[Pages S3400-S3402]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



                               GENIUS Act

  Mr. REED. Mr. President, I rise today to discuss S. 1582, the GENIUS 
Act.
  I believe that this legislation as it is currently drafted is 
fundamentally flawed. It exposes taxpayers, consumers, and the 
financial system to unacceptable risk, and it creates venues for 
criminals, terrorists, and rogue governments to finance their illicit 
activities. Despite these dangerous flaws, we will not have the 
opportunity to offer one, single substantive amendment, and with a bill 
of this nature, the legislative process should require a very 
significant amendment process.
  This legislation before us places the government's stamp of approval 
on so-called stablecoins, which are crypto dollars that could be minted 
by anyone--Amazon, Walmart, Facebook, X, the Trump family, and even 
foreign companies. It gives stablecoin issuers an enormous privilege: a 
U.S. Government license to effectively create dollars without demanding 
very much of anything in return.
  Here is how the business works. You give a stablecoin company a 
dollar. The company gives you back an IOU that is recorded on a 
blockchain. The stablecoin company takes your dollar and invests it in 
various assets that generate interest and yield. The company keeps that 
interest and yield, but it is supposed to give you back your dollar 
whenever you ask for it. You can also take the IOU, which you receive 
for your dollar, and transfer it to other people, and you can use it to 
buy other things, mostly other crypto.
  If this sounds similar to a bank, that is because it is. Banks allow 
customers to send and receive money. Stablecoins allow customers to do 
the same thing--just outside the banking system and purportedly in a 
faster and cheaper way. Now, competition can force banks to do a better 
job, and it should be more convenient for consumers to transfer funds. 
However, I believe that competition should come from the merits of the 
product and the underlying technology, not from regulatory arbitrage as 
provided in the GENIUS Act.
  The light-touch regulatory regime in this bill is premised on two 
faulty assumptions. First, it assumes customer funds are safe because 
they are fully reserved with one-to-one backing of all customer 
liabilities. Second, it assumes that stablecoin issuers are inherently 
risk-free because they engage in only one activity: issuing 
stablecoins. But experience tells us that these kinds of assumptions 
are flawed.
  During the 2008 financial crisis, we saw institutions with very 
similar if not these exact characteristics fail and get billions in 
taxpayer bailouts. We were assured that money market funds were low 
risk because they were fully reserved with shares pegged to a dollar. 
We were assured that derivatives were innovative tools that didn't need 
heavyhanded regulation. We were assured that Fannie and Freddie were 
safe because they engaged in one simple business. However, taxpayers 
needed to backstop $2 trillion in money market fund liabilities. The 
government gave AIG--an insurance company

[[Page S3401]]

involved with derivatives--a $200 billion bailout, and taxpayers still 
stand behind $8 trillion in Fannie and Freddie liabilities.
  Now, I do not believe it is appropriate to apply the full spectrum of 
banking regulations to stablecoins, but many more elements of the 
banking laws and the money transmission laws must be imported into this 
bill in order to make it work. There are dozens of sensible and basic 
rules that apply to similar firms that handle people's money. The 
GENIUS bill says that stablecoin companies no longer need to comply 
with many of these consumer protection laws. Instead, they can comply 
with a Federal framework containing very few of them.
  Now let me highlight a few specifics that I think the public should 
be aware of.
  First, stablecoin companies could operate with near-zero capital. The 
bill says that capital requirements ``shall not exceed what is 
sufficient to maintain the ongoing operations of the issuer.'' This 
establishes a ceiling, not a floor, not a minimum level of capital that 
regulators would deem appropriate given the business activities.
  This repeats the mistakes of the 1990s and the 2000s, when nonbank 
financial institutions like Lehman Brothers operated with barely 3 
percent capital ratios. When the firm got into trouble, there was no 
cushion to bear losses, and customers and taxpayers had to step in.
  Strong capital is critical. Indeed, in March 2023, when Silicon 
Valley Bank failed, taxpayers bailed out the uninsured deposits of a 
stablecoin company to the tune of $3.3 billion.
  Second, the audit requirement is calibrated so narrowly that it does 
not cover a single existing stablecoin company--not one. Independent 
audits make it harder for companies to cook the books or dip into 
customer funds. I can't imagine why we wouldn't require these types of 
audits for stablecoin companies holding vast amounts of cash and 
securities.
  Third, there are no merger or change-in-control rules. These rules, 
if in place, could prohibit felons convicted of financial crimes and 
fraud from acquiring a stablecoin issuer. Now, if this bill passes, 
they can go ahead and acquire it.
  Fourth, the enforcement provisions are dangerously weak. The 
government will need to wait until wrongdoing has already occurred 
before it can act. It would be powerless to intervene early to prevent 
people from getting harmed in the first place, and even then, there is 
no power for regulators to revoke a company's charter. If one of these 
companies brazenly mishandles customer funds, the regulators will not 
have adequate tools to stop them.
  Fifth, when a stablecoin company fails, it must go through ordinary 
bankruptcy, and that, I believe, is a mistake. We have seen other 
crypto firms, like FTX and Celsius, go bankrupt recently. Customers 
have waited for many, many months and in some cases years to get their 
money back. Instead, we should set up a bank-like resolution regime, 
guaranteeing that customers immediately get their money back up to a 
limit, and the industry should pay for that insurance to satisfy those 
customers who have been denied their funds.

  Sixth, regulators have no express authority to issue new rules to 
address emerging threats as they arise. Without the ability to issue 
updated rules, the GENIUS Act will become outdated very quickly. Given 
the speed of financial innovation, these regulations could be out of 
date--maybe within a year or less.
  Together, these flaws make the GENIUS bill worse than the status quo, 
and that brings me to what I consider one of the biggest problems in 
the legislation: the effect on national security.
  GENIUS allows foreign-based stablecoin companies to operate freely in 
the United States. Today, the world's largest stablecoin--in other 
words, the world's largest cryptodollar--is issued not in the United 
States but in El Salvador. This stablecoin is called Tether, and it is 
the biggest beneficiary of this bill.
  Let me tell you a bit about Tether. Tether was fined by U.S. 
regulators in 2021 for misleading customers into thinking that their 
funds were fully backed. Despite this misconduct, Tether has never 
undergone an audit, and this bill would not require one.
  Tether is used by North Korea. According to FBI indictments in 2023, 
North Korean IT workers have ``obtained illegal employment in the tech 
and crypto industry and then asked to be paid in stablecoins like 
Tether. . . . After receiving payment, they funneled their earnings 
back to North Korea.''
  According to government reports, North Korea has used at least $5 
billion of stolen crypto to fund its weapons of mass destruction 
programs. This comprises between 40 percent and 50 percent of its 
budget for these programs.
  Tether is also used by terrorists. According to the Treasury 
Department's 2024 National Terrorist Financing Risk Assessment, ``ISIS 
and other terrorist groups have moved towards using stablecoins, 
including Tether, to move or store funds.''
  In October 2023, the Senator from Wyoming asked then-Attorney General 
Garland to open a criminal investigation into Tether because it has 
``facilitated significant illicit finance activity . . . including 
significant terrorism financing for Hamas' malevolent attack on 
Israel.''
  Tether is used by Russian arms dealers. According to testimony before 
the Banking Committee by the Deputy Treasury Secretary in 2024, 
``[W]e've seen Russia increasingly turning to alternative payment 
mechanisms--including the stablecoin Tether--to try to circumvent our 
sanctions and continue to finance its war machine'' in Ukraine.
  Tether is also used for human trafficking, scams, and fraud. 
According to a report published by the United Nations in 2024, Tether 
``has become a preferred choice for [Southeast Asian] cyber-fraud 
operations and money launderers alike due to its stability and the 
ease, anonymity, and low fees of its transactions.'' During a single 
year, from the middle of 2022 through the middle of 2023, a blockchain 
analysis company uncovered ``$17 billion of Tether transactions 
connected to . . . various criminal activities,'' including human 
trafficking and romance scams.
  And the list goes on. Iranian diplomats, Venezuelan oil companies, 
drug traffickers, ransomware attackers--all are drawn to Tether.
  Under the GENIUS bill, Tether could be offered and sold in the United 
States without being required to meet any U.S. anti-money laundering or 
sanctions compliance requirements. Tether would just need to 
demonstrate the ability to freeze its coins if they fall into the wrong 
hands--a technological capability that Tether already has and that it 
has apparently refused to use because it still tolerates illicit 
activity.
  Tether would not be subject to full-blown licensure and supervision. 
Tether would instead need to meet home-country requirements in El 
Salvador that are ``comparable'' to U.S. requirements, but this term is 
ill-defined and may be materially weaker than the standards in the 
United States. In fact, I would suggest those standards are highly 
subjective given the arrangements we have seen in El Salvador with its 
President and its legal system. These weak restrictions would not even 
kick in for 3 years after enactment. That means business as usual for 
Tether. It means more WMD proliferation, more Iranian oil sales, more 
Russian arms deals, more tax evasion, more black-market drug sales, and 
more human trafficking.
  Further, if Tether chooses not to meet these bare requirements, then 
it could not be offered or sold on centralized trading venues in the 
United States.
  But there is a huge exception allowing Tether to offer its stablecoin 
in the United States through decentralized trading ventures, also known 
as DeFi. DeFi platforms are exactly where North Korea trades crypto and 
where the bulk of illicit activity occurs.

  According to the Treasury Department, North Korea laundered at least 
$455 million in stolen crypto on just one DeFi platform called Tornado 
Cash as of 2022. Last year, North Korea laundered at least $147 million 
through the same platform.
  If these trades occurred with real dollars in real banks, the 
government would have tools to stop them. But because these trades 
occur using foreign-issued cryptodollars outside the banking system, 
the government lacks

[[Page S3402]]

these tools, and the GENIUS Act would not give them those tools.
  As we place in effect the U.S. Government stamp of approval on 
Tether, I think it is entirely sensible to be providing Treasury with 
new authorities to address how Tether is used for illegal purposes 
around the world.
  We should also be looking at the stronger approach taken in Europe, 
where Tether may not be offered or sold--full stop--unless it is fully 
licensed and meets all EU laws.
  If someone is in the business of creating dollars in any form, they 
should be subject to full U.S. jurisdiction. If someone creates a 
platform that is used by North Korea to launder stolen dollar 
alternatives, they should be within the reach of U.S. sanctions laws. I 
hope Republicans and Democrats can at least agree on that. But this 
bill does not respect these commonsense principles.
  Last Congress, the Department of Treasury sent up a legislative 
package with new authorities to crack down on Tether. The Deputy 
Secretary testified before the Banking Committee about that package. I 
worked across the aisle with Senators Warner, Brown, and Romney on 
legislation to implement some of these provisions. Unfortunately, we 
could not get it enacted.
  The bill before us contains none of these provisions. I have filed an 
amendment to provide these tools to Treasury; but, regrettably, as I 
have indicated before, we will not have an opportunity be to vote on 
any amendments.
  There is another aspect of this bill normalizing the operation of 
Tether. It turns out that Trump's Commerce Secretary Howard Lutnick has 
millions of dollars in financial interests tied to Tether. The 
investment bank Cantor Fitzgerald that Mr. Lutnick ran and owned 
manages Tether's reserves and generates millions of dollars in fees. 
Cantor has provided Tether with working capital through a hybrid debt-
equity investment. It has been reported that Cantor owns 5 percent of 
Tether--a stake worth millions of dollars. Cantor and Tether have just 
announced a new Bitcoin fund for retail investors.
  Mr. Lutnick--the Secretary of Commerce and someone who I think has 
had some influence on how this bill has turned out and how it will be 
implemented--says he is divested from Cantor. But what he has really 
done is turned ownership and control over to his adult children who are 
in their twenties. Now, I invite the American people to judge for 
themselves whether Mr. Lutnick no longer has any financial exposure or 
business ties with Tether.
  Just a few month ago, the Trump family began issuing a stablecoin 
called USD1. This token has already been used by a foreign government 
to funnel money to Trump. Let me say that again: A foreign government 
has funneled money to the President of the United States. It turns out 
an Abu Dhabi sovereign wealth fund made a $2 billion investment in a 
crypto company called Binance. But instead of using real dollars, they 
used USD1, the Trump cryptocurrency. That raises, I think, serious 
questions about a President of the United States receiving significant 
money from a foreign government.
  Rather than doing something about the President's obvious conflicts, 
the bill expressly affirms that he is able to call his stablecoin USD1. 
There is actually a provision green-lighting this name. We have given, 
legislatively, the President the use of this stablecoin name for his 
financial benefit.
  And the bill empowers the President's handpicked regulators to write 
the rules that will govern the stablecoin business. By authorizing 
money creation by shadowy offshore firms associated with the President 
of the United States and the Secretary of Commerce, this bill 
undermines our economy's most valuable asset--and that is the U.S. 
dollar. The effect may not be immediate, but I think it will happen 
eventually.
  The dollar is the world's reserve currency because the United States 
is considered a stable, predictable, and open society with a strong 
rule of law that countries and businesses want to trade and partner 
with.
  When the United States becomes less stable, less predictable, and 
less open, when politically connected people get special treatment, 
when Congress normalizes financial self-aggrandizement by the 
President, all of that makes the dollar less attractive and makes this 
country look like it is ruled by a despot.
  However, proponents claim this bill strengthens the dollar by 
stimulating demand for Treasury securities. But that cannot be 
justified at this point by the data. The entire stablecoin market is 
only 0.01 percent of the Treasury market. And according to an investor 
letter from the Elliott hedge fund--now, that firm is run by a major 
Republican donor, so I don't think this is a partisan description--the 
dollar enjoys an ``immense advantage'' as the world's reserve currency. 
But they point out that if the U.S. Government encourages adoption of 
crypto alternatives, that will ``marginalize the dollar'' and be 
``profoundly dangerous.''
  Even if legislation would modestly strengthen the dollar, it could 
not offset the erosion of the dollar that the administration is 
engineering through actions like sky-high tariffs and a trade embargo 
with China. And it could accelerate the erosion of the dollar if one 
day stablecoins become ``legal tender'' that could be used to pay 
taxes. And it wouldn't surprise me if one day the President sat at his 
desk and wrote a Presidential order that crypto can be used to pay 
taxes.
  I offered an amendment in the Banking Committee, which would prohibit 
this by declaring that the legal tender of the United States was the 
dollar, and the amendment was defeated.
  We need to apply real guardrails that will protect consumers and 
provide real tools for our national security Agencies to address this 
new technology--real guardrails and real tools, not words on a page 
that give the false appearance of protection when things go wrong.
  I would urge my colleagues to oppose this fundamentally flawed bill.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Indiana.