Coinbase, the cryptocurrency exchange, has called on the US government to leverage blockchain analytics, artificial intelligence, and other cutting-edge technologies to combat financial crime within the crypto sector, following the Treasury Department’s request for feedback on strategies to prevent illicit activity in digital assets.
In a letter written by chief legal officer Paul Grewal, dated Oct. 17 and shared on X on Monday, he claimed that money laundering tactics have grown more advanced through the adoption of sophisticated technologies, necessitating an analogous response from law enforcement agencies to effectively combat them.
“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 help fulfill a key goal of the Anti-Money Laundering Act of 2020, which aimed to modernize the Bank Secrecy Act,” he added.
Coinbase’s chief policy officer, Faryar Shirzad, echoed this viewpoint in a post on X on Monday, contending that the US government should emulate crypto exchanges by adopting “innovation to modernize AML using established digital tools such as AI, APIs, digital IDs, and blockchain analytics.”
Regulatory clarity for AI and API key to battling financial crime
Among the recommendations Grewal wishes Treasury to evaluate is a regulatory exemption under the Bank Secrecy Act for entities employing AI and Application Programming Interfaces (APIs) for monitoring purposes.
“The criteria for this safe harbor should concentrate on governance and outcomes, rather than enforcing a one-size-fits-all approach,” he stated in a follow-up post on X on Monday.
Grewal noted that companies have been reluctant to fully embrace AI in their Anti-Money Laundering practices due to ambiguous regulatory guidelines.
He also pointed out that APIs encounter obstacles like a lack of standardization and regulatory fragmentation, suggesting that guidance outlining acceptable use cases would clarify “data privacy standards and interoperability requirements — enabling companies to confidently adopt and integrate APIs into their operations.”
Blockchain technology needs clearer rules, too
Simultaneously, Grewal called for the Treasury to issue guidance that acknowledges and promotes decentralized IDs and zero-knowledge proofs as legitimate techniques for customer verification and for clustering blockchain analytics in relation to Anti-Money Laundering compliance.
“The updated guidance should further facilitate the sharing of information regarding potential illicit activities routed through blockchains, while ensuring that recordkeeping obligations are not unnecessarily burdensome for all participants in a blockchain transaction,” Grewal emphasized.
The US Treasury requested comments in its Aug. 18 notice, which closed last Friday, concerning innovative approaches to detecting illicit activity connected to digital assets, as mandated by the GENIUS Act.
Think tank wants a communication system
In contrast, Jim Harper, a non-resident Senior Fellow at the American Enterprise Institute, presented a different proposal.
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In a blog post published Monday, which referenced his Sept. 15 paper advocating for the same concept, he proposed creating a communication system that would allow law enforcement agencies to directly inquire with crypto firms for investigative purposes.
“Such a system would sustain or enhance law enforcement capabilities while eliminating the current extensive and expensive financial surveillance system,” he remarked.
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