Cops, Bankers, and Prosecutors Want to Kill the CLARITY Act's Developer Shield
With 48 hours until the Senate Banking Committee markup on Thursday, the attacks on Section 604 of the CLARITY Act are coming from every direction.
The Fraternal Order of Police, the largest law enforcement organization in the United States with 382,000 members, sent a letter to Senators Tim Scott and Elizabeth Warren saying it "strongly opposes" Section 604. FOP President Patrick Yoes argues the provision would "strip prosecutors and law enforcement of the statutes used to track and take down criminals using digital assets." This is the same argument used to prosecute the Samourai Wallet developers: that writing code is equivalent to running a money transmission business.
Then former Utah Attorney General Sean Reyes published a Daily Caller op-ed demanding BSA compliance for all crypto "platforms." He never defines "platform." That is the game. BSA means KYC, transaction monitoring, and filing SARs with FinCEN. That is physically impossible for open-source software. You cannot collect government IDs from users of code anyone can download and run. Reyes frames this as protecting law enforcement. What it actually protects is the surveillance architecture that treats every financial transaction as potentially criminal until proven otherwise.
The banking lobby is running its own campaign. The American Bankers Association sent a letter to bank CEOs urging "immediate engagement" to fight the bill's stablecoin provisions, and banking trade groups submitted revisions ahead of Thursday. The North American Securities Administrators Association told senators to vote NO. Over 100 amendments have been filed, including Senator Elizabeth Warren's 40+ proposals for tighter restrictions and Senator Jack Reed's amendment to ban crypto as legal tender entirely.
Here is the question nobody on the other side will answer honestly about Section 604: Is a car manufacturer liable when a drunk driver kills someone? Is a hammer company liable when someone uses their product as a weapon? Should Spotify be held responsible if someone uses their app to torture another person with a Cocomelon song played on loop for ten days? Of course not. The principle that tool makers are not liable for what users do with their tools is foundational to free society. It is why we have an open internet. It is why Linux exists. It is why anyone can publish a book, build an app, or write code without first getting permission from the government.
Section 604 applies this principle to bitcoin developers. If you build open-source software and don't have unilateral control over users' funds, you are not a money transmitter. That is it. That is the entire provision. Prosecutors can still go after criminals who launder money, traffic drugs, or fund terrorism. Chain analysis tools, block explorers, and subpoenas still work. Law enforcement loses nothing. What they lose is the ability to prosecute developers for what their users do, which is the same theory that put the Samourai Wallet developers behind bars.
Zoom out and all of these arguments are digging us further into a sunk cost fallacy that revolves around the Bank Secrecy Act itself. The BSA is a surveillance dragnet that should be abolished. It was signed into law in the 1970s with suspicious activity reporting thresholds that have never been adjusted for inflation, which means the net catches more ordinary people every year while criminals route around it like they always have, currently do, and always will. Laws do not stop criminals from doing illegal things. To think otherwise is incredibly naive and most likely disingenuous. The people in power know this. They want the control, not the compliance.
What KYC and AML regulations actually do is put the average person in harm's way by forcing companies to collect sensitive personal data and then failing to secure it. In a world where AI models are finding zero-day vulnerabilities and attacking systems at an exponentially growing clip, the government is mandating the creation of honeypots containing your most sensitive financial information. Law enforcement intercepts roughly 0.1% of global money laundering flows through KYC/AML compliance. The system is not working. It was never designed to work. It was designed to create the illusion of security while building a surveillance infrastructure that monitors everyone.
Consider the cost. Every dollar a company spends on compliance teams, regulatory filings, and surveillance infrastructure is a dollar not spent on building better products, hiring engineers, or serving customers. Small companies get crushed under the weight of compliance costs that large banks absorb as a competitive moat. The BSA does not make anyone safer. It makes incumbents richer and innovators poorer. We need to abolish the BSA and demand that law enforcement actually enforce the law instead of outsourcing their job to companies and punishing them when the surveillance is not comprehensive enough.
The right to write free and open-source software has been sacrosanct for decades. Code is speech. The fact that we are having this debate at all tells you everything about the institutional impulse to control financial infrastructure. The Senate Banking Committee votes Thursday. Read the bill. Call your senator. This is the fight.
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