Coinbase Urges U.S. Treasury to Embrace AI and Blockchain to Combat Crypto Crime

Coinbase has called on the U.S. government to adopt cutting-edge technologies such as blockchain analytics, artificial intelligence (AI), and digital identity tools to strengthen efforts against financial crime in the cryptocurrency space. The exchange made its case in a detailed response to the Treasury Department’s recent request for public input on combating illicit activity in digital assets.

In a letter dated October 17 and shared on X on Monday, Coinbase Chief Legal Officer Paul Grewal argued that criminal networks are increasingly using advanced technologies to evade detection. He added that law enforcement agencies must modernize to keep pace.

“Blockchain and other innovative technologies can counter these emerging risks,” Grewal wrote. “Treasury and other policymakers should promote their use to identify and deter illicit activity.” 

He added that such an approach would support one of the key goals of the Anti-Money Laundering Act of 2020, updating the decades-old Bank Secrecy Act to reflect today’s digital landscape.

AI and API Tools Could Modernize AML Frameworks

Coinbase Chief Policy Officer, Faryar Shirzad, echoed this sentiment in his own X post, urging U.S. regulators to “embrace innovation to modernize AML with proven digital tools like AI, APIs, digital IDs, and blockchain analytics.”

Among Coinbase’s main recommendations is the creation of a “safe harbor” under the Bank Secrecy Act for companies that employ AI-driven or API-based monitoring systems. Such an exception, Grewal suggested, should prioritize governance and measurable outcomes over rigid compliance models.

He noted that many companies remain hesitant to use AI in anti-money laundering (AML) programs due to uncertainty around regulatory expectations. Similarly, APIs face hurdles from a lack of standardization and fragmented oversight.

Grewal proposed that Treasury issue clear guidance defining “acceptable use cases,” data privacy requirements, and interoperability standards to encourage broader adoption.

Clearer Rules for Blockchain Identity and Analytics

Grewal also urged regulators to formally recognize decentralized digital identities (DIDs) and zero-knowledge proofs as valid tools for customer verification, arguing that these innovations could improve AML compliance without compromising user privacy. 

He called for updated Treasury guidance that promotes the responsible sharing of blockchain-based information related to illicit activities, while avoiding “overimposing recordkeeping obligations on everyone involved in a blockchain transaction.”

The Treasury’s request for comment, issued on August 18 under the GENIUS Act, closed last Friday. The initiative aims to identify new methods for detecting and preventing crypto-related financial crimes.

Not everyone agrees with Coinbase approach. Jim Harper, a non-resident Senior Fellow at the American Enterprise Institute, proposed an alternative framework in a Monday blog post. Harper suggested creating a communication system that would allow law enforcement agencies to directly query crypto firms for information relevant to investigations.