September 6, 2024

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Good morning and happy Friday. Congress returns to session on Monday for a sprint through September before breaking for the election. This week's edition previews what to watch for this fall, before and after November 5th.

Top Points

• While votes on crypto legislation are likely on pause until after the election, September is expected to include Congressional hearings on DeFi, SEC oversight, and possibly more crypto-related issues.
• Uniswap Labs settled CFTC charges that it illegally offered leveraged or margined retail digital commodity transactions via a decentralized trading protocol, though two commissioners issued strongly worded dissents against the CFTC's action.
• The Federal Reserve is ordering United Texas Bank to strengthen its anti-money laundering compliance programs, after identifying “significant deficiencies” related to the bank's virtual currency customers and foreign correspondent bank accounts.
• Rep. French Hill (R-AR) once again called on the Nigerian government to release Tigran Gambaryan - a U.S. citizen, Binance executive, and former IRS employee - who is reportedly being denied medical care while being detained on money laundering charges that some U.S. lawmakers have described as “fabricated.”

Fall Preview

After a long August recess, Congress returns next week. Here's a look at what to expect on the legislative front during the final four months of the 118th Congress.

Legislation

Pre-Election

The House and Senate are slated for session from September 9th to September 27th before breaking for an election recess until November 12.

Most pressingly, Congress needs to pass a government funding bill by September 30.

On government funding, there are two open questions. First, for how long will funding get extended: through December, setting up another year-end must-pass bill? Or through the start of the next Congress (March 2025)?

Second, what, if any, riders will get attached? The House is reportedly considering attaching the SAVE Act - a bill that would require proof-of-citizenship to register to vote, but the Senate and White House are expected to oppose the measure, potentially setting up a government shutdown fight.

Aside from government funding, the House and Senate are expected to focus floor time on political messaging bills they believe could help their Members (or hurt opponents), rather than bipartisan bills of substance.

In other words, it is unlikely any crypto legislation sees floor time before the election.

Post-Election

After the election, Congress has roughly five weeks of session left in the 118th Congress – often referred to as the “lame duck.” During a lame duck session, there is often a flurry of deal making as Members look to attach bills they’ve been working on for the last two years to “must-pass” bills before a new Congress gets sworn in and the legislative process begins anew.

“Must-pass” bills this year include the National Defense Authorization Act, Intelligence Authorization Act (which will likely get rolled into NDAA), and a debt limit increase (January 1 deadline).

• Helpful & handy guide of upcoming fiscal policy deadlines by Committee for a Responsible Federal Budget here.​

If crypto legislation passes this Congress, it would likely be during the lame duck via amendments to a must-pass bill.

Any final deal on legislation will likely depend in part on election results, and the expected balance of power next year. For example, if Republicans win the Senate, do they compromise with Democrats on market structure, or hold off until Senator Tim Scott (R-SC) and Senator John Boozman (R-AR) have more influence heading up Senate Banking and Senate Ag? Or, if Democrats take back the House, does now-Ranking Member Maxine Waters urge Democrats to hold off on crypto legislation until she is once again Chairwoman of HFSC and has more leverage crafting policies to her liking?

With these high-level considerations in mind, here's a closer look at what to watch for on some specific crypto policy issues:

Stablecoins

On stablecoins, there has been bipartisan support for legislation aimed at establishing clear rules for issuers, protecting customers, and improving transparency (e.g., establishing minimum reserve & disclosure requirements for issuers).

In the House, HFSC advanced Chairman McHenry’s Clarity for Payment Stablecoins Act last year by a 34-16 vote. In the Senate, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) proposed their own framework earlier this year, though that bill remains stalled in Senate Banking.

At a high-level, the House, Senate, and White House still need to hash out two key issues:

• (1) who should be permitted to issue stablecoins (e.g., only depository institutions?) and
• (2) to what extent should federal regulators have power over state qualified issuers (e.g., should the Federal Reserve have veto-power over approving state issuers?).

Market Structure

On market structure, Senate Majority Leader Chuck Schumer (D-NY) has voiced support for getting something done and bringing legislation to the floor in the lame duck. However, Senate Ag Chairwoman Debbie Stabenow (D-MI) is still working on her bill to regulate the digital commodities market. Chair Stabenow’s bill text has yet to go public, and plans to markup the bill before August recess were punted, with Stabenow pointing to a lack of Republican support.

Of course, the House passed its own market structure bill – FIT 21 – earlier this year with strong bipartisan support (279-136). So, even if Senate Rs and Ds get on the same page, they also have to work out a deal with Chair McHenry and House leaders to reconcile differences between House and Senate frameworks.

Notably, Chair Stabenow and Chair McHenry are both retiring this year – perhaps adding further incentive for both parties to reach a deal by year end.

Illicit Finance

On illicit finance, the House passed the Financial Technology Protection Act (“FTPA”) by voice vote under suspension of the rules earlier this year. (Notably, prior to the House floor vote, HFSC voted 50-0 to advance it out of committee).

The FTPA would create a working group tasked with studying and developing legislative and regulatory proposals to combat illicit financial transactions involving new technologies, including digital assets.

While more aggressive illicit finance proposals have been floated in the Senate (see, e.g., DAAMLA; Terrorist Financing Prevention Act), the lowest common denominator of bipartisan, bicameral support appears centered around a “study first” approach, similar to what’s included in the FTPA.

SAB 121 Repeal

Perhaps because this issue unites TradFi and crypto alike, few issues have garnered as much bipartisan attention as SAB 121. While the veto override vote fell short of the 2/3 threshold, the initial SAB 121 repeal resolution had a bipartisan majority in the House and a 60 vote (filibuster proof) majority in the Senate. Thus, it’s possible Congress has the votes to include a SAB 121 repeal bill in a must-pass bill, forcing the White House's hand.

Commerce

​The House passed three bipartisan bills focused on commerce-based use cases under suspension of the rules earlier this year. Given the bipartisan votes, perhaps at least one of these bills can make it across the finish line.

Of particular note, Rep. Darren Soto’s (D-FL) Consumer Safety Technology Act passed by voice vote on the House floor, signaling extremely broad bipartisan support.

The Consumer Safety Technology Act would:

• Direct the Department of Commerce and the Federal Trade Commission (“FTC”) to study how blockchain technology may limit fraud and other unfair or deceptive practices in commerce.
• Direct the FTC to study and report to Congress on FTC actions and recommendations for protecting consumers from unfair or deceptive practices involving digital asset tokens.
• Express numerous pro-blockchain findings, such as “tokens and blockchain technology are driving innovation and providing consumers with increased choice and convenience.”

Hearings

Despite slim chances of crypto legislation moving before election day, there's still plenty to watch for on the hearings front in September.

Schedules are still being finalized, but here’s a quick look at what could be ahead:

House Financial Services

Locked In:

• Tuesday, Sept. 10 - 10 AM - Decoding DeFi: Breaking Down the Future of Decentralized Finance.​

​Tentative (per Coin Desk):

• Wednesday, Sept. 18 – Two hearings: one on SEC enforcement practices & another on “pig butchering”
• Wednesday, Sept. 23 – SEC oversight hearing - including Chair Gensler and the full five-member commission.

Senate Banking

• Senate Banking could hold a committee vote to advance nominations of SEC Commissioner Caroline Crenshaw to serve another term and CFTC Commissioner Christy Goldsmith Romero to become Chair of the FDIC.
• ​Senate Banking may also be holding its own SEC oversight hearing with Chair Gensler in September.

Senate Ag Committee

• If Senator Stabenow is able to get bipartisan support for a market structure bill, perhaps Senate Ag tries to markup the bill before the end of September.

Look Ahead

Presidential Debate

• First Presidential debate between VP Harris and Former President Trump is next Tuesday at 9pm on ABC news.

Quick Hits

Tigran Gambaryan

• Tigran Gambaryan - a U.S. citizen (Georgia resident), Binance's head of financial crime compliance, and a former IRS agent - remains detained in Nigerian prison on charges related to money laundering.
  • According to a spokesperson and his wife, Yuri, Gambaryan is being denied access to medical care that could lead to permanent damage, as well as proper access to his lawyers and U.S. embassy staff.
  • In July, Reps. French Hill (R-AR) and Rich McCormick (R-GA), introduced a resolution urging Nigeria to immediately release Tigran, describing the charges against him as “fabricated.”
    • ​Resolution.
    • Reps. Chrissy Houlahan (D-PA) and Tom McClintock (R-CA) are cosponsors.
    • Article with more background on case and Gambaryan's medical situation here.
  • On Wednesday, Rep. French Hill (R-AR) once again urged the Nigerian government to release Tigran.

French Hill @RepFrenchHill This is outrageous. It's clear Tigran's condition is rapidly deteriorating - the Nigeran government must release him immediately. https://twitter.com/c2p6/status/1830731223750279556 Chagri Poyraz @c2p6 @TigranGambaryan detained by @NuhuRibadu & @NigeriaGov since 26 Feb 2024.  What is happening to Tigran is a clear violation of the international human rights law. I urge everyone to take a minute and watch this video of him being dragged into the court today. #bringtigranhome 9:57 AM • Sep 4, 2024 29 Retweets 123 Likes Read 12 replies

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Enforcement

CFTC

• The CFTC filed and settled charges against Uniswap Labs, alleging Uniswap Labs illegally offered leveraged or margined retail commodity transactions involving bitcoin and ether via a decentralized digital asset trading protocol.

• ​CFTC Press Release & Order​
• Uniswap Labs agreed to pay $175,000 to settle charges
• ​Commissioner Summer K. Mersinger Dissents

• ​Commissioner Caroline D. Pham Dissents​

• Uniswap CLO post on X:

Katherine Minarik @MinarikLaw Today Uniswap Labs resolved a CFTC matter, about a fraction of a percent of trading through our interface of a handful of tokens, for a $175k fine in a standard no admit-no deny settlement. We are glad to put this to rest and stay focused on building the future of DeFi for all. 12:8 PM • Sep 4, 2024 14 Retweets 105 Likes Read 5 replies

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SEC

• The SEC filed and settled charges against Galois Capital Management LLC for alleged violations of the Investment Advisers Act, including failing to keep clients' crypto assets with a “Qualified Custodian” and permitting certain clients to redeem fund assets on shorter notice than required by the firm's disclosed policy.
  • ​SEC Press Release & Order.
  • Galois will pay $225,000 to settle.
  • ​Galois statement responding to the charges and settlement:

Federal Reserve

• The Federal Reserve and Texas Department of Banking issued a cease & desist order requiring United Texas Bank to improve its board oversight, corporate governance, BSA/AML compliance program, customer due diligence, suspicious activity monitoring and reporting, and OFAC compliance.
  • According to the order, bank examiners identified “significant deficiencies related to foreign correspondent banking and virtual currency customers,” specifically regarding risk management and BSA/AML compliance. Order at 1-2.
  • ​Order Text.

Presidential Election

• ​In a speech at the Economic Club of New York, Former President Trump once again appealed to the crypto voter, stating:
  • “Instead of attacking industries of the future, we will embrace them, including making America the world capital for crypto and Bitcoin.”

Trivia

Last Week's A: In the 1972 Presidential election, Robert Sargent Shriver replaced Thomas Eagleton as George McGovern's Vice Presidential nominee.

This Week's Q: Which President signed into law a congressional act making Labor Day a federal holiday?

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Thank you for reading.

And go BC 🦅.

-GSL

Warpcast: @caphillcrypto

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*All information contained in this newsletter is for informational purposes only and should not be considered legal or financial advice. You should conduct your own research, and consult an independent financial, tax, or legal advisor before making any investment decisions. The author may own cryptocurrencies discussed herein.*