Crypto exchange Coinbase has urged the US government to use blockchain analytics, artificial intelligence and other modern technologies to combat financial crime in the space, in response to the Treasury Department’s request for comment on how to deter illicit activity in crypto.
In the letter written by General Counsel Paul Grewal, dated October 17 and shared with
“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 main objective of the Anti-Money Laundering Act 2020, which aimed to modernize the Bank Secrecy Act,” he added.
Coinbase Chief Policy Officer Faryar Shirzad reiterated this position in an article Monday, saying the U.S. government should follow in the footsteps of 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 Fighting Financial Crime
Among the measures Grewal wants Treasury to consider is a regulatory exception under the Bank Secrecy Act for companies using AI-based surveillance tools and application programming interfaces (APIs).
“The terms of this safe harbor should focus on governance and outcomes, rather than imposing a one-size-fits-all model,” he said in a follow-up article published Monday.
Companies are hesitant to fully integrate AI into anti-money laundering measures due to a lack of regulatory clarity, according to Grewal.
He also believes that APIs face challenges such as lack of standardization and regulatory fragmentation, which a guide “outlining acceptable use cases” would address by clearly showing “data privacy requirements and interoperability standards, allowing companies to confidently adopt and integrate APIs into their programs.”
Blockchain technology also needs clearer rules
At the same time, Grewal wants Treasury to issue guidance recognizing and encouraging decentralized identifiers and zero-knowledge proofs as valid forms of customer verification and blockchain analytics aggregation for anti-money laundering compliance.
“The updated guidelines should further encourage the sharing of information relating to potential illicit activities routed through blockchains, while ensuring not to overimpose recordkeeping obligations on everyone involved in a blockchain transaction,” Grewal added.
In its August 18 notice, the U.S. Treasury requested comments, closed last Friday, on innovative methods for detecting illicit activity involving digital assets, as required by the GENIUS Act.
Think tank wants communications system
Meanwhile, Jim Harper, a nonresident senior fellow at the public policy think tank American Enterprise Institute, had a different approach.
Related: Coinbase Claims “Key Role” in Secret Service’s Largest-Ever Crypto Seizure
In his Monday blog post, which builds on his September 15 post pushing the same idea, he argues that a communications system should be established through which law enforcement can directly question crypto companies for investigative purposes.
“Such a system would maintain or strengthen law enforcement capabilities while avoiding the existing extensive and costly financial surveillance regime,” he said.
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