The House of Representatives this week passed three bipartisan bills, previously advanced by the House Financial Services Committee, that aim to curb insider trading and human trafficking. The bills now advance to the Senate.

The Promoting Transparent Standards for Corporate Insiders Act, H.R. 624, sponsored by Chairwoman Maxine Waters (D-Calif.) and Ranking Member Patrick McHenry (N.C.), “protects ‘Mom and Pop’ investors from the harmful effects of illegal insider trading and helps the Securities and Exchange Commission better understand how to prevent illicit activity.”

“The bill is designed to promote strong enforcement against financial fraud by ensuring that corporate executives cannot indirectly and illegally trade on material non-public information that they know about their companies,” McHenry said.

“The SEC prohibits insider trading as a fraud that hurts both company investors and the integrity of our capital markets. Those accused of illegal insider trading may defend themselves using the SEC’s rule for trading plans, Rule 10b5-1, and state that any trades that occurred while they possessed inside information were made pursuant to a preapproved trading plan,” he explained.

The rule for trading plans, however, “has several shortcomings that may allow corporate insiders to get away with insider trading.”

The legislation would require the SEC to study whether to amend its rule for trading plans to limit the ability of corporate insiders to, for example, adopt multiple, overlapping plans or change their plans to indirectly take advantage of inside information. The SEC would be required to report to Congress and revise its rules based on the results of that study.

This bill is supported by investor and consumer advocates, public pension funds, and state securities regulators, including Public Citizen, Americans for Financial Reform, California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS), the Council of Institutional Investors, Healthy Markets, and North American Securities Administrators Association.

The FIND Trafficking Act (H.R. 502), sponsored by Congressman Juan Vargas (D-Calif.) and Congresswoman Ann Wagner (R-Mo.), directs the Government Accountability Office to study how virtual currencies are linked to the supply chain for drugs and human trafficking and is intended to give lawmakers insight into how to sever that link.

"This bill is a critical first step for Congress to better understand the full extent of how virtual currencies are being used to facilitate drug and sex trafficking,” vargas said.

Virtual currencies, such as Bitcoin, Dash, Zcash, and Monero, can be used for legal purchases, he explained. The anonymity associated with virtual currencies, however, has led them to become a preferred financial payment method for illicit activities. Virtual currencies have become a prominent method to pay for goods and services associated with illegal sex and drug trafficking, two of the most detrimental and illegal activities facilitated by online marketplaces and the dark web.

According to the Drug Enforcement Administration’s 2017 National Drug Assessment, transnational criminal organizations are increasingly using virtual currencies for illicit activities, including drug trafficking. It has also been reported that virtual currencies are being used to run illegal online marketplaces to sell drugs, including the opioid, fentanyl, and contributing to the opioid crisis in America.

“Human traffickers have latched on to virtual currencies to avoid detection and prosecution,” Wagner said. “The despicable use of virtual currencies is creating an unprecedented challenge for financial regulators, and this legislation gives us much-needed information to root out the traffickers who are anonymously transferring money and hiding their crimes from the public eye.”

The Financial Technology Protection Act (H.R. 56), introduced by Congressman Stephen Lynch (D-Mass.) and Congressman Ted Budd (R-N.C.), establishes an independent, public-private Financial Technology Task Force to combat the use of financial technologies, like digital currencies, to fund terrorism. It would also create a whistleblower reward program to counter terrorist uses of digital currencies.

“As stated in last year’s National Money Laundering Risk Assessment from the U.S. Department of the Treasury, many cryptocurrencies are being designed to make virtual currency transactions untraceable and are increasingly being used by bad actors,” Waters said. “The talent and technological capabilities to track these transactions must keep up so the government can identify terrorists, hackers, and other criminals who try to hide their activities and proceeds using cryptocurrencies and related exchanges.”

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