Financial Technology Protection Act Passes House, Heads to Senate

The House of Representatives passed a bill on Monday (July 22) that is designed to combat the use of financial technology for illicit finance.

The Financial Technology Protection Act of 2023 (H.R. 2969), sponsored by Rep. Zach Nunn, R-Iowa, establishes the Independent Financial Technology Working Group to Combat Terrorism and Illicit Financing under the Department of Treasury and encourages public-private sector partnership in examining issues surrounding illicit finance in the digital asset ecosystem, according to a Monday press release issued by the House Financial Services Committee.

Having passed the House, the bill now goes to the Senate, the House Committee on Financial Services Republicans said in a Monday post on X.

The bill was introduced in the House by Nunn and Rep. Jim Himes, D-Conn., while a companion bill was introduced in the Senate by Sens. Kirsten Gillibrand, D-N.Y. and Ted Budd, R-N.C., Nunn said in an April 2023 press release.

“This bipartisan bill establishes a working group of key federal government departments, intelligence agencies, private organizations and their innovation, as well as private-sector experts to combat terrorism and illicit financing on digital platforms,” Nunn said in remarks delivered to the House before the vote on Monday and posted in a video on YouTube. “The working group will consist of experts to develop legislative and regulatory proposals to tackle anti-money laundering and address security risk, as well as prevent illicit financing activity right here in the United States.”

The U.S. Department of the Treasury said in a report issued in April 2023 that vulnerabilities in decentralized finance (DeFi) are enabling criminals to transfer and launder illicit proceeds.

The primary vulnerability exploited by bad actors is the fact that many DeFi services have failed to implement anti-money laundering and countering the financing of terrorism (AML/CFT) obligations, according to the report.

Other vulnerabilities include some DeFi services not being covered by existing AML/CFT obligations, some jurisdictions having weak or nonexistent AML/CFT controls in this area, and some DeFi services having weak cybersecurity controls.

In October, it was reported that the Hamas attack on Israel may have been funded in part by cryptocurrency, as crypto transactions allow that group and others to bypass traditional banking systems.