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Clarity Act gives law enforcement the tools it needs for decentralized finance
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by Austin Knudsen, opinion contributor - 07/21/26 7:30 AM ET
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by Austin Knudsen, opinion contributor - 07/21/26 7:30 AM ET
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Greg Nash
Last month, a major U.S.-based digital asset company’s compliance team discovered that more than $200 million in stablecoins were en route to North Korea. They had eight hours and the technical ability to freeze the transaction, yet reportedly did nothing. Why? Because America’s current laws left them exposed to company-killing levels of civil litigation if their judgement proved wrong.
I have watched this scenario play out before. The industry wanted to help out. The will was there, but the legal cover was not.
This is the reality facing industry and law enforcement today, and it is exactly what a decade of congressional inaction has produced. The Clarity Act would change that.
We have spent years prosecuting cases that touched the digital asset space, and the argument we hear most often is that robust enforcement and a thriving industry are fundamentally incompatible. That has always been a false choice. Clear, consistently enforced rules are not the enemy of free markets but their foundation.
What has plagued the digital asset industry is not too many regulations but too little of the right kind: specific, enforceable, and built around the realities of the technology rather than the assumptions of regulators who never bothered to understand the issues. Sen. Cynthia Lummis(R-Wyo.) understood this long before most of her colleagues. Her Clarity Act, a version of which has already passed the U.S. House, reflects years of serious, ground-level engagement with both the industry and the people trying to police it.
The Clarity Act insulates digital assets companies and stablecoin issuers from civil liability when they voluntarily freeze suspicious transactions or comply with a law enforcement request. This provision alone would have given the company mentioned above the legal confidence it needed to act, keeping funds out of our adversary’s hands.
As the chief law enforcement officers of our states, we recognize that is not a regulatory technicality — that’s a good national security outcome.
The bill’s illicit finance provisions are serious, specific, and built to hold up in court. Exchanges and intermediaries are now subject to Bank Secrecy Act requirements, with anti-money laundering program obligations that exceed current standards for money service businesses. The Treasury Department will establish risk-based examination standards so that compliance is defined in concrete terms rather than left to bureaucratic interpretation.
A formal information-sharing program connects the digital asset industry directly to the Departments of Justice, Treasury, and Homeland Security, giving federal investigators intelligence streams that simply didn’t exist before. The Financial Crimes Enforcement Network receives increased funding to analyze financial transaction data and put it in the hands of the people working active investigations.
For decentralized finance, the Clarity Act follows our economic reality rather than legal fiction. Exchanges that claim decentralization while functionally controlling their protocols must register with the Securities and Exchange Commission and comply with the Bank Secrecy Act. Treasury gains new authority to issue anti-money-laundering and sanctions guidance from front-end operators and to sever foreign crypto companies from the U.S. financial system when those jurisdictions become conduits for illicit activity.
Digital asset companies interacting with decentralized finance must implement controls spanning money laundering, sanctions, fraud, market manipulation, and cybersecurity, with examination authority from both the SEC and the Commodity Futures Trading Commission to enforce them.
Lummis has delivered law enforcement what we have never had in this space: clear jurisdiction, mandatory cooperation, actionable intelligence, and the legal framework to prosecute. For years, bad actors have exploited the ambiguity that congressional inaction left in place. This bill replaces this murkiness with specific, enforceable obligations that apply to everyone operating in this market.
The rule of law works only when the rules are clear and required to follow them. For the first time, in one of the fastest-growing and most consequential industries in the world, they will be.
Austin Knudsen is the Attorney General of Montana.
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