Crime Fighters Warn New Crypto Law Could Help Criminals Hide Money

Police groups and Catholic leaders say the CLARITY Act has loopholes that could shield money launderers and human traffickers.

A major U.S. crypto law is facing serious pushback — not from politicians, but from police groups and religious leaders who say it could accidentally help criminals.

What's happening? Two groups sent warning letters to the U.S. government about the CLARITY Act (a proposed law that would set clear rules for how cryptocurrency is regulated). The first letter came from four law enforcement organizations representing over 70,000 prosecutors, sheriffs, and police officers. The second came from roughly 80 Catholic leaders and anti-trafficking groups.

What's the problem? Their main concern is a part of the bill called Section 604. This section says that software developers who build crypto tools — but can't actually control or move users' money — wouldn't be treated as money transmitters (businesses, like banks or apps, that move money for people and must follow strict rules).

Supporters say this protects honest programmers from being unfairly prosecuted. But critics say the wording is too broad and could:

Let criminals hide money using "mixers" and "tumblers" (tools that scramble crypto transactions to hide where the money came from)
Skip anti-money laundering rules (laws designed to stop criminals from disguising illegally earned cash)
Avoid know-your-customer checks (rules requiring companies to verify who their customers really are)

The Catholic groups warned that human traffickers could exploit these gaps to move money without being tracked.

Why this matters now:

The House of Representatives already passed the bill 294-134 in July 2025
A Senate committee approved it 15-9 in May 2026
To fully pass, it needs 60 votes in the Senate
Two key senators have said they'll only support it if law enforcement approves Section 604

That makes these warning letters a real threat to the bill. A hearing is scheduled for July 17 in New York.

Bottom line: The CLARITY Act aims to bring order to the messy crypto world, but powerful voices warn it might leave dangerous loopholes open. The debate could decide whether the biggest crypto law in years actually becomes reality.

This is an AI-generated summary. Read the original article at: https://bitcoinmagazine.com/news/law-enforcement-catholic-group-clarity-act