A series of crypto bills recently passed by the House of Representatives are facing pushback from various groups who claim the legislation is riddled with loopholes that could facilitate money laundering and sanctions evasion. Concerns are also being raised about consumer protection and the potential for a “shadow banking” system.

The GENIUS Act, in particular, has come under fire for its handling of stablecoins issued by foreign companies. Critics argue that the bill doesn’t adequately regulate stablecoins issued abroad, such as Tether’s USDT, which can enter the U.S. market through secondary channels. Scott Greytak of Transparency International, an anti-corruption group, warned that without addressing these loopholes, “American digital assets infrastructure risks becoming a haven for kleptocrats” and other criminals.

Greytak explained that while the law covers stablecoin sales made directly to someone in the United states, it doesn’t regulate the secondary market. “But what if an American goes to Mexico, or to the [British Virgin Islands]or anywhere outside of U.S.jurisdiction, stocks up on a bunch of crypto and then sells it in the United States? That’s what we call the secondary market, and the secondary market is totally unregulated by any of these bills. So it’s a pretty obvious loophole, a pretty obvious map for evading U.S. law.”

Transparency International and other advocacy groups sent a letter sent to House leaders this month, urging lawmakers to amend the bills to broaden the definition of stablecoin issuers to include secondary channels.

Tether’s CEO Paolo Ardoino said the GENIUS Act “represents an significant step toward establishing a clear regulatory foundation for the digital asset industry in the United States.” Dante Disparte, chief strategy officer of Circle, said the legislation’s passage “sends a clear message that the U.S. will lead in the regulation of dollar-backed payment stablecoins.”

Clarity Act Sparks Debate Over Regulatory Gaps

“the industry wants a regulatory framework … to basically allow the crypto industry to do the same thing that the current financial sector does, but with weaker, less stringent rules.”

The Digital Asset Market Clarity Act,also approved by the House,aims to create a regulatory regime for classifying cryptocurrency coins or tokens as either securities or commodities,thereby determining whether they fall under the jurisdiction of the Securities and Exchange Commission or the Commodity Futures Trade Commission. The bill is now awaiting consideration in the Senate.

Though, critics argue that this bill also fails to ensure effective compliance mechanisms. Mark Hays,associate director for cryptocurrency and financial technology at the Americans for Financial Reform nonprofit,pointed out that many crypto platforms combine functions that are typically separated and regulated in conventional financial markets. He said, “That model invites double dealing, front-running of their clients and conflicts of interest.”

Amanda Fischer, policy director and chief operating officer at nonprofit Better Markets and a former chief of staff at the SEC, called the Clarity Act an effort to “codify the existing business models of these crypto companies” that “puts some rules and regulations around the offerings, but it much more bends to meet the company than it bends to meet existing securities laws.”

Fischer noted that rules around insider trading, market manipulation, and market surveillance are “way weaker in crypto under this bill.” She highlighted the potential conflict of interest arising from crypto exchanges like Coinbase owning affiliated venture capital funds, investing in crypto companies, and together listing them on their platform.

A third bill, the Anti-CBDC Surveillance State Act, prohibits the U.S. Federal Reserve from issuing a digital currency. House Majority Whip Tom Emmer, an advocate for the bill, said it would bar the Federal Reserve from surveilling and restricting Americans’ purchasing habits.

consumer Protection Concerns Amid Rising Crypto Scams

Crypto experts and consumer advocates have voiced concerns that the crypto bills lack strong consumer protections, particularly as crypto-related scams continue to rise. Aleks Ring, an advocate with the anti-cybercrime organization Operation Shamrock, noted that the CFPB is not even mentioned in the GENIUS Act, despite the agency’s role in protecting consumers.

Ring, a forensic accountant who focuses on crypto, said the majority of her cases cross international borders. She explained that scammers have increasingly shifted to crypto because it’s faster, easier to use, and harder to recover funds. Unlike wire transfers,crypto transactions are largely irreversible,and scammers can easily open wallets using fake IDs.

Crypto-related scams were a component of almost 150,000 financial fraud complaints reported to the FBI in 2024, according to the agency’s most recent annual Internet Crime Reportwith victims reporting $9.3 billion lost to cryptocurrency fraud.

Jorij Abraham, managing director of the Global Anti-Scam Alliance, stressed the need for greater collaboration among platforms commonly exploited by scammers, as well as greater public awareness. He noted that while some platforms, like online dating sites, have invested in fraud prevention, others, particularly some crypto platforms, may lack the incentive to intercept bad actors.