Cops and Cassocks Agree: CLARITY Act's DeFi Shield Has a Sinister Blind Spot

Four law enforcement groups representing over 70,000 professionals have urged the White House and Department of Justice to revise Section 604 of the Blockchain Regulatory Certainty Act (BRCA) within the proposed CLARITY Act, warning that its non-custodial DeFi exemptions could "impede" digital asset investigations. In a letter dated June 24, the National District Attorneys Association (NDAA), the National Association of Assistant United States Attorneys (NAAUSA), the International Association of Chiefs of Police, and the National Sheriffs' Association stated that the provision "risks creating gaps in oversight and accountability." Under the current draft, Section 604 would shield fully non-custodial platform developers from money transmitter licensing requirements and from liability for fraud or money laundering committed by third-party users, mirroring the legal reasoning used in the Tornado Cash case. The groups emphasized they are "not against developers" but oppose the scope of the carveouts, and confirmed they have engaged the White House on the issue in recent weeks.

Opposition to Section 604 has also surfaced from roughly 100 Catholic coalitions and leaders, who argue the provision could undermine monitoring of illicit finance tied to human trafficking, organized crime, child exploitation, and sanctions evasion. According to the religious groups, "broad carveouts and regulatory ambiguities" would make it harder to track such activity responsibly. Section 604 has emerged alongside stablecoin yield provisions and ethics rules as a sticking point that has delayed a broader Senate floor vote on the bill, which is the U.S. crypto market structure legislation currently under negotiation.

In a related policy development, Solana Policy Institute's Kristin Smith has publicly opposed an amendment by Rep. Steven Horsford (D-NV) that would cap tax deferrals on staking and mining at a maximum of five years. Smith said the proposed amendment "misses the mark." The crypto industry secured a legislative win with the passage of the GENIUS Act on stablecoins, but broader market structure and tax clarity remain unsettled as CLARITY Act negotiations continue.