Coinbase to US: Embrace blockchain if you want to fight crime on it

Crypto exchange Coinbase has urged the US government to leverage blockchain analytics, artificial intelligence (AI), and other modern technologies to curb financial crime in the cryptocurrency space. This call comes in response to the Treasury Department’s recent request for comments on how to deter illicit activity involving digital assets.

In a letter dated October 17 and penned by Coinbase’s Chief Legal Officer Paul Grewal, the company emphasized that money laundering schemes have grown increasingly sophisticated through the use of advanced technologies. As a result, law enforcement must adopt similarly advanced tools to effectively combat these risks.

“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 further highlighted that such measures would support the primary objective of the Anti-Money Laundering Act of 2020, which aimed to modernize the Bank Secrecy Act.

Coinbase’s Chief Policy Officer, Faryar Shirzad, echoed this stance in a post on X, stating that the US government should follow the lead of crypto exchanges by embracing innovation. He advocated for modernizing anti-money laundering (AML) efforts with proven digital tools, including AI, APIs, digital IDs, and blockchain analytics.

### Regulatory Clarity for AI and API Key to Battling Financial Crime

Among the suggestions Grewal put forward, he recommended that the Treasury consider creating a regulatory safe harbor under the Bank Secrecy Act for companies using AI and Application Programming Interface (API)-driven monitoring tools.

“The conditions for that safe harbor should focus on governance and outcomes, as opposed to forcing a one-size-fits-all model,” he explained in a follow-up post.

One major hurdle for companies fully adopting AI in AML measures is the current lack of regulatory clarity. Grewal also pointed out challenges facing APIs, such as the absence of standardization and regulatory fragmentation. He proposed that guidance outlining acceptable use cases would help solve these issues by clearly defining data privacy requirements and interoperability standards. This would enable firms to confidently adopt and integrate APIs into their compliance programs.

### Blockchain Technology Needs Clearer Rules

Grewal also called on the Treasury to issue guidance that recognizes and incentivizes decentralized identities (DIDs) and zero-knowledge proofs as valid forms of customer verification. Additionally, he recommended endorsing blockchain analytics clustering as a tool for AML compliance.

“The updated guidance should further encourage the sharing of information relevant to potential illicit activities routed through blockchains, while being careful not to overimpose recordkeeping obligations on everyone involved in a blockchain transaction,” he added.

This recommendation comes as part of the Treasury’s broader effort, under the GENIUS Act, to explore innovative methods to detect illicit digital asset activity. The Treasury’s August 18 notice sought public input on this topic, with comments closing last Friday.

### Think Tank Proposes Communication System for Investigations

Meanwhile, Jim Harper, a non-resident Senior Fellow at the American Enterprise Institute, has proposed a different approach to enhancing enforcement efforts.

In a blog post published Monday, which referenced his earlier September 15 paper, Harper argues for the establishment of a communication system that allows law enforcement agencies to directly query crypto firms for investigative purposes. This idea aims to streamline cooperation between authorities and crypto companies to more effectively address criminal activity in the digital asset ecosystem.

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*Related: Coinbase Claims ‘Key Role’ in Secret Service’s Biggest-Ever Crypto Seizure*
https://cointelegraph.com/news/coinbase-urges-ai-blockchain-aml-crypto-crime?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound

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