U.S. Treasury Urges Law Allowing Crypto Exchanges to Freeze Funds

• U.S. Department of the Treasury proposed a law allowing exchanges to freeze suspicious crypto funds during probes.

• The report says a “hold law” would let platforms pause transfers without a court order while law enforcement investigates.

• Treasury also urged clearer AML rules for DeFi and highlighted mixer use in laundering stolen crypto funds.

The U.S. Treasury has recommended Congress create a digital asset-specific law allowing crypto exchanges to temporarily freeze funds linked to suspected illegal activity. The proposal, included in a March 2026 report under the GENIUS Act, would give platforms legal authority to pause transfers without a court order while investigations proceed.

Hold Law and Regulatory Framework

The report proposes a “hold law” offering a safe harbor for exchanges to freeze assets during investigations. Currently, suspicious activity reporting (SAR) rules prevent platforms from disclosing investigations.

Ari Redbord of TRM Labs explained the law would allow a window for law enforcement to act while digital assets move quickly on blockchains. Andrew Rossow, CEO of AR Media Consulting, noted the law would resolve legal uncertainty about freezing funds without a court order.

Exchanges today face a choice which is allow funds to move or risk liability by freezing them. Under the hold law, platforms could legally pause transfers linked to suspected illicit activity. The Treasury report also emphasizes using blockchain analytics to detect suspicious transactions, while noting potential vulnerabilities, such as the reliability of analytics and conflicts with SAR “tipping off” rules.

Mixers, Stablecoins, and Illicit Finance

Treasury highlighted the legitimate use of mixers for financial privacy on public blockchains, while also noting criminal abuse. DPRK-linked cybercriminals stole at least $2.8 billion between January 2024 and September 2025, often using mixers in laundering chains.

Stablecoins are frequently involved in cross-chain bridge activity, with over $37.4 billion withdrawn from bridges since May 2020, according to the report.

Custodial mixers provide traceable data and must register with FinCEN, while non-custodial mixers are not subject to new restrictions. The report does not finalize FinCEN’s proposed 2023 mixer recordkeeping rules but suggests balancing privacy with anti-money-laundering concerns.

Legislative and Policy Implications

The Treasury report also recommends clarifying AML/CFT obligations for DeFi actors and introducing a “sixth special measure” under the USA PATRIOT Act. The document was submitted under Section 9 of the GENIUS Act, seven weeks after the January 14, 2026, deadline.

Treasury reviewed over 220 public comments in preparing the report, aiming to close gaps in tracking illicit activity while acknowledging privacy and legal challenges.