With Democrats Taking Control, Crypto on Hot Seat in 120th Congress

Over the last year, Democrats have pressed the SEC on its perceived retreat from crypto enforcement, including the dismissal or closure of at least a dozen crypto actions since January 2025. They have asked why crypto companies close to the President have not been investigated. Crypto companies have also been drawn into broader inquiries that are not focused on digital assets, such as investigations into political contributions and donations connected to events or projects promoted by the administration.

Democratic leaders have explicitly stated their intent to conduct inquiries and oversight on these topics now that they will be in the majority. When asked whether oversight could include testimony from administration officials or subpoenas for companies’ communications, Rep. Sean Casten, vice ranking member and a contender for Chair of the House Financial Services Committee (HFSC), replied it would likely be “all of the above.” On Nov. 6, Rep. Maxine Waters, in announcing her bid to again lead the HFSC, listed among her priorities passing crypto legislation to address ethics questions relating to the President’s crypto investments and create rules of the road, but she did not telegraph her investigative and oversight plans.

President’s Crypto Ventures and Related Parties

Significant attention will likely be paid to the President, his family and their crypto investments. Ethics concerns about the President’s crypto holdings may have done more than any other issue to sink the CLARITY Act. In fact, Sen. Mark Warner said Congress “cannot pass landmark legislation governing this industry while allowing the President of the United States to personally profit from it.” Democrats carried the same theme onto the midterm campaign trail and, with their new majorities, are likely to make it a critical piece of their oversight agenda.

The appetite for hearings and investigations is clear. Rep. Brad Sherman, ranking member of the House Financial Services Subcommittee on Capital Markets, said that he “can’t imagine that there’s anything that we would enjoy talking about more than” the President’s crypto dealings.

GENIUS Act’s Stablecoin Regime and Secondary Market

The GENIUS Act, scheduled to take effect in January 2027, shortly after the new Congress convenes, is another likely point of interest. The Office of the Comptroller of the Currency (OCC) issued its final implementing rule on Oct. 21, 2026, but left Bank Secrecy Act, AML and Office of Foreign Assets Control (OFAC) requirements to a separate rulemaking with Treasury. Those requirements remain proposals. The joint Financial Crimes Enforcement Network (FinCEN)/OFAC AML and sanctions program rule and the joint customer identification program rule would each take effect 12 months after they are finalized. Oversight staff would therefore examine a payments regime that is legally in force but whose financial-crimes framework is still being written.

Democrats’ illicit-finance critique predates the implementing rules. During the GENIUS Act debate, Sen. Elizabeth Warren argued that controls on issuers alone “do nothing to address the national security vulnerabilities that arise as the stablecoins are traded widely” through exchanges and custodians. She also faulted the law for not requiring issuers “to monitor blockchains on which their stablecoins are traded and report suspicious activity they see.”

The implementing proposals answer part of this critique. The FinCEN/OFAC proposal distinguishes “primary market” activity, in which an issuer deals directly with a customer, from the “secondary market.” Customer due diligence runs to the issuer’s customers, which are mainly exchanges and other large intermediaries. The proposal imposes no suspicious activity reporting obligation on secondary-market activity. By contrast, the proposal’s blocking, freezing and lawful-order requirements and its sanctions internal controls apply to primary- and secondary-market activity alike. Bank trade groups have urged FinCEN and OFAC to close remaining secondary market gaps, so the critique does not come only from Democrats.

OFAC liability is strict: An issuer can be liable for dealing with a sanctioned person whether or not it knew it was doing so. Under the proposed sanctions program rule, an inadequate program alone, even without a violative transaction, could draw penalties of up to $100,000 per day.

Crypto issuers should expect questions about how they monitor flows to sanctioned or high-risk wallets and whether they freeze, burn and reissue proactively or only when ordered to do so. Exchanges and custodians should expect parallel questions about how they screen the unhosted wallets on the other side of their customers’ deposits and withdrawals. Issuers will also be asked when they may freeze disputed assets, such as hack or exploit proceeds, on their own and when they must wait for a court order that may come too late given how quickly crypto assets move.

Crypto Rails and OCC Charters

As more financial institutions build on crypto rails, oversight committees will likely want detail on the capacity, reliability and security of the underlying blockchain technology and on how regulators vetted the firms using it. The OCC’s recent approvals of national trust charters for crypto companies have already drawn critical attention from congressional Democrats, and the charter approval process is likely to be a subject of oversight requests.

A Crisis Could Change Everything

The FTX collapse showed how quickly congressional sentiment can turn. In the summer of 2022, bipartisan market structure legislation was making significant progress. Then FTX collapsed in November 2022. Multiple congressional committees quickly convened hearings on the collapse, and legislative momentum stalled. A market event of similar scale would likely trigger congressional investigations into the participants involved.

Preparing Now

Companies with digital asset exposure should use the time before the new Congress convenes on Jan. 3, 2027, to assess whether their business could draw congressional or regulatory inquiry. Companies that may face scrutiny should consider the following steps:

• Protocols: Establish or update written protocols for receiving and responding to congressional inquiries.

• People: Identify the legal, compliance, government affairs and communications personnel who will respond.

• Preservation and production: Confirm the ability to preserve, collect and produce documents, including messaging-app communications, on a compressed congressional timeline.

• Candid self-assessment: Consider areas for potential congressional inquiry by assessing relationships with politically connected ventures and counterparties, enforcement history (including dismissed matters and contacts with agencies), political spending and GENIUS Act, AML and sanctions readiness.

• Secondary-market controls: Document how the company monitors on-chain activity; screens counterparty wallets; and decides when to freeze, burn or reissue tokens.

• Core documents: Review the compliance and governance documents an inquiry would likely seek first, such as AML and sanctions program documents, risk assessments, testing results, board materials, and records of contacts with agencies and politically connected counterparties.

McGuireWoods and McGuireWoods Consulting continue to monitor these developments and their impact on the digital asset industry. For questions, contact the authors or a member of the McGuireWoods Congressional Investigations or Crypto Counseling & Enforcement teams.