Sheriffs Say CLARITY Act Section 604 Could Aid Criminals

The National Sheriffs’ Association told Senate Majority Leader John Thune and Democratic Leader Chuck Schumer in an August letter that Section 604 of the CLARITY Act could create exemptions allowing some decentralized finance participants to avoid registration, know‑your‑customer checks, anti‑money‑laundering rules and sanctions enforcement.

The sheriffs’ letter reiterated objections first raised in a May 13 letter to the Senate Banking Committee and again in a coalition letter in late June. The group said the bill’s language is broad enough that traffickers, sanctions evaders and money launderers could exploit services that obscure digital‑asset transactions.

Several law enforcement organizations joined the sheriffs in warning about enforcement gaps, including the National District Attorneys Association, the National Association of Assistant United States Attorneys and the International Association of Chiefs of Police. Other law enforcement groups took different positions: the National Organization of Black Law Enforcement Executives publicly supported the bill on July 1, and Major County Sheriffs of America moved from opposition to neutral on Section 604 in early July after further talks.

Section 604, often called the Blockchain Regulatory Certainty Act, aims to distinguish software developers who build noncustodial wallets, protocols and tools from entities that custody funds or direct transactions. Supporters say the text would reduce legal uncertainty for developers who do not take control of user funds. Critics say the carve‑out could be used by platforms that present themselves as noncustodial while performing custodial functions and so avoid obligations that banks and regulated financial firms follow.

The Blockchain Association pushed back against the sheriffs’ reading. Lindsay Fraser, the trade group’s chief policy officer, characterized the criticism as a “fundamental misunderstanding” and wrote that Section 604 is limited to preventing noncustodial software developers from being misclassified as money transmitters when they do not custody assets or control transactions. She added that the provision “does not immunize criminals,” “does not limit sanctions enforcement,” and “does not stop prosecutions for money laundering, fraud, or terrorist financing.”

Senators are also negotiating other parts of the CLARITY Act, including provisions on stablecoins and disclosure requirements tied to officials’ private crypto dealings. Senate leadership has indicated an intent to hold a floor vote before the August recess, leaving a short legislative calendar for negotiators to resolve disputes and adjust language.

Negotiators will consider the differing views from law enforcement organizations and industry representatives as they draft amendments and prepare the bill for a Senate vote.