- US Treasury urges Congress to create a crypto-specific “hold law.”
- The rule would allow platforms to temporarily freeze suspicious digital assets.
- The proposal aims to help law enforcement investigate illicit crypto activity faster.
The US Treasury has proposed a new legal measure that could allow crypto platforms to temporarily freeze funds suspected of being linked to illegal activities. The recommendation urges Congress to “hold law,” which would give exchanges the authority to pause suspicious transactions.
The idea was outlined in a report linked to the GENIUS Act. Officials believe the measure could help law enforcement respond more quickly to illicit transactions while investigations are underway.
Crypto Platforms Can Now Freeze Suspicious Funds
The US Department of the Treasury is taking the initiative to foster crypto security in the country. The department has proposed a new rule that allows crypto platforms to temporarily freeze funds suspected of being linked to illegal activity.
The proposal was reportedly mentioned in a Treasury report submitted to Congress. The report focuses on technologies that can help prevent illicit activities involving digital assets. It was prepared under the GENIUS Act.
The report notes that some crypto users use mixers to protect privacy when making transactions on public blockchains. However, authorities say they still need better tools to detect and address potential illegal activities.
The latest proposal brings a significant resolution. It could allow crypto platforms and financial institutions to pause suspicious transactions temporarily. This move could block the funds’ movement through other crypto services.
Ari Redbord, the global head of policy and government affairs at TRM Labs, stated, “Exchanges often detect suspicious funds using blockchain intelligence, but there is not always a clear legal framework that allows them to hold those assets long enough for investigators to act.” He added that the move could create a clear time window for platforms to freeze those funds while law enforcement completes the legal process.
Why Crypto Platforms Need Clear Authority?
Crypto platforms can often detect suspicious transactions using blockchain monitoring tools. However, without clear legal authority, it can be difficult for these platforms to freeze the funds, even if they appear suspicious.
Although exchanges can report suspicious transactions, it is much more difficult for them to legally hold or freeze those funds, stated Andrew Rossow. He explained that banks already have the ability to delay suspicious transactions, but the rule is very limited and not always easy to apply. He added, “For crypto exchanges, this problem is even more awkward because there is no ‘pending state’ or ‘freeze’ that is ‘clean.” Rossow posited,
“If you freeze someone’s assets and then must be transparent about it, but cannot tell them you filed a SAR, you now have a structural paradox. The customer will know they’re frozen; but they won’t know why. This creates a legal gray zone that would need to be exploited.”
A clearer legal framework could give exchanges the confidence to act quickly when the potential criminal activity is detected. It would also allow them to pause suspicious funds for a short period. This would provide law enforcement enough time to review the case and take the necessary legal steps. Redbord said, “Criminals move quickly, and digital assets move even faster. A narrowly tailored hold authority helps close that gap.”
