- Coinbase calls U.S. anti-money-laundering (AML) laws outdated and requests modernization using AI, APIs, and zero-knowledge proofs.
- The company suggests safe harbors for AI use and endorses decentralized IDs to reduce repeated Know Your Customer (KYC) checks.
- Coinbase highlights high compliance costs that limit entry for smaller providers and raise fees for customers.
- A privacy group warns that traditional AML rules on stablecoins could lead to overly intrusive surveillance similar to a Central Bank Digital Currency (CBDC).
- Treasury will compile public responses to guide Congress in new policy and legislation development.
Coinbase has urged the U.S. Treasury Department to overhaul longstanding anti-money-laundering (AML) regulations, describing them as outdated and calling for the adoption of Artificial Intelligence (AI), application programming interfaces (APIs), and zero-knowledge proofs to better combat illegal activities involving digital assets.
In a response letter submitted Friday to the Treasury’s request for comments on new methods to detect illicit activities in digital finance, Coinbase described the current AML system as rooted in old rules designed for slow, paper-based banking. The company’s Chief Legal Officer stated that innovation is needed to keep pace with criminals’ evolving tactics.
The letter proposes regulatory safe harbors that allow firms to use AI responsibly under the Bank Secrecy Act, focusing on governance and results rather than uniform compliance models. It also advocates for official recognition of decentralized IDs—digital identity verification that enhances privacy—and zero-knowledge proofs, which allow verification of information without revealing sensitive data.
Coinbase points out that the current system forces Americans to undergo repeated KYC procedures with numerous firms, increasing privacy risks by creating large data repositories vulnerable to breaches. The company also recommends that Treasury provide guidance endorsing Know-Your-Transaction screening, a method using blockchain data to better track movement of funds, along with clustering analytics to improve compliance accuracy.
According to Coinbase, over 25 million reports of suspicious activity are filed annually with the Financial Crimes Enforcement Network (FinCEN), but most relate to lawful transactions and do not lead to investigations. Despite a 2020 law aimed at modernization, few improvements have occurred.
Federico Fabiano, Head of Legal & Compliance at Hex Trust, expressed that traditional “check-the-box” compliance systems must evolve. He emphasized that combining AI with the transparent nature of blockchain technology can transform AML enforcement by focusing on dynamic and valuable data.
A privacy advocacy group submitted comments warning that applying conventional AML rules to stablecoins on public blockchain networks could create a surveillance system resembling a Central Bank Digital Currency (CBDC), raising concerns about privacy and overreach.
The Treasury Department will collect responses like these and submit a report to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services. These committees will then work on new regulatory guidance and legislative proposals.
For more about the letter, see the official response to Treasury’s request for comment.
Further discussion can be found in a related blog post on the Bank Secrecy Act.
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