Treasury Urges Congress to Give Crypto Platforms Power to Freeze Suspicious Funds

The U.S. Treasury is proposing a new digital asset-specific "hold law" that would empower crypto platforms to temporarily freeze suspicious transactions linked to illegal activities during investigations. This recommendation, detailed in a report to Congress under the GENIUS Act, aims to provide a clearer legal framework for financial institutions to act on suspected illicit funds.

The Proposed 'Hold Law'

The proposed measure would create a legal safe harbor, allowing crypto platforms to voluntarily hold digital assets involved in suspected illegal activity. This would enable law enforcement to react more swiftly, as exchanges often detect suspicious funds through blockchain intelligence but lack sufficient legal authority to hold them long enough for investigators to intervene.

Ari Redbord, global head of policy and government affairs at TRM Labs, explained that this would create a defined window for platforms to pause funds while law enforcement navigates the legal process. He added that it could strengthen how exchanges handle suspicious transactions, giving law enforcement more time to keep pace with blockchain transactions and bolster public-private partnerships.

Challenges and Legal Nuances

Currently, while exchanges can report suspicious activity, legally holding the funds is more complex. Andrew Rossow, public affairs attorney and CEO of AR Media Consulting, noted that banks have limited ability to delay transactions, but a clear statutory safe harbor for crypto exchanges to freeze funds without risking liability is absent. The Bank Secrecy Act protects institutions filing good-faith suspicious activity reports (SARs) but doesn't explicitly authorize freezing associated funds.

Rossow highlighted potential vulnerabilities, including questions about the reliability of blockchain analytics and conflicts with existing SAR rules that prohibit disclosing the underlying investigation. This could create a paradox where transparency requires disclosing a freeze, but SAR rules prevent explaining why, leaving customers aware of the freeze but not its cause.

Potential Impact

Despite these challenges, the recommendation is seen as a potentially valuable tool in combating crypto fraud and money laundering. Redbord stated that a narrowly tailored hold authority could help close the gap created by the rapid speed of digital asset transactions, which often outpace criminals' movements.