The CLARITY Act, US semiconductor competitiveness legislation, is nearing congressional passage despite concerns raised by New York's top prosecutor.

As the Senate moves toward a procedural vote on the Digital Asset Market Clarity Act (CLARITY Act) this week, New York Attorney General Letitia James is urging lawmakers to reconsider the legislation. In written testimony to the Senate Homeland Security and Governmental Affairs Committee's Permanent Subcommittee on Investigations, James warned that the CLARITY Act would limit the ability of state and local law enforcement to police crypto scams by shifting oversight to the Commodity Futures Trading Commission and preempting state regulation—hampering her office's ability to pursue enforcement actions against crypto platforms.

"My office has been leading the fight against cryptocurrency fraud," James testified. "Our rules-based market system gives people confidence that they can do business here. Without adequate laws and regulations, financial crises ensue. We urge Congress to safeguard our financial markets and protect America's investors, their future, our economy, and national security."

The scope of the problem is substantial. Complaints to the Office of the Attorney General about cryptocurrency scams have tripled in the last three years. Reported scam losses have reached around $500 million over the past five years, while investors have lost billions more in crypto company bankruptcies.

James called on Congress to enact a six-point framework mandating that crypto platforms comply with anti-money laundering, know-your-customer, and cybersecurity rules to prevent the funding of terrorism. The proposal would ban untraceable crypto—including funds routed through mixers—from being converted to U.S. dollars, while keeping existing coverage of crypto under money transmission, commodities, and securities law. Platforms would be required to identify anomalous trading activity and bad actors, and to hold them financially liable for fraud along the lines of the Electronic Funds Transfer Act. James also called on Congress to ban elected officials and recent government employees from working in crypto regulation due to potential conflicts of interest and violations of the Emoluments Clause.

Senate Republicans are pushing toward a quick passage. Senate Majority Leader John Thune (R-SD) is reportedly planning to force a procedural vote on the legislation this week, whether or not Democrats agree to a proposed deal on ethics restraints. GOP leaders hope to run up the score on the procedural vote to make it easier to strike a deal, collapsing debate time and moving quickly to a final passage vote—possibly by week's end.

Senator Cynthia Lummis (R-WY) has responded to James's concerns, saying that passing the CLARITY Act would close the "DINO loophole," short for Decentralized In Name Only, and prevent bad actors from engaging in money laundering activity. The bill "brought every corner of the digital asset market inside the Bank Secrecy Act and sanctions framework," Lummis said last week. Coinbase and Circle stand to benefit from the legislation, as it provides more clarity from the federal government on digital assets and stablecoins. On Tuesday, Coinbase stock was down over 2% in pre-market trading, while Circle stock was down over 3%.