Prosecutors’ CLARITY developer proposal rejected by both sides

Federal prosecutors offered last-minute language intended to protect software developers under the CLARITY Act, but both the White House and industry advocates rejected the text, leaving the question of developer liability open as Senate negotiators continue talks.

The proposal aimed to shield coders who write software without controlling customer funds or transactions while preserving law-enforcement tools used to trace illicit finance. Lawmakers who opposed earlier drafts warned that broad protections could hinder investigations, asset recovery and prosecutions. Industry representatives argued that treating routine developers like financial intermediaries would reach too far and could chill ordinary development work.

Senator Catherine Cortez Masto, a former state attorney general, has pressed for language that preserves authorities to investigate and prosecute illicit finance while protecting ordinary coders. Prosecutors’ suggested text attempted to address those concerns. Patrick Witt, executive director of the President’s Council of Advisors for Digital Assets, called the proposal “far from an acceptable compromise” and asserted negotiators had made their position clear to Cortez Masto for weeks.

Crypto industry leaders rejected the prosecutors’ submission as well. Amanda Tuminelli, chief executive of the DeFi Education Fund, described the draft as treating software developers like financial intermediaries even when their role and the technology do not fit that description, and characterized the offer as not serious and unlikely to move forward.

Negotiators reported one narrow personnel concession. Senate Minority Leader Chuck Schumer has provided the White House with two potential candidates for each Democratic seat at the Securities and Exchange Commission and the Commodity Futures Trading Commission. The White House must still select and formally nominate individuals before the Senate can consider confirmations. A person involved in the process noted nominees are being shielded from public attacks until decisions are final, adding, “Nobody wants any of these nominees to get flamed before they get a fair chance.” Eleven Senate Banking Committee Democrats had earlier warned that vacancies at financial regulators were eroding the bipartisan structure intended for those agencies and urged the administration to submit nominees.

With developer protections unresolved, senators have shifted focus to ethics provisions. Arizona Democrat Ruben Gallego and North Carolina Republican Thom Tillis are completing a bipartisan counteroffer on ethics language to send to the White House within days. Democratic negotiators described prior Republican ethics language as lacking protections for consumer safeguards, illicit-finance controls, conflicts of interest and market integrity and said they will continue discussions.

The outcome of the Gallego-Tillis ethics counterproposal will test whether negotiators can bridge differences on parts of the bill that remain stalled. Until negotiators agree on language that preserves investigative tools without imposing intermediary-style duties on developers who do not control transactions, the CLARITY Act talks will face a key unresolved issue affecting who bears legal responsibility for code in the digital-asset ecosystem.