Crypto exchange Coinbase has called on the US government to leverage blockchain analytics, artificial intelligence, and other cutting-edge technologies to combat financial crime in the sector, in response to the Treasury Department’s appeal for insights on deterring illicit activities in cryptocurrency.
In a letter written by chief legal officer Paul Grewal, dated Oct. 17 and posted on X on Monday, he highlighted that money laundering operations have evolved to become increasingly sophisticated through advanced technologies, necessitating law enforcement to adapt accordingly.
“Blockchain and other innovative technologies can counter these emerging risks. Treasury and other policymakers should promote their use to identify and deter illicit activity.”
“This would support a primary objective of the Anti-Money Laundering Act of 2020, which aimed to modernize the Bank Secrecy Act,” he further remarked.
Coinbase’s chief policy officer, Faryar Shirzad, echoed this viewpoint in an X post on Monday, asserting that the US government should emulate crypto exchanges by adopting “innovation to modernize AML with proven digital tools like AI, APIs, digital IDs and blockchain analytics.”
Regulatory clarity for AI and API key to combating financial crime
Among the proposals Grewal suggests for Treasury to consider is a regulatory exemption under the Bank Secrecy Act for entities utilizing AI and Application Programming Interfaces (API) for monitoring purposes.
“The criteria for that safe harbor should emphasize governance and outcomes, rather than imposing a one-size-fits-all framework,” he stated in a follow-up X post on Monday.
Grewal noted that companies have been reluctant to fully utilize AI in Anti-Money Laundering efforts due to a lack of regulatory clarity.
He indicated that APIs also encounter challenges, such as inconsistent standards and regulatory fragmentation, which could be alleviated through guidance that “outlines acceptable use cases” and clearly articulates “data privacy requirements and interoperability standards — enabling firms to confidently adopt and integrate APIs into their systems.”
Blockchain technology requires clearer regulations as well
Simultaneously, Grewal urged Treasury to provide guidance acknowledging and incentivizing decentralized IDs and zero-knowledge proofs as legitimate forms of customer verification, along with utilizing blockchain analytics clustering for Anti-Money Laundering compliance.
“The updated guidance should further promote the sharing of information pertinent to potential illicit activities routed through blockchains, while carefully avoiding excessive recordkeeping requirements on all parties involved in a blockchain transaction,” Grewal emphasized.
In its Aug. 18 notice, the US Treasury requested comments, which closed last Friday, on innovative techniques to detect illicit activity related to digital assets, as mandated by the GENIUS Act.
Think tank advocates for a communication framework
Meanwhile, Jim Harper, a non-resident Senior Fellow at the public policy think tank the American Enterprise Institute, proposed a different approach.
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In his blog post on Monday, which built upon his Sept. 15 paper advocating for the same concept, he contends that a communication system should be established, allowing law enforcement agencies to directly query cryptocurrency firms for investigative needs.
“Such a system would preserve or enhance law enforcement capabilities while eliminating the current extensive and expensive financial surveillance framework,” he added.
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