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.
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Alexander Zdravkov is a market analyst and crypto journalist with interests in economics, broader financial markets and digital assets. His journey into crypto began more than four years ago, driven by a fascination with the rapid evolution of blockchain technology and the transformative potential of decentralized finance. He began analyzing market cycles and identifying emerging trends before they reach the mainstream. He holds a degree in International Relations - a background that helped shape his broader perspective on global economics, geopolitics, and the interconnected nature of modern financial markets. Whether covering the latest developments in the crypto sector or exploring broader macroeconomic themes, Alexander focuses on giving readers context rather than simply repeating headlines. During his career, he has authored more than 10,000 articles covering cryptocurrencies, traditional finance, and global market developments. His work spans everything from Bitcoin and altcoins to macroeconomic trends influencing risk assets worldwide.
