treatment of pre-sunset conduct’ clause prohibits any action being brought against public officials after that expiry date for violations that occurred on or before that date. Meaning it’s an effective ‘get out of jail free’ card for officials who refuse to color within the lines.
Senate Majority Leader John Thune (R-SD) said Wednesday that the new draft will “get a vote, not sure when yet but in the next couple weeks.” Bloomberg quoted Thune saying, “we’ll have to figure out what the traffic will bear, what changes have to be incorporated in order to get 60 votes. One way or another, we need to vote on it.”
The Senate’s calendar doesn’t allow much time for complex negotiations. The final sitting day before Congress leaves for its traditional summer break is Friday, August 7. That gives senators a little over two weeks in which to either steer this ship to shore or let it flounder.
Dems not happy
Prior to this latest draft’s release, Senate Banking Committee member Angela Alsobrooks (D-MD) called early reports of the ban on state AGs prosecuting public officials for crypto shenanigans “an unserious offer.” Alsobrooks said she “wouldn’t support the bill if that’s the language.”
On Wednesday, Alsobrooks said the proposal for the Department of Justice (DoJ) under Blanche to have sole authority to bring charges against ethics violators was “wild and unserious and stone crazy. It’s an absolute that we cannot completely rely on the DoJ, given what we’ve seen of their inability and their unwillingness to enforce the law … we must empower state-level attorneys general if the DoJ does not do its job.”
Sen. Cory Booker (D-NJ) was equally unimpressed, calling the draft’s new text “warmed-over stuff. It’s a partisan bill. There’s all these Dem priorities that are not reflected in that text, and we’re not going to support it.” Elizabeth Warren (D-MA) said the new draft “should be dead on arrival” because it “does nothing to stop President Trump from making his next $1.4 billion from crypto.”
Alsobrooks, Booker, and several of their pro-crypto Senate colleagues later issued a statement saying the new “Republican-proposed” CLARITY text “falls short. Key provisions, including those addressing ethics for elected officials, consumer protection, illicit finance, conflicts of interest and market integrity must be strengthened.” The Dems said they will continue to work “in good faith” with their GOP counterparts to get CLARITY “over the finish line.”
Kirsten Gillibrand (D-NY), who was deeply involved in the CLARITY negotiations, didn’t add her name to the letter, possibly because she’s trying to keep her head down. In a July 21 letter addressed to “Senate Democrats,” three progressive watchdog groups—Demand Progress, Indivisible, and the Revolving Door Project—called Gillibrand “a prime example of a Democratic leader whose conduct undermines efforts to hold the Trump administration accountable for their rampant corruption.”
The letter details the $30 million recently raised by Gillibrand’s 22-year-old son, Theodore, for his American Perpetuals Exchange Corporation (APEC). Among APEC’s many crypto-savvy investors was Chris Larsen, co-founder of Ripple Labs, issuer of the XRP token and the RLUSD stablecoin.
The watchdogs’ letter wonders how APEC was able to attract such serious investment and warns of “an appearance of unseemly conduct that undermines Democrats’ credibility in criticizing corruption stemming from President Trump, his family, and their allies in the administration.”
Crypto operators rave, but not all GOP senators on board… yet
As you might imagine, reaction from the other side of the political aisle was very different. Senate Banking member Cynthia Lummis (R-WY), one of two GOP senators who’d negotiated the ethics language with the White House, claimed “history will remember this as the moment a president chose a higher standard of ethics than the law required of him.”
In an explanatory text distributed by Lummis, CLARITY’s new ethics provisions were described as “real enforcement, not empty promises,” while the sunset clause allegedly implies that “this is a standard President Trump chose to hold himself to, not one Congress imposed on him.”
The other senator involved in the ethics negotiations, Ohio’s Bernie Moreno, opted for the low road, tweeting: “Don’t listen to the DC Democrat lies: this ethics provision breaks new ground as the most powerful ethics language in US history. If [former Dem House Speaker] Nancy Pelosi would have subjected herself to ethics language this strict, she’d have $300 million less.”
White House crypto advisor Patrick Witt tweeted what he called “a comprehensive list of all U.S. Presidents in our nation’s 250-year history who have agreed to an ethics provision restricting their own conduct while in office,” then cited only Trump. Witt also asked the Grok AI “how many current federal ethics laws are enforceable by state attorneys general?” To which Grok replied “**Zero.**”
Sen. John Cornyn (R-TX), who was prevented from seeking re-election in November after Trump supported a successful primary challenge, is one of several GOP senators in the same situation who are now willing to butt heads with the White House. Cornyn said Wednesday that it was “premature” to discuss whether he’d support CLARITY as written, saying negotiations are “just getting started.”
Another member of the aggrieved GOP senator club, North Carolina’s Thom Tillis, is officially a ‘no’ on CLARITY without changes to the ethics language. But Tillis also said, “if we bridge the gap on ethics tonight or tomorrow, then I think we’ve got a shot.”
Sounds encouraging, except Lummis told CoinDesk that the White House was unlikely to budge on the issue of state AGs being allowed to bring charges against public officials who violate the ethics provisions. In fact, Lummis claimed that prospect was “a bright red line for a lot of U.S. senators who did not want to subject themselves to being sued by a different state attorney general.”
Unsurprisingly, the crypto sector is enthusiastically behind the new CLARITY, with multiple execs from the Coinbase
(NASDAQ: COIN) exchange tweeting praise for Congress. Chris Dixon, managing partner of the crypto-friendly venture capital group Andreessen Horowitz (a16z) (NASDAQ: ZADIHX), posted a lengthy X article claiming that CLARITY wasn’t perfect but “failing to act means innovation will migrate elsewhere, under frameworks devised by others.”
Ripple Labs chief legal officer Stuart Alderoty tweeted his approval of the new CLARITY, saying, “perfect can’t be the enemy of good. Let’s get this done.” Ripple CEO Brad Garlinghouse retweeted Alderoty, adding “my thoughts exactly.”
But in a possible signal that CLARITY’s future is uncertain, digital asset prices didn’t treat the new draft with any great enthusiasm, with primary tokens like BTC and the Ethereum network’s native token ETH staying mostly flat on Wednesday (even dipping slightly as the day wore on).
That tepid response suggests either fears that CLARITY’s textual tweaks won’t be enough to ensure its passage, or that passage is already baked into token prices. The latter would mean there’s no real surge coming, and that all the ‘to the moon’ promises were simply more crypto ‘hopium.’
Will illicit finance tweaks satisfy lawmen?
CLARITY’s latest draft makes no changes to the section known as the Blockchain Regulatory Certainty Act (BRCA), which offers legal protection for developers of noncustodial decentralized finance (DeFi) platforms if/when bad actors use the platforms to facilitate criminal activity.
However, a new ‘protecting against illicit finance’ section attempts to mollify the law enforcement groups and prosecutors who claimed CLARITY would make it harder for them to investigate and bring charges in cases where bad actors use crypto to launder the proceeds of crime or evade U.S. economic sanctions.
CLARITY now pledges $150 million in cash for state and local law enforcement to help them catch bad actors, while the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) also gets $150 million for crypto rulemaking and enforcement.
Treasury would also be granted new sanctions authority to cut off foreign crypto platforms, certain types of transactions, or even entire jurisdictions if they’re deemed to be freely engaging in illicit activity.
Stablecoin issuers like Circle (NASDAQ: CRCL) have long faced criticism for failing to act swiftly enough to ‘freeze’ tokens believed to be involved in criminal activity. Circle usually claims its hands are tied, saying it requires court orders to act. The new CLARITY offers issuers and other crypto platforms a safe harbor from legal liability in the hope that this will encourage platforms to swiftly apply ‘temporary holds’ on tokens to prevent the bad guys from making good their escape.
The longstanding problem of ‘digital asset kiosks,’ aka crypto ATMs being used as conduits for pig-butcherers and other scammers, is also getting a fix. The new CLARITY would require ATM operators to issue refunds to fraud victims, use blockchain analytics to identify and block illicit transactions to flagged wallets, and impose transaction limits (individual transactions of $500 and daily aggregate caps of $3,500) on new customers.
Banks, gaming operators frozen out
The new CLARITY doesn’t contain any new language regarding crypto platforms issuing ‘rewards’ to users who engage in certain stablecoin activities, and the traditional banking sector is far from happy. Banks and credit unions have persistently argued that these rewards, which can exceed interest paid on savings account deposits, will cause mass deposit flight to crypto platforms, impairing smaller community banks’ capacity to issue loans to customers.
On Wednesday, the American Bankers Association (ABA), Bank Policy Institute (BPI), Independent Community Bankers of America (ICBA), and other TradFi groups issued a statement saying the new draft “still puts at risk the local lending that drives economic activity in the U.S.”
The statement went on to say that bankers are “encouraged by the constructive conversations we are having with senators who share our concerns. We appreciate their willingness to consider targeted changes that would strengthen the prohibition on interest-like payments for holding stablecoins … Our good faith efforts to strengthen the Clarity Act will continue.”
Just prior to the new draft’s release, America’s Credit Unions (ACU) sent a letter to Thune and Senate Minority Leader Chuck Schumer (D-NY) expressing their ongoing concerns about “the narrow formulation of the prohibition on interest and yield that could open structuring opportunities that could allow functionally passive reward structures (even if nominally activity-based) and undermine the Congressional intent of the prohibition.” The ACU has yet to issue a follow-up on the Senate’s failure to address their concerns in the current draft.
The new bill also doesn’t contain any language that would restrict prediction markets like Kalshi and Polymarket from offering ‘event contracts’ on sports events, despite heavy lobbying from both commercial and tribal gaming operators as well as state AGs who argue that the sites are violating state-level gambling laws.
Last week, a dozen Senate Democrats sent a letter to the leaders and ranking members of the Banking and Agriculture committees urging them to add such language to CLARITY, but their pleas appear to have fallen on deaf ears.
The American Gaming Association (AGA) has yet to issue a statement on CLARITY’s new draft, but it did tweet an update to its ongoing counter showing states “have now lost more than $1.2 billion in gaming tax revenue from sports bets offered by ‘prediction markets’ outside of the state-regulated system. That’s $1.2 billion that isn’t funding local communities, public services or state priorities.”
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