Prosecutors Warn GENIUS Act Could Create Legal Gaps for Stablecoin Fraud
US prosecutors have raised concerns that the proposed GENIUS Act could unintentionally weaken law enforcement’s ability to combat stablecoin-related fraud, according to reporting cited by CNN.
Key takeaways:
- Prosecutors warn the GENIUS Act could “provide legal cover” for stablecoin fraud
- New York Attorney General Letitia James joined four district attorneys in issuing the warning
- Concerns focus on how stablecoin issuers cooperate with law enforcement
- Tether and Circle are cited as examples in the prosecutors’ argument
The warning was issued by Letitia James alongside four US district attorneys, who argue that the legislation’s current structure could limit the ability of authorities to freeze, seize, or recover funds tied to criminal activity once those funds are converted into stablecoins.
According to the prosecutors, the bill risks creating incentives for stablecoin issuers to selectively cooperate with law enforcement while continuing to profit from transaction activity tied to illicit funds. They specifically referenced major issuers Tether and Circle in outlining their concerns.
Law Enforcement Flags Stablecoin Freezing and Seizure Risks
At the center of the criticism is the claim that funds stolen or laundered into USDT or similar stablecoins could become effectively unreachable under the proposed framework. Prosecutors warned that, under the GENIUS Act, such funds “will never be frozen, seized, or returned,” potentially undermining existing financial crime enforcement mechanisms.
The concern reflects a broader tension between lawmakers seeking to establish clear regulatory rules for stablecoins and prosecutors focused on preserving investigative and enforcement authority. While the GENIUS Act is designed to provide regulatory clarity and promote innovation in digital payments, critics argue that it may not adequately address the realities of financial crime in onchain environments.
Supporters of stablecoin regulation have long argued that clear legal frameworks encourage compliance and transparency. However, prosecutors caution that without explicit requirements for issuer cooperation and standardized freezing obligations, stablecoins could become more attractive tools for money laundering and fraud.
The warning comes amid heightened scrutiny of stablecoins globally, as regulators and law enforcement agencies weigh their growing role in payments, remittances, and digital finance against the risks of misuse. As debate around the GENIUS Act continues, the objections raised by prosecutors are likely to influence amendments and shape how enforcement powers are preserved within future stablecoin legislation.
The information provided in this article is for educational purposes only and does not constitute financial, investment, or trading advice. Coindoo.com does not endorse or recommend any specific investment strategy or cryptocurrency. Always conduct your own research and consult with a licensed financial advisor before making any investment decisions.
Alexander Zdravkov is a person who always looks for the logic behind things. He has more than 3 years of experience in the crypto space, where he skillfully identifies new trends in the world of digital currencies. Whether providing in-depth analysis or daily reports on all topics, his deep understanding and enthusiasm for what he does make him a valuable member of the team.
