US President Donald Trump will sign the Genius Act next to Washington Senator Bill Hagerty and U.S. House Speaker Mike Johnson on July 18th.Nathan Howard/Reuters
Hoopra regarding America’s new stubcoin laws is driving the fear that Canada is missing out on the latest cryptocurrency boom.
Guidelines and establishment of national innovation for the Stablecoins Act or Genius Act was signed into law last week by President Donald Trump and created a regulatory framework for Stablecoins that is fixed in the US dollar. (Stablecoins are cryptocurrencies with value tied to another form of currency or financial assets to maintain a stable price.)
The related bill, the Digital Asset Market Intelligibility Act, has advanced to the US Senate. Clarity is shortened to propose splitting the regulatory oversight of virtual assets between the Securities and Exchange Commission and the Commodity Futures Trading Commission.
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Initially, US government’s “Crypto Week” was an overwhelming success as these two laws help digital assets become mainstream south of the border.
However, anti-corruption groups, including Transparency International US, have warned of genius behavior, and the Clarity Act includes a loophole in money laundering and sanctions avoidance for other countries, including Canada, in search of leadership in the global digital assets economy of $5.7 billion.
“For other countries, I encourage lawmakers to take a risk-based approach and consider that we have a global economy,” Gary Kalman, executive director of Transparency International US, said in an interview Thursday.
As Kalman points out, Crypto is not a typical brick and mortar store and is at a higher risk of illegal finances. He said that it’s relatively easy to set up offshore crypto issuing companies that sell to other countries without a physical presence in those jurisdictions.
“It’s the type of risk analysis that encourages other countries to consider when moving the law forward,” he added.
Transparency International US, Free Russia Foundation, The Financial Accountability and Corporate Transparency Coalition, and the Hudson Institute’s Kleptocracy initiative provide a calm analysis of the American Signature Stubcoin Act.
“The risks are realistic and urgent. Iran, North Korea and Russia have turned to cryptocurrency and stable to move illegal funds bypassing international sanctions,” the anti-corruption group said in a joint letter to US Congress leaders, including House of Representatives Mike Johnson.
“If the United States does not close the loopholes that could be exploited by these actors, financial architecture will advance with genius and clarity, further accelerating the growth of its opaque, lawless financial networks.”
Specifically, the group outlined four important issues regarding the two laws.
The first involves discriminatory treatment of the genius laws of stablecoin publishers registered in the United States compared to those based in foreign or offshore jurisdictions.
Under the law, foreign stubcoin issuers such as Tether, the world’s largest stubcoin, can join the US market through decentralized exchanges and peer-to-peer relocations, even if they are not registered.
Meanwhile, the US Treasury Department has a latitude that provides exemptions to foreign issuers, allowing them to participate in centralized exchanges after the expiration of the three-year grace period. As a result, foreign issuers are not subject to appropriate regulatory oversight.
The second issue includes the failure of the Genius Act to impose anti-money laundering (AML) and counter-terrorism response obligations on secondary market participants, including digital asset exchanges, custodians and brokers.
“The outcome is a bill that will check the status quo while ignoring how cleptoclots, terrorists and other criminals access and move digital assets,” the letter said.
“Furthermore, geniuses weaken compliance by stating that publishers must follow AML rules.
The third weakness includes the glare in sanctions enforcement. In particular, the genius law does not apply to anonymization techniques such as mixers and other intermediaries that obscure funding sources, the group says.
Meanwhile, the Clarity Act completely overlooks sanctions avoidance, despite the fact that digital assets have become the criminal’s favorite tool to avoid economic restrictions.
Finally, according to the group, coupled with the Clarity Act not requesting ownership disclosures from all market participants, the exemptions from decentralized services and platforms under the Genius Act, according to the group, irritates the enforcement of these laws.
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Meanwhile, Canada is facing calls to create its own comprehensive national strategy for crypto, including Stablecoins.
“Stablecoins are restructuring global finance, but Canada is still on the sidelines,” says a new report from Western University’s Ivey Business School.
“Other countries use them to enhance payments and attract investments, but Canada doesn’t have a currency-related alternative to their country.”
The report correctly encourages Canada to create a “unified regulatory framework” for digital assets. Currently, surveillance is split into regulatory authorities including the Canada Revenue Agency, Canadian Securities Managers, and the Report Analysis Centre for Canada and Regional Agency.
Creating a national regulatory framework should actually be a priority, as businesses need a consistent set of rules.
But in doing so, the federal government must draw lessons from American legislative failures regarding financial crime.
Canada is already sold overseas as a secret jurisdiction that can be easily exploited by Kleptocrats, Money Launderers, Scontions Evaders and other scammers.
In a hurry to catch up with the code, Ottawa can’t afford to replicate Washington’s mistake.
