Crypto exchange Coinbase has called on the US government to utilize blockchain analytics, AI, and other advanced technologies to fight financial crime in the cryptocurrency sector. This request was made in light of the Treasury Department’s solicitation for advice on tackling illicit activities in crypto.

In a letter from chief legal officer Paul Grewal, dated October 17 and shared on X, he emphasized that money laundering tactics are evolving through advanced technologies, thereby necessitating that law enforcement 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.”

Translation: “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 also discussed the importance of the Anti-Money Laundering Act of 2020, stating that its objective was to modernize the regulations outlined in the Bank Secrecy Act.

Following this, Faryar Shirzad, Coinbase’s chief policy officer, reiterated this viewpoint on X, advocating for the government to adopt innovative strategies to enhance anti-money laundering practices.

Regulatory Clarity for AI and API is Essential

Grewal proposed that the Treasury consider a regulatory exception under the Bank Secrecy Act for companies that employ AI and API-driven monitoring tools. The criteria for this safe harbor should emphasize governance and results instead of complying with a one-size-fits-all model, he mentioned.

Paul Grewal believes the ambiguity surrounding regulations for AI in anti-money laundering has made businesses reluctant to fully leverage this technology. He also raised concerns regarding the fragmentation of regulations affecting APIs, suggesting that clearer guidelines outlining acceptable use cases could help companies confidently integrate these tools into their systems.

Blockchain Technology Needs Transparency

Furthermore, Grewal called for the Treasury to issue guidance that acknowledges decentralized IDs and zero-knowledge proofs as legitimate forms of customer verification for compliance with anti-money laundering standards.

In a related note, Jim Harper, a Senior Fellow with the American Enterprise Institute, proposed an alternative strategy, suggesting the establishment of a communication system where law enforcement could directly inquire with cryptocurrency companies during investigations.

“Such a system would maintain or strengthen law enforcement capabilities while obviating the existing broad and costly financial surveillance regime.”

Translation: “Such a system would maintain or strengthen law enforcement capabilities while obviating the existing broad and costly financial surveillance regime.”