Cryptocurrency exchange Coinbase has responded to the Treasury Department’s request for comment on how to curb illegal activity in cryptocurrencies, urging the U.S. government to use blockchain analytics, artificial intelligence, and other emerging technologies to curb financial crimes in this space.
In a letter written by Chief Legal Officer Paul Grewal on October 17 and shared with Mr.
“Blockchain and other innovative technologies can combat these new risks. Treasury and other policymakers should accelerate the use of blockchain to identify and deter illegal activity.”
“Doing so would support the primary objective of the Anti-Money Laundering Act of 2020, which is to modernize bank secrecy laws,” he added.
Faryar Shirzad, Coinbase’s chief policy officer, reiterated this position in Monday’s X Post, arguing that the U.S. government should follow in the footsteps of crypto exchanges by adopting “innovations that modernize AML with proven digital tools such as AI, APIs, digital identity, and blockchain analytics.”
Clarifying regulations around AI and APIs key to fighting financial crime
Among the measures Grewal wants the Treasury Department to consider is an exemption from regulations under the Bank Secrecy Act for companies that use AI or application programming interface (API)-driven surveillance tools.
“Safe harbor conditions should focus on governance and outcomes, rather than imposing a one-size-fits-all model,” he said in a follow-up post to X on Monday.
Grewal said companies are hesitant to fully leverage AI to combat money laundering due to a lack of regulatory clarity.
He also believes that APIs face challenges such as a lack of standardization and regulatory fragmentation, which could be overcome by guidance that “outlines acceptable use cases” and “clearly outlines data privacy requirements and interoperability standards so that companies can confidently introduce and integrate APIs into their programs.”
Blockchain technology also needs clearer rules
At the same time, Grewal wants the Treasury Department to issue guidance that recognizes and encourages decentralized identities and zero-knowledge proofs as valid forms of customer verification and blockchain analytics clustering for anti-money laundering compliance.
“Updated guidance should further facilitate the sharing of information related to potentially illegal activities via blockchain, while being careful not to impose undue record-keeping obligations on everyone involved in blockchain transactions,” Grewal added.
The U.S. Treasury Department’s Aug. 18 notice seeking comments on innovative ways to detect illegal activity involving digital assets, as required by the GENIUS Act, closed last Friday.
Think tanks want a communication system
Jim Harper, a nonresident senior fellow at the American Enterprise Institute, a public policy think tank, took a different approach.
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In a Monday blog post citing a Sept. 15 paper promoting the same idea, the authors argue that a communications system should be established to allow law enforcement to directly question crypto companies for investigative purposes.
“Such a system would preserve or enhance law enforcement capabilities while avoiding the existing extensive and costly financial oversight regime,” he said.
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