CLARITY: §305’s Temporary Hold

July 3, 2026

The U.S. anti-illicit-finance framework has long included pre-seizure freeze mechanisms operating at the boundary between private-actor and law-enforcement authority. Banks have, for decades, exercised authority to refuse or delay suspicious transactions under the safe harbor of 31 U.S.C. § 5318(g)(3), with notification protocols and immunity from private rights of action for good-faith implementation. The Right to Financial Privacy Act, 12 U.S.C. §§ 3401-3423, governs the data-disclosure side of these holds. FinCEN 314(a) information-sharing requests permit law-enforcement-driven targeting of specific accounts. The cumulative framework operates through documented procedures, qualified immunity, and limited duration, with the understanding that pre-seizure freezes are tools for fraud and AML compliance rather than independent law-enforcement authority.

§305 of CLARITY would extend this framework to digital-asset transactions. A covered person (a permitted payment stablecoin issuer, a registered foreign issuer, or a digital-asset service provider) may implement a “temporary hold” delaying execution of a transaction, conversion, or withdrawal for up to 30 calendar days, extendable to 180 days by qualified written request from a covered agency. The trigger is either (i) a reasonable belief the transaction relates to an action or attempted violation of state or federal law, or (ii) a qualified written request from a covered law-enforcement agency. §305(b) provides immunity from private rights of action for good-faith compliance. The structural similarity to the §5318(g)(3) bank-fraud-hold framework is intentional.

The §305(a) Definitions and the §305(b) Immunity

§305(a) provides the operative definitions. A “covered agency” is any state or federal law-enforcement agency, including the Department of the Treasury. A “covered person” is a permitted payment stablecoin issuer, a registered foreign payment stablecoin issuer, or a digital-asset service provider as defined in §2 of the GENIUS Act. A “qualified written request” is a written communication from an authorized official of a covered agency that (A) identifies a specific wallet, address, account, or transaction reasonably suspected of being linked to illicit activity; (B) requests the covered person initiate an action with respect to the specified wallet, address, account, or transaction, including delaying the execution of a transaction, conversion, or withdrawal; and (C) includes a designated agency contact. A “temporary hold” is a restriction applied by a covered person that delays execution of a transaction, conversion, or withdrawal involving digital assets for a reasonable period of time, not to exceed 30 calendar days, extendable to an additional 150 calendar days (for a total of 180 days) pursuant to a qualified written request.

§305(b)(1) is the immunity provision. A covered person that implements a temporary hold in good faith and in compliance with §305 is not liable under any federal or state private right of action for implementing the hold, provided three conditions. (A) The covered person implements the hold based on reasonable belief the transaction relates to an action or attempted violation of state or federal law, or after receiving a qualified written request from a covered agency. (B) The covered person makes reasonable efforts to notify the affected customer of the hold, or reasonably determines that notification would impede actual or potential law-enforcement efforts, or receives a qualified written request that requests notification not be attempted. (C) The covered person notifies as soon as reasonably practicable an appropriate state or federal law-enforcement agency or the Federal Trade Commission, unless the covered person has received a qualified written request from a covered agency (which functions as the equivalent of advance notification).

The three conditions are structured as alternatives within each subparagraph. Reasonable-belief implementation or qualified-written-request implementation under (A); notification or non-impediment determination or qualified-written-request-with-non-notification under (B); law-enforcement notification or qualified-written-request-substitute under (C). The structural intent is to permit either private-actor-initiated holds (with notification to law enforcement) or law-enforcement-initiated holds (with no separate law-enforcement notification required because the request itself constitutes coordination).

§305(b)(2) requires the covered person to maintain documentation for three years following the implementation of a hold, and to make the documentation available to a covered agency, the FTC, or the Secretary of the Treasury upon request. The documentation requirement operates as the audit trail for the hold mechanism and as the basis for any subsequent regulatory review.

The Qualified-Written-Request Structure

The qualified-written-request mechanism is the structural innovation of §305. It permits law-enforcement agencies to obtain pre-seizure freezes on specific digital-asset wallets, addresses, accounts, or transactions through a written request rather than through judicial process. The Right to Financial Privacy Act, 12 U.S.C. §§ 3401-3423, regulates law-enforcement access to financial records and ordinarily requires customer notice and either consent or judicial process. The §305 framework operates as a parallel pre-seizure freeze authority that does not require judicial process but is subject to specific procedural requirements.

The structural elements of the qualified written request matter. (A) requires identification of a specific wallet, address, account, or transaction. Generic or category-based requests do not qualify. The request must be targeted to specific assets or specific transactions reasonably suspected of being linked to illicit activity. (B) requires the request to specify the action sought (delay, hold, or similar restriction). The request cannot be a generic monitoring or surveillance request; it must specify the freeze action. (C) requires a designated agency contact, which provides accountability for the request and a point of contact for further coordination.

The reasonable-suspicion standard is operationally important. The qualified written request must identify the targeted assets as “reasonably suspected of being linked to illicit activity.” The reasonable-suspicion standard is below probable cause (which would be the standard for judicial process) but above arbitrary or pretextual suspicion. The structural choice is to permit law-enforcement intervention at a lower evidentiary threshold than judicial process while requiring specific targeting and articulable basis.

The 30-day initial freeze and 180-day maximum freeze are calibrated against the structural realities of digital-asset investigation. A 30-day initial freeze gives law enforcement time to develop additional investigative facts. A 180-day maximum total freeze (with one extension) is the practical upper bound for pre-seizure investigation before judicial process is required for continued asset control. The framework operates as a bridge between the immediate suspicion-of-illicit-activity moment and the formal judicial-process moment that follows.

The Reasonable-Belief Alternative

§305(b)(1)(A)(i) permits a covered person to implement a hold based on the covered person’s own reasonable belief that the transaction relates to an action or attempted violation of state or federal law. The covered-person-initiated hold operates without law-enforcement involvement at the front end. The covered person makes its own reasonable-belief assessment, implements the hold, notifies law enforcement, and maintains documentation.

The reasonable-belief standard is the covered person’s belief, supported by articulable facts available to it. The standard maps onto the bank-fraud-hold framework under §5318(g)(3) and the SAR-filing reasonable-suspicion standard. Compliance staff at digital-asset service providers, like compliance staff at banks, develop transaction-monitoring programs that flag suspicious transactions based on pattern recognition, blockchain analytics, sanctions screening, and similar tools. A flagged transaction that supports a reasonable belief of legal violation can be subject to a §305 hold.

The structural protection under §305(b)(1) is that the covered person’s reasonable-belief determination receives qualified immunity from private rights of action. A customer whose transaction is held under §305(b)(1)(A)(i) cannot, by virtue of the §305 immunity, recover damages from the covered person for the hold, even if the suspicion turns out to be incorrect, provided the covered person complied with the §305 procedural requirements. The structural choice is to encourage covered persons to exercise reasonable-belief hold authority by providing immunity for good-faith implementation.

§305(c) Rules of Construction

§305(c) provides four rules of construction limiting the §305 framework. Each is structurally important.

• §305(c)(1) clarifies that nothing in §305 compels or requires any covered person to take action to freeze, seize, or block digital assets that is not otherwise required under existing federal or state law. The §305 framework is permissive, not compulsory. A covered person may implement a §305 hold; it is not required to. The structural choice is to provide a safe harbor for proactive compliance without imposing affirmative obligations.
• §305(c)(2) preserves federal-agency enforcement authority. The §305 framework does not limit or alter the authority of any government agency, including with respect to authority to pursue enforcement actions. The structural commitment is that §305 is a private-actor tool, not a regulatory framework that displaces conventional enforcement authority.
• §305(c)(3) preserves §5318(g)(3) and SAR-filing requirements. The §305 framework does not limit or affect the §5318(g)(3) safe harbor or any regulation requiring financial institutions to report suspicious activity, and it does not limit or affect any lawful authority to seize or freeze assets pursuant to a lawful order or sanctions designation. The structural commitment is that §305 operates alongside the existing AML/CFT framework rather than displacing it.
• §305(c)(4) addresses extraterritorial application. The §305 framework does not limit the ability of a covered person to apply a temporary hold to any wallet, address, account, or transaction located outside the United States. The structural choice is to permit covered persons to implement holds on extraterritorial assets within their control, consistent with the structural reality that digital-asset transactions are inherently cross-border.

§305(e) Court-Order Compliance for PPSIs

§305(e) imposes a separate compliance obligation on permitted payment stablecoin issuers. A PPSI shall comply with any valid writ, process, order, rule, decree, command, or other requirement issued or promulgated under federal law by a court of competent jurisdiction that (1) requires a person to freeze or prevent the transfer of payment stablecoins; (2) specifies the payment stablecoins or accounts subject to blocking with reasonable particularity; and (3) is subject to judicial or administrative review or appeal, as provided by law.

The §305(e) court-order-compliance framework is structurally distinct from the §305(a)-(d) qualified-written-request framework. The court-order framework involves judicial process (a writ or order issued by a court), specific particularity (the stablecoins or accounts subject to blocking must be identified with reasonable particularity), and judicial review (the order must be subject to review or appeal). The framework operates as the formal-process counterpart to the §305(a)-(d) qualified-written-request-and-reasonable-belief framework.

The PPSI-specific scope of §305(e) reflects the structural importance of stablecoin compliance for the broader payments system. PPSIs are the regulated issuers of dollar-denominated stablecoins under the GENIUS Act framework. Their compliance with court-ordered freezes is operationally significant because PPSIs have the technical authority to freeze stablecoins (typically through the smart-contract permissions in the stablecoin contracts). The §305(e) framework commits PPSIs to using that authority in compliance with judicial process.

The structural significance of §305(e) is that PPSIs operate under judicial-process-compliance obligations parallel to those of traditional financial intermediaries. A court-ordered freeze of a bank account is followed; a court-ordered freeze of a stablecoin balance held in a PPSI-issued stablecoin must also be followed. The framework treats PPSIs as functional equivalents of banks for court-process purposes.

Civil-liberties concerns and the structural guardrails

The §305 framework will draw civil-liberties concerns. Pre-seizure freezes by private actors, with qualified immunity and reduced procedural protections compared to judicial process, are inherently in tension with the Right to Financial Privacy Act framework and with Fourth Amendment principles. Carpenter v. United States, 585 U.S. 296 (2018), tightened the Fourth Amendment analysis for digital data held by third parties. The third-party doctrine that historically supported broad government access to bank records is more constrained post-Carpenter. Civil-forfeiture jurisprudence, including Timbs v. Indiana, 586 U.S. 146 (2019), has tightened the constitutional limits on pre-conviction asset seizure.

The §305 framework’s structural guardrails are responsive to these concerns. The qualified-written-request requirement provides specificity (specific wallet, address, account, or transaction must be identified). The reasonable-suspicion standard provides articulability (the request must identify the targeted assets as reasonably suspected of being linked to illicit activity). The 30-day initial limit and 180-day maximum provide duration constraints. The notification requirements (unless impediment is reasonably determined or the qualified written request requests non-notification) preserve customer notice. The documentation requirements (three-year retention, agency access) provide audit-trail accountability.

The structural balance is the policy choice: pre-seizure intervention at a lower evidentiary threshold than judicial process, with procedural protections calibrated to the digital-asset transaction-velocity context. Whether the balance is correct is a contestable policy judgment. The §305 framework’s structural commitments are at least more articulate than the alternative posture of either (i) no pre-seizure freeze authority for digital-asset transactions, leaving illicit-finance flows unrestrained until judicial process is obtained, or (ii) broad pre-seizure freeze authority without specific procedural protections.

The most direct civil-liberties analog to §305 is the OFAC Tornado Cash designation arc. The August 8, 2022 OFAC SDN listing of Tornado Cash smart-contract addresses functioned as a pre-seizure asset block, with the OFAC designation operating as the trigger and the IEEPA enforcement framework operating as the legal basis. Coin Center v. Yellen, 5:22-cv-00149 (E.D. Ky.), and Van Loon v. Department of the Treasury, 122 F.4th 549 (5th Cir. 2024), litigated the constitutional limits of that mechanism, with the Fifth Circuit holding in Van Loon that immutable smart contracts were not “property” capable of being blocked under IEEPA. The §305 framework is structurally distinct from the OFAC framework: §305 operates against transactions held by covered persons within their control, not against immutable smart contracts. But the policy concerns about pre-seizure asset restraint apply across both frameworks.

§306 Voluntary Cybersecurity Program

§306 sits structurally adjacent to §305. It directs NIST to establish a voluntary cybersecurity program for persons developing decentralized finance trading protocols or engaging in §15H(b) covered activities (as defined in §601, covered in Post #7 of this series). The program criteria address cybersecurity threats, vulnerabilities, auditing and code-security standards, consumer protection, and transparency. The program is voluntary, but adoption can be displayed publicly and federal agencies must consider adoption as evidence of good-faith compliance with the law.

The §306 program operates as a soft-law complement to the §305 hard-law freeze mechanism. The structural choice is to provide both enforcement-side tools (§305 holds) and compliance-side tools (§306 cybersecurity program) to address the digital-asset illicit-finance ecosystem. Protocols that adopt NIST cybersecurity standards under §306 receive recognition that operates as a defensive shield in subsequent regulatory analysis.

Building the Hold Protocol

Four program-design consequences follow for covered persons.

• First, the §305 framework is permissive and operationally significant. Covered persons can implement temporary holds based on reasonable belief of legal violation or qualified written requests from law-enforcement agencies. The immunity from private rights of action is the structural protection that makes the framework usable in practice. Compliance teams should develop transaction-monitoring programs, escalation protocols, and documentation procedures consistent with the §305 framework.
• Second, the documentation requirement does real work. The three-year retention period applies to every temporary hold implemented under §305. Compliance programs should ensure that the basis for each hold (whether reasonable-belief or qualified-written-request) is captured in writing, with supporting evidence and the procedural steps taken. The documentation will be the audit trail for any subsequent regulatory review and the basis for the §305(b) immunity protection.
• Third, the qualified-written-request framework requires coordination with law-enforcement agencies. Covered persons should establish points of contact with the relevant law-enforcement agencies (state and federal), develop response protocols for incoming qualified written requests, and ensure that procedural compliance is consistent. The structural framework operates only if both sides (covered person and covered agency) execute the procedural requirements correctly.
• Fourth, the §305(e) court-order-compliance framework for PPSIs is structurally important for stablecoin issuers. PPSIs should establish compliance programs for court-ordered freezes, including technical capability to implement freezes on specific stablecoin balances, procedures for verifying court-order validity and specificity, and coordination with the Office of the Comptroller of the Currency on supervisory matters relating to court-order compliance.

The §305 framework, like much of CLARITY’s anti-illicit-finance architecture, balances enforcement effectiveness with civil-liberties protection. The balance is contestable on policy grounds. But the structural commitments are at least articulated: targeted requests, specific procedural requirements, duration limits, notification obligations, and documentation requirements. The framework provides covered persons with usable compliance tools and law-enforcement agencies with usable investigative tools, while preserving customer protections that exceed what is available today through the OFAC designation framework or the §5318(g)(3) bank-fraud-hold analog.

Written by David Lopez Kurtz