The minority staff of the U.S. Senate Committee on Banking, Housing and Urban Affairs published a national security advisory arguing that the Clarity Act, which would reshape the regulatory framework for cryptocurrency markets, would worsen existing illicit finance vulnerabilities in digital assets and decentralized finance rather than close them. Drawing on open-source intelligence reports, law enforcement warnings, industry analyses, and government findings, the advisory says Congress should address known weaknesses in the current system and avoid creating carveouts that could be used by sanctions evaders, terrorists, cartels, child abusers, and other criminals. According to the analysis, the current draft does not adopt the global standard for determining which crypto platforms must apply basic anti-money laundering controls, which would leave many transactions outside suspicious activity monitoring. It also says the bill would exempt businesses tied to DeFi services from basic illicit finance requirements even when they earn millions from platform transactions, leave the "Tornado Cash loophole" open so some crypto mixers could escape U.S. sanctions, and preserve a legal loophole that could allow parties outside the United States to use stablecoins instead of dollars to pay sanctioned actors and avoid sanctions enforcement. The advisory organizes its evidence into six threat categories covering drug cartels, terrorist financing, rogue states, foreign adversaries, broader criminal laundering trends, and the use of crypto and DeFi in child abuse, ransomware, and extortion. It was released before the Committee's debate and vote on the Clarity Act.

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