'At a standstill:' Senate races to salvage Clarity Act before August recess as ethics fight, law enforcement concerns loom

Quick Take

• As of Wednesday afternoon, Senate Majority Leader John Thune, R-S.D., has not yet filed a cloture vote --- a procedural vote that needs to happen before an actual vote on the Clarity Act.
• "We're all kind of waiting to see what's going to happen," a Senate Democratic staffer told The Block.

With a procedural vote on landmark cryptocurrency legislation up in the air, bipartisan lawmakers are racing to resolve outstanding issues within the next few days that could determine the bill's fate in the Senate.

As of Wednesday afternoon, Senate Majority Leader John Thune, R-S.D., has not yet filed a cloture vote --- a procedural vote that needs to happen before an actual vote on the Clarity Act. The chamber is scheduled to leave for a monthlong August recess on Friday before turning its attention to the November elections, leaving a narrow window for the bill to gain traction.

Still, Thune signaled on Wednesday morning that he still wanted to hold that procedural vote on Clarity, citing potential interest and cooperation in the coming days, according to reporting from Punchbowl News' Laura Weiss. The legislation would regulate the crypto industry for the first time comprehensively at the federal level and give broader authority to the Commodity Futures Trading Commission over digital assets.

A Senate Democratic staffer said movement on Clarity is at a "standstill."

"We're all kind of waiting to see what's going to happen," the staffer told The Block on Wednesday afternoon.

Broadly, the staffer said, Democrats are looking at three key issues: ethics, illicit finance, and Senate Agriculture committee text.

"If those three pieces can get worked out, then we can see ourselves definitely wanting to move forward," the staffer said.

Issue number one

Ethics has become one of the major sticking points --- how to address President Donald Trump's expanding cryptocurrency interests, from the launch of his memecoin to his family's involvement with World Liberty Financial. Financial disclosures released in June showed that Trump received millions of dollars connected to WLF.

Last week, Sens. Ruben Gallego, D-Ariz., and Thom Tillis, R-N.C., sent an ethics compromise to the White House, though details of the proposal remain unclear and it is uncertain whether Trump will support it. Trump previously backed ethics language that would prohibit public officials and their spouses from issuing or sponsoring digital assets, but it would not apply to other family members. The proposal also gives enforcement authority to the Justice Department and includes a sunset provision that would end the restrictions in January 2029.

The White House did not respond to a request for comment on ethics.

The Senate Democratic staffer said language would need to include that state attorneys general could enforce that provision, a divestment piece and no sunset provision. The staffer pushed back on the sunset provision, saying that a provision needs to be "lasting" to apply to all presidents, vice presidents and lawmakers.

Democrats also don't need the White House's blessing, though Trump could later veto Clarity, they said.

"To be honest, we don't need the White House to sign off on it for it to pass the Senate," they said.

Other issues

Illicit finance is also a standing issue, the staffer said. Sen. Catherine Cortez Masto, D-Nevada, has frequently brought up concerns that the Clarity Act does not go far enough to protect law enforcement and consumers.

Some law enforcement groups, such as the National Sheriffs' Association, have said the bill is overly broad in carve-outs when it comes to anti-money laundering, sanctions law and know-your-customer rules. The groups also said that the bill would make it harder to protect against financial crimes.

The crypto industry has pushed back and said the NSA is misconstruing the Clarity Act's approach to regulating decentralized finance.

Issues on incorporating Senate Agriculture Committee bill text has also become an issue, the staffer said. That committee advanced its version of the Clarity Act in January, and did not garner any Democratic support at the time.

The staffer said Sen. Cory Booker, D-N.J., was leading those talks. His team did not immediately respond to a request for comment.

Timing

In a note on Wednesday, TD Cowen's Washington Research Group, led by managing director Jaret Seiberg, struck a pessimistic tone, citing ethics and law enforcement concerns. The Senate could be 10 votes short of the necessary 60 to advance Clarity, Seiberg said.

"The only way to get to a final vote before the recess at this point would be for the Senate to delay the recess for a week or for the Senate to waive the rules, which requires unanimous consent," Seiberg said. "We view both as improbable as senators want to return home to campaign and Sen. Elizabeth Warren is guaranteed to object to any effort to expedite votes on the Clarity Act."

Seiberg also cited issues around law enforcements' apprehensions and concerns from Democrats about how the Senate Agriculture committee text could be included in the final text.

"We also question if there is time left to address either of those concerns," Seiberg said.

In a fact sheet released on Wednesday led by Warren, she said key issues remained with the bill, including Trump's ability to profit from his crypto ventures, consumer and investor protections, and concerns that the bill doesn't close loopholes to stop bad actors from using crypto.

Sen. Thom Tillis told Semafor's Eleanor Mueller that a vote this week likely depends on senators staying in Washington past Thursday.

The Senate Democratic staffer pointed to September being a window to pass Clarity, adding that they're taking on an optimistic front.

"It definitely does not die in August," they said. "I think if we can get it right, it can definitely pass in September, like no doubt."