The Blockchain Association pushed back against law enforcement criticism of the CLARITY Act in an eight-page letter delivered to Senate leaders on August 3. The trade group defended provisions shielding noncontrolling software developers, arguing that those safeguards maintain—not undermine—criminal and sanctions enforcement capabilities.

The CLARITY Act, H.R. 3633, is part of a broader congressional effort to establish a digital asset market structure framework, defining the regulatory boundaries between the SEC and CFTC and clarifying how existing financial laws apply to different participants in the digital asset ecosystem. The debate over developer liability strikes at a long-standing tension in crypto policy: how to apply traditional financial regulations, built around intermediaries that custody funds, to open-source software creators who do not.

The letter was addressed to Senate Majority Leader John Thune and Senate Minority Leader Chuck Schumer. It directly responded to objections raised by the National Sheriffs' Association on July 31, which warned that developer protections in the bill were overly broad and could impede criminal investigations.

Section 10604 and the Debate Over Developer Protections

The dispute centers on the July 22 draft version of H.R. 3633. The National Sheriffs' Association urged lawmakers to either remove or significantly narrow Section 10604. The organization also recommended that Congress regulate any entity earning revenue from the digital asset market.

The Blockchain Association rejected that approach outright. It emphasized that simply generating revenue does not transform a person or entity into a financial institution under the Bank Secrecy Act. The association noted that the CLARITY Act regulates entities based on the functions they perform and the degree of control they exercise over customer funds or transactions.

1/ Today, we sent a letter to @LeaderJohnThune and @SenSchumer responding to the @NationalSheriff 's recent letter on the Clarity Act. Our response explains why their letter misunderstands the legislation and sets the record straight, point by point. Below is a walkthrough of… pic.twitter.com/pUiqOVqniS — Blockchain Association (@BlockchainAssn) August 3, 2026

The association cited FinCEN guidance issued in 2019, which states that money transmitter status is determined by assessing each business model on a case-by-case basis. It also referenced Financial Action Task Force standards, which hinge on whether a person performs covered services on behalf of another party.

Section 10604 would shield noncontrolling developers from being classified as money-transmitting businesses solely for writing software. The protection extends to self-custody tools and technical infrastructure. To qualify, a person must lack both the legal right and the unilateral ability to control transactions involving users' assets.

No Blanket DeFi Exemption, Association Argues

The Blockchain Association countered claims that the CLARITY Act creates a broad carveout for decentralized finance. According to the group, the legislation provides no general exception for DeFi platforms, mixers, bridges, or interfaces. Developers remain fully liable for money laundering, wire fraud, and sanctions violations. Existing statutes covering terrorism financing, conspiracy, theft, and aiding and abetting continue to apply.

Under the CLARITY Act, registered brokers, dealers, and exchanges would bear anti-money laundering obligations. These responsibilities include customer identification, suspicious activity reporting, recordkeeping, and sanctions compliance. Despite these provisions, the sheriffs' organization maintains that the proposed framework would leave too many digital asset market participants outside regulatory oversight.

Funding for Enforcement and Next Steps in the Senate

The draft legislation proposes $600 million annually from fiscal year 2027 through 2031. State and local authorities could allocate these funds toward digital asset investigations, prosecutions, training, and blockchain analytics. The measure would also establish a Digital Asset Cyber Innovation Center. FinCEN would receive an additional $30 million per year for five years, which the Blockchain Association said would expand investigatory capacity across multiple jurisdictions.

The policy exchange comes amid a narrowing legislative window. Senators adjourned on Monday without taking action on H.R. 3633. Instead, they voted 89-4 to invoke cloture on the motion to proceed to H.R. 6500. The Senate is scheduled for a state work period from August 10 through September 11. No agreement on the CLARITY Act had been announced before Monday's adjournment. A scheduling update, leadership notice, or cloture filing would signal the legislation's next movement in the chamber.