CLARITY Act Is a Mistake — New York AG Letitia James Just Told the Senate Not to Pass It

New York Attorney General (AG) Letitia James submitted written testimony to the Senate Homeland and Governmental Affairs’ Permanent Subcommittee on Monday opposing the CLARITY Act, arguing the bill would strip states of the legal authority they currently use to pursue crypto fraud — and calling on Congress to reject it as written.

James Says the CLARITY Act Undermines States 

The AG contends that the CLARITY Act would shift primary oversight of digital assets to the Commodity Futures Trading Commission (CFTC), and override state-level regulation of crypto markets. 

In James’s reading, that would directly undermine the enforcement infrastructure that New York and other states have built, describing it as a mistake. 

“State and local law agencies do the lion’s share of law enforcement work in this country,” she wrote, warning that the bill would interfere with and preempt states’ investor protection laws while diluting their ability to prosecute fraud.

However, James’s testimony extends beyond jurisdiction into transparency and democratic integrity. She argued that the anonymity inherent in crypto transactions makes it impossible to verify whether elected officials’ financial disclosures are accurate, whether bribes are being paid or received, or whether public officials are acting in the public interest rather than their own financial one. 

That same anonymity, she wrote, allegedly obscures potential violations of the Constitution’s emoluments clause — which prohibits financial gifts from foreign actors — and complicates enforcement of existing campaign finance and conflict-of-interest laws. 

She called on Congress to ban elected officials and recent government employees from any involvement in regulating an industry from which they may be personally profiting.

New York AG Has a Counter-Proposal 

Rather than the CLARITY Act, James outlined the framework she believes Congress should pass. It would require crypto platforms to comply with anti-money laundering laws, know-your-customer (KYC) rules, and cybersecurity protocols to prevent the financing of terrorism, criminal networks, and adversarial foreign governments. 

It would prohibit untraceable cryptocurrencies — including those routed through mixing services — from being converted to US dollars. Additionally, it would require platforms to conduct active surveillance to detect manipulation and identify bad actors, and would hold crypto companies financially liable for fraud losses like existing protections under the Electronic Funds Transfer Act.

James’s testimony lands as the CLARITY Act’s window for passage is narrowing rapidly. As CryptoDepth has reported, Polymarket puts the bill’s odds of passage at 38% with nine days remaining before the Senate’s August recess. 

Seven Democratic negotiators issued a joint statement last week saying the current draft falls short on ethics, consumer protection, and illicit finance — the same categories James focused on in her testimony.

Supporters of the bill have pushed back on the law enforcement framing throughout the negotiations. The Fraternal Order of Police (FOP) endorsed the latest draft on Friday, saying revised language in the Blockchain Regulatory Certainty Act provision does not limit investigators’ ability to pursue crypto crime. 

Senator Cynthia Lummis, the bill’s lead sponsor, has also previously pushed back on the law enforcement framing that James and other critics have used. 

The Senator has argued that the CLARITY Act would give law enforcement faster interdiction tools, enabling authorities to respond more efficiently when investigating criminal activity involving digital assets. 

She framed the legislation around “helping law enforcement fight illicit finance, passing consumer protections and keeping these markets onshore in the US.”

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