The U.S. Department of the Treasury is encouraging Congress to consider a new digital asset–specific “hold law” that would allow crypto platforms to temporarily freeze funds suspected of being linked to illegal activity.
The proposal, which appears in a Treasury report to lawmakers on ways to combat illicit finance involving digital assets, was prepared under the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS ACT).
As noted in the report, some crypto holders use services like mixers to preserve financial privacy when transacting on public blockchains. However, there is a belief among regulators that there should be a clearer legal framework in place to halt suspicious transactions.
The proposed hold law will provide a safe haven for financial institutions to voluntarily hold digital assets involved in suspected crimes as investigations continue.
What will the new law include?
The idea of the new crypto law is to provide platforms the ability to temporarily pause suspicious transactions before the funds can be moved or routed through other services.
The new powers can create a short window that allows platforms to hold those assets while law enforcement begins investigating potential illegal activity.
Supporters say this step could make it harder for illicit funds to quickly move across multiple crypto platforms, which often complicates investigations.
The proposal comes as U.S. lawmakers continue debating broader rules for the crypto market. Meanwhile, Donald Trump has been pushing Congress to move faster on crypto regulation amid growing tensions between banks and digital asset companies.
Drawbacks of the law
The proposal could create a tricky situation for crypto platforms. On one side, transparency rules may require companies to notify users if their funds have been frozen.
However, at the same time, the Suspicious Activity Report regulations prohibit the disclosure of information regarding the investigation.
This means that the platforms may have to inform the users that their assets are being held, without being able to disclose the reason for the action.
Critics have expressed the possibility of this situation creating confusion for the users and creating compliance challenges for the crypto exchanges.