[DigitalToday reporter Jinju Hong (홍진주)] Handling of the CLARITY Act, a U.S. Senate bill on crypto market structure, has been thrown back into uncertainty. A bipartisan tentative deal over an ethics provision, seen as a key issue, has effectively fallen apart. That is likely to affect the bill’s passage timetable.

CoinPost, a blockchain outlet, reported on June 13 that negotiations returned to square one after Republicans and the White House withdrew key elements of the existing tentative deal in bipartisan talks held on June 11 ahead of a Senate floor vote.

The meeting was attended by Democratic Senators Kirsten Gillibrand and Ruben Gallego, Republican Senators Bernie Moreno and Cynthia Lummis, and Patrick Witt, executive director of the White House Crypto Council. It was the first time participants jointly reviewed the tentative deal that had been prepared ahead of Senate Banking Committee consideration.

The biggest issue was how to enforce ethics rules tied to President Donald Trump’s business interests in crypto. The prior tentative draft included a provision allowing state attorneys general to sue the federal Justice Department if it did not enforce the relevant ethics rules.

During negotiations, concerns were raised that the provision could be misused as a tool for political attacks. Republicans and the White House ultimately withdrew it. They instead proposed giving enforcement authority only to the U.S. attorney general and offered impeachment proceedings as an alternative.

Democrats are strongly objecting, viewing the move as overturning the prior deal. An official involved in the talks was also reported to have assessed the current situation as "running into difficulties".

Legal controversy is also continuing. Some legal scholars said state governments can file lawsuits challenging unconstitutional actions by the federal government, but argued it is difficult, as a matter of constitutional logic, to structure a system in which state attorneys general compel enforcement by the federal Justice Department.

Beyond the ethics clause, another factor blocking passage is pushback from investigative agencies. The National Sheriffs' Association, the Fraternal Order of Police and the National District Attorneys Association argue parts of the bill could make it harder to investigate and prosecute money laundering using cryptocurrencies.

At the center of the dispute is Section 604, the Blockchain Regulatory Certainty Act. The provision seeks to clarify that non-custodial software developers would not bear legal liability if they did not intend a third party’s illegal acts.

Investigative agencies worry the provision could make it harder to track criminals, but the administration says it is meant to protect developers and does not weaken anti-money laundering efforts or sanctions enforcement capabilities.

Democratic Senators Mark Warner and Catherine Cortez Masto have also said it would be difficult to support the bill if law enforcement concerns are not adequately addressed.

Time is also running short. The Senate has just over about a month of session left before its summer recess, and Washington political circles see that as a de facto deadline.

Even so, the White House is maintaining its goal of enacting the bill by July 4. Patrick Witt, executive director of the White House Crypto Council, said in a recent interview that progress is being made daily on key issues, including the ethics provision, jurisdictional questions involving the Agriculture Committee, and law enforcement concerns.

Still, even if the Senate passes the bill, the process would not be over. Because the House has already passed a separate market structure bill, the two chambers would need to reconcile the texts. Markets see renewed negotiations over the ethics provision as a key variable that will determine the speed of handling the CLARITY Act.