Law Enforcement Groups Warn CLARITY Act Section 604 Could Weaken Crypto Crime Oversight

Four law enforcement organizations have sent a new letter to Acting Attorney General Todd Blanche and White House crypto adviser Patrick Witt warning that Section 604 of the CLARITY Act could weaken oversight of crypto activity tied to crime.

The letter, flagged by Fox Business reporter Eleanor Terrett, focuses on Section 604, the Blockchain Regulatory Certainty Act, which is designed to protect non-controlling blockchain developers and infrastructure providers from being treated as money transmitters simply because they write code, operate software or support decentralized networks.

The groups argue that the current language could create gaps in accountability, make investigations harder, and exempt some crypto participants from safeguards normally applied to traditional financial institutions. Their concern centers on whether the bill draws the line clearly enough between neutral software development and activity that functionally helps move funds, route transactions or support illicit finance.

That distinction has become one of the hardest parts of the Senate CLARITY Act negotiation. Supporters of Section 604 say the safe harbor is needed so open-source developers, validators, wallet builders and infrastructure providers are not treated like banks or exchanges when they do not control user funds. Law enforcement groups argue that overly broad language could give bad actors a legal shield if they can present themselves as non-controlling software providers.

BRCA Remains The Senate Sticking Point

Section 604 has been controversial for months. The Senate Banking Committee’s draft includes the Blockchain Regulatory Certainty Act, while earlier law enforcement letters warned that the provision could limit the tools prosecutors use in digital-asset crime cases.

The National Sheriffs’ Association previously warned that Section 604 could leave some mixers, tumblers and DeFi activity outside money-transmission regulation. The Fraternal Order of Police also opposed the provision, arguing that the “non-controlling developer or provider” carve-out could limit prosecutors’ ability to pursue crypto-related financial crime.

Crypto-policy groups have pushed back hard on that reading. They argue that Section 604 is meant to protect developers who cannot move, freeze or control user assets, not shield people who knowingly transfer criminal proceeds. TRM Labs’ section-by-section review of the bill noted that the current language preserves the criminal carve-out under 18 U.S.C. § 1960(b)(1)(C), which applies to people who knowingly move funds derived from crime or intended for unlawful activity.

That disagreement is now central to the broader market-structure fight. The CLARITY Act has already cleared Senate Banking, and earlier CryptoAdventure coverage tracked how the bill’s 15-9 committee vote gave crypto legislation a path toward the Senate floor. But the same vote left unresolved fights over DeFi, illicit finance, stablecoin rewards and political support from Democrats.

FOP And NAPO Absence Stands Out

The latest letter is also notable for who did not sign it. The Fraternal Order of Police and the National Association of Police Organizations have both been deeply involved in recent discussions with the White House, Congress and the crypto industry, but they were not listed among the signatories to the new letter.

That absence does not mean those groups now support Section 604. FOP has already published its own opposition to the provision. But it suggests the law enforcement side is not moving as one fully unified bloc at this stage of negotiations, even though Section 604 remains the shared pressure point.

The talks have been active for weeks. A recent White House meeting put the CLARITY Act illicit-finance fight back in focus, with police and prosecutor groups, administration officials, Senate staff and crypto-industry representatives discussing possible changes to the bill’s language. White House crypto adviser Patrick Witt has separately defended the bill as pro-law enforcement, arguing that market-structure clarity can bring more digital-asset activity inside U.S. oversight.

Senate Path Still Depends On Developer Language

The policy split is narrow but important. A version of Section 604 that is too broad could make it harder for investigators to identify crypto actors that effectively facilitate money movement. A version that is too narrow could expose neutral developers to money-transmitter risk even when they never custody funds or control transactions.

That balance matters for DeFi, wallets, node infrastructure, privacy tools, smart-contract developers and analytics companies. The final language could shape whether U.S.-based developers keep building open-source crypto infrastructure domestically or move activity offshore to avoid unclear criminal and regulatory exposure.

The CLARITY Act remains short of final passage. It still needs a viable Senate floor path, alignment across market-structure committees and enough bipartisan support to survive amendment fights. Prediction markets and policy analysts have already repriced the bill’s odds as the legislative window narrows, and the CLARITY Act odds slide showed traders treating passage as far less certain than it looked after the committee vote.

The new letter puts Section 604 back in front of Blanche and Witt before the Senate floor push. The live negotiation now sits on whether lawmakers keep the BRCA safe harbor largely intact, narrow it around custody and transaction control, or add stronger AML and investigative hooks before CLARITY gets a full Senate vote.

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