The U.S. Treasury has recommended Congress create a “hold law” allowing cryptocurrency platforms to temporarily freeze assets linked to suspected illegal activity during investigations. The proposal, detailed in a report under the GENIUS Act, aims to give law enforcement time to act on suspicious blockchain transactions. While experts say it could be a crucial tool against illicit finance, significant legal and transparency questions remain unresolved.
The U.S. Treasury is urging Congress to consider a digital asset-specific “hold law” that would allow crypto platforms to temporarily freeze funds linked to suspected illegal activity. The recommendation appears in a Treasury report to Congress on countering illicit finance, produced under the Guiding and Establishing National Innovation for U.S. Stablecoins, or GENIUS Act.
“Lawful users of digital assets may leverage mixers to enable financial privacy when transacting through public blockchains,” the report states. It adds that a hold law would create a legal safe harbor for institutions to “temporarily and voluntarily hold digital assets involved in suspected illegal activity” during an investigation.
“Exchanges often detect suspicious funds using blockchain intelligence, but there is not always a clear legal framework that allows them to hold those assets long enough for investigators to act,” Ari Redbord, global head of policy at TRM Labs, stated. He added that the move could help create a defined window for platforms to pause funds while law enforcement moves through the legal process.
While exchanges can file suspicious activity reports, holding the funds is legally more complex, explained Andrew Rossow, a public affairs attorney. “Banks already have the ability to delay a suspicious transaction, but that power is very narrow and legally awkward,” he said.
Rossow noted that the Bank Secrecy Act protects institutions that file reports in good faith but does not clearly authorize them to freeze the associated funds. This leaves exchanges to choose between allowing suspicious funds to move or freezing them and risking legal exposure.
The Treasury’s report has “left a number of vulnerabilities unresolved,” Rossow warned, pointing to questions around blockchain analytics reliability and “tipping off” restrictions. He explained that the proposal could create a paradox where transparency rules require disclosing a freeze, while suspicious activity reporting rules prohibit explaining the underlying investigation.
“Criminals move quickly, and digital assets move even faster,” said Redbord of TRM Labs. He concluded that a “narrowly tailored hold authority helps close that gap.”
