TLDR:
- Coinbase wants Treasury to create safe-harbors for AI in AML to reduce false positives and speed crypto compliance.
- APIs must have clear regulatory guidance to integrate blockchain analytics and real-time transaction monitoring.
- Decentralized IDs and zero-knowledge proofs could modernize BSA customer identification standards.
- Blockchain analytics clustering and KYT screening could replace traditional monitoring for more efficient AML compliance.
The U.S. Treasury could soon see new crypto compliance proposals from Coinbase aimed at modernizing anti-money laundering measures. Coinbase’s Chief Legal Officer, Paul Grewal, emphasized the need for innovative approaches to detect illicit activity in digital assets.
The company highlighted AI, APIs, decentralized IDs, and blockchain analytics as tools that could strengthen compliance. Grewal’s comments were submitted in response to Treasury’s Request for Comment on “Innovative Methods to Detect Illicit Activity Involving Digital Assets.”
Coinbase stressed that modern financial crime requires equally modern solutions.
AI Safe-Harbors for Crypto Compliance
Coinbase called on Treasury to establish a regulatory safe-harbor under the Bank Secrecy Act for firms deploying AI responsibly.
The letter recommended that safe-harbors focus on governance, human oversight, and measurable outcomes rather than a one-size-fits-all approach. AI could help reduce false positives, process transactions in real time, and free compliance teams to focus on higher-risk activities.
Grewal argued that uncertainty around AI use has held back U.S. firms from fully leveraging this technology for AML and sanctions compliance.
The response emphasized that Treasury guidance should clearly define permitted AI use-cases. Public-private collaboration could set standards and encourage responsible integration of on-chain and off-chain data.
The letter referenced prior Treasury guidance on custodial versus non-custodial AML obligations as a model for AI implementation. Coinbase suggested regulatory sandboxes to test AI applications safely and efficiently.
Modern Identity and Blockchain Solutions
Coinbase also urged updates to the BSA’s customer identification rules.
The company proposed that decentralized identification and zero-knowledge proofs be accepted as valid verification methods. This change would reduce identity theft risks and allow secure reuse of verified identities across institutions.
Treasury and Congress could further enable one financial institution to rely on due diligence already performed by another.
On the blockchain side, Coinbase recommended using Know-Your-Transaction screening and blockchain analytics clustering. The firm argued these tools are more accurate and efficient than traditional monitoring.
Explicit regulatory guidance recognizing these methods could improve data protection and compliance outcomes across the sector. Grewal said this approach aligns with AMLA 2020 goals to modernize oversight and embrace technological innovation.
Coinbase’s submission reflects a growing push within the crypto industry for regulation that supports, rather than limits, technological advancement.
By combining AI, API-driven compliance, digital IDs, and blockchain analytics, financial institutions could detect illicit activity faster while improving operational efficiency. Treasury’s next steps may determine how U.S. crypto firms deploy these tools going forward.
