Congress wants to regulate crypto. But police say the plan fails

A cryptocurrency company has stymied a Wisconsin sheriff’s office investigation into an investment fraud that cost two families nearly $800,000.

Beginning two years ago, the perpetrators bilked money from Walworth County residents and converted it to crypto, according to the Walworth County Sheriff’s Office.  Investigators tracked the cash through a tangled online web before finding it in a digital cryptocurrency wallet held by Circle Internet Financial.

The Boston-based crypto firm has refused to release the money despite a court order. Now, the county wants a judge to hold Circle in contempt.

“It’s important that state law enforcement gets the same response from crypto companies as we do from every other major corporation,” Walworth County Assistant District Attorney Thomas Binger told Straight Arrow. “I don’t see why we should treat crypto companies any differently.”

Crypto is treated differently because the rules haven’t kept up with the technology, experts say. Laws requiring traditional financial institutions like banks to help investigators and flag possible fraud have not been updated to cover digital currencies.

A bill before Congress could change that, but consumer advocates, police and prosecutors say it falls woefully short. They worry Congress is missing a golden opportunity to address widespread fraud.

The so-called Clarity Act is supposed to clear up uncertainty about cryptocurrency regulations, but critics say it exempts some crypto companies from anti-money laundering laws and isn’t explicit about cooperating with investigators. They are urging lawmakers to amend the law before approving it.

In a letter to Congress, the anti-corruption nonprofit Transparency International recommended extending anti-money laundering rules to nearly all parties involved in crypto transactions.

“This bill would allow the fraud we are seeing, where [criminals] use crypto to launder their gains, to proliferate,” John Breyault, vice president of public policy, telecommunications and fraud for the National Consumers League, told Straight Arrow.

The Clarity Act passed the U.S. House of Representatives earlier this year. A Senate vote is expected in July.

What are the loopholes in the new federal cryptocurrency bill?

The bill would clarify which digital assets, including cryptocurrencies, are regulated by the Securities and Exchange Commission, and which are regulated by the Commodity Futures Trading Commission.

Critics, however, are zeroing in on the law’s exemptions.

Banks and credit unions must keep transaction and deposit records and report anything suspicious. Under the Clarity Act, cryptocurrency firms must also follow those rules, but the act exempts entities such as software developers and anyone who holds cryptocurrency assets but doesn’t trade them.

The bill does not subject “middle men” in crypto transactions to anti-money laundering rules, Breyault said.

Additionally, the law “doesn’t establish clear obligations requiring crypto firms to respond promptly to fraud investigations, preserve records, assist law enforcement in tracing stolen assets or otherwise facilitate victim recovery,” Scott Greytak, deputy executive director of Transparency International, told Straight Arrow. 

“Even when an identifiable company like Circle is involved, victims, detectives and prosecutors can still be left without the information and cooperation they need,” he said, citing the Walworth County case.

A Circle spokesperson did not respond to Straight Arrow’s request for comment on the ongoing case.

The crypto industry and its backers argue the bill improves upon the current system. 

“It’s a step in the right direction in giving companies and law enforcement guidance,” Stephanie Talamantez, senior managing director at the advisory firm Guidepost Solutions, told Straight Arrow.

Some of the areas excluded from anti-money laundering laws, she said, are notoriously difficult to regulate.

The Clarity Act, for example, doesn’t cover so-called decentralized finance — transactions made without a third party such as a bank. 

“There is just so much in that space,” Talamantez said. “You have a wide range of business protocols, and it’s much more complicated.”

Law enforcement officials and consumer advocates, however, worry the act would give the crypto industry a sheen of legitimacy while providing legal loopholes.

How fraud happens

Overseas criminal organizations often use armies of fraudsters — some of whom are forced into servitude — to pose as employers or romantic interests.

Fraud can involve cryptocurrencies in two ways. Scammers sometimes convince victims to send payments in crypto. But criminals also launder their money by converting it into crypto, then transferring it between crypto wallets and mixing it with other funds to obfuscate its location, according to law enforcement groups.

“Criminal organizations increasingly utilize digital assets to facilitate and conceal unlawful activity,” four law enforcement groups, including the National Sheriff’s Association and the National District Attorney’s Association, wrote in a letter to Attorney General Todd Blanche. “Our concern is with broad exemptions that may shield individuals or entities whose activities facilitate the movement of digital assets, create obstacles to legitimate oversight or weaken longstanding investigative and enforcement authorities relied upon by law enforcement.”

How much money do Americans lose to online crypto fraud each year

Fraud losses in the U.S. hit a record $16 billion in 2025, according to the Federal Trade Commission. That annual figure has grown precipitously in the digital age, and may balloon further as criminals leverage advanced artificial intelligence.

While cases like the scam involving Circle tend to make headlines, most examples of fraud involve individuals who lose smaller amounts. The average loss in a consumer fraud scheme is around $500, according to the Federal Reserve.

The FTC’s figures are almost certainly an undercount as they only include fraud reported to law enforcement. Addie McMillan, of Noblesville, Indiana, did not report a 2024 incident that cost her both cash and peace of mind. 

Two years ago, she received an email claiming there was a problem with her PayPal account. The message included a link to a site duplicating PayPal’s customer service page with unnerving accuracy. The site requested her banking information, which she provided.

“I’ll admit I was a little naive,” McMillan told Straight Arrow

When she saw a $50 withdrawal the next day, McMillan knew she’d been scammed.

“I’m 20,” she said. “I don’t make that much money. That’s a big cut out of my paycheck.”

“Clarity is touching on a new frontier for dirty money,” Greytak said. “Whether Congress calls it that or not, it’s a fraud bill that has real implications for victims.” 

Scams are increasingly committed by organized and well-funded groups that are well-positioned to take advantage of any legitimacy granted to them by Congress, Breyault said.

“It’s not just some random guy in the basement,” he said. “These are international, organized and technologically savvy scamming cartels.”

Crypto companies and their backers defend the Clarity Act.

“We have what’s called ‘regulation by enforcement,’” Brian Shea, principal at the consulting firm Wolf & Company, told Straight Arrow. “There isn’t a clear rule for the company to follow, but they can still get in trouble because regulators are applying rules to them.”

While the Trump administration is considered crypto-friendly, the Biden administration was not. The $6.1 billion in fines levied by regulators under Biden was four times the penalties levied by the first Trump administration, according to an assessment from Georgetown’s law school.

The Clarity Act “gives us a roadmap,” Shea said. “We’ll know what rules to follow.”

What happens next?

The House of Representatives overwhelmingly approved the bill, but the Senate can still make changes.  

“There is still some uncertainty as to what the final law is going to look like,” Shea said. And it’s not clear if it can reach the 60-vote threshold needed to overcome a filibuster.

Senators on the banking committee and Congress members who sponsored the House version declined to comment or did not directly address critics’ concerns.

McMillan never got her $50 back. 

She disputed the charge, but was already fighting the bank over a company that overcharged her photography business. She decided to cut her losses.

“It gets frustrating to deal with the bank about those kinds of things,” McMillan said.

Governments and businesses should take every opportunity to address fraud, she said. For instance, her  phone labels some calls as potential scams, and her emails send most fraudulent messages to a spam folder.

“There’s lots of ways to prevent scamming,” she said.

Even relatively trivial transactions such as purchasing concert tickets require buyers and sellers to disclose some information so both parties can be traced. Binger said that minimal disclosure requirements would help authorities combat the kind of fraud that ensnared McMillan.

“It’s incredibly important that we have a way to find out where this money is going, and who is getting it,” he said.

Ella Rae Greene, Editor In Chief