tl;dr
Coinbase advocates for AI, blockchain analytics, and regulatory reforms to modernize anti-money laundering (AML) efforts in crypto, urging the U.S. Treasury to adopt tech-driven solutions amid evolving financial crime tactics.
**Coinbase Advocates for Tech-Driven Solutions to Combat Crypto Financial Crime**
In response to the U.S. Treasury Department’s call for input on curbing illicit activity in the cryptocurrency space, Coinbase has urged the government to leverage blockchain analytics, artificial intelligence (AI), and other modern technologies to strengthen anti-money laundering (AML) efforts. The exchange’s leadership emphasized that evolving financial crime tactics require equally advanced tools to protect the integrity of digital assets.
**Modernizing AML with Innovation**
Paul Grewal, Coinbase’s chief legal officer, outlined in a letter dated October 17 that money laundering schemes have grown increasingly sophisticated, necessitating a technological counterresponse. “Blockchain and other innovative technologies can counter these emerging risks. Treasury and other policymakers should promote their use to identify and deter illicit activity,” Grewal wrote. He highlighted the Anti-Money Laundering Act of 2020, which aimed to modernize the Bank Secrecy Act, as a framework for adopting these tools.
Faryar Shirzad, Coinbase’s chief policy officer, echoed this sentiment on X, advocating for the government to embrace “innovation to modernize AML with proven digital tools like AI, APIs, digital IDs, and blockchain analytics.” The exchange’s proposals focus on aligning regulatory approaches with the rapid advancements in the crypto sector.
**Regulatory Clarity for AI and APIs**
Grewal stressed the need for regulatory exceptions under the Bank Secrecy Act to encourage the use of AI and API-driven monitoring tools. He proposed a “safe-harbor” framework that prioritizes governance and outcomes over rigid, one-size-fits-all requirements. Companies, he noted, have hesitated to fully deploy AI in AML due to a lack of clarity, while APIs face challenges such as standardization gaps and fragmented regulations.
“Guidance outlining acceptable use cases would address these barriers by clarifying data privacy standards and interoperability requirements,” Grewal said. Such measures, he argued, would enable firms to confidently integrate APIs into their compliance programs.
**Blockchain Tech Needs Clearer Rules**
Coinbase also called for updated Treasury guidance recognizing decentralized identifiers (DIDs) and zero-knowledge proofs as valid customer verification methods. Additionally, Grewal urged the adoption of blockchain analytics clustering to enhance AML compliance. “The updated guidance should encourage information sharing about illicit activities on blockchains while avoiding excessive recordkeeping obligations,” he added.
**A Divergent Approach: Law Enforcement Communication System**
While Coinbase advocates for tech-driven solutions, Jim Harper, a senior fellow at the American Enterprise Institute, proposed an alternative: a direct communication system between law enforcement and crypto firms. In a blog post, Harper argued that such a system would streamline investigations, reduce the burden of broad financial surveillance, and maintain enforcement capabilities without overreaching.
**Context: Treasury’s Call for Comments**
The U.S. Treasury’s request for comments, part of the GENIUS Act, sought innovative methods to detect illicit digital asset activity. The comment period closed last Friday, with Coinbase’s input reflecting broader industry calls for regulatory agility.
As the crypto landscape evolves, the debate over balancing innovation with oversight underscores the need for policies that adapt to technological advancements while safeguarding financial systems. Coinbase’s proposals and the think tank’s alternative highlight the complex interplay between regulation, technology, and the future of digital finance.