Crypto News: Coinbase Urges U.S. to Adopt Blockchain to Better Combat Crypto Crime

Coinbase urges US to use blockchain, AI, and APIs to fight crypto crime in response to Treasury’s request for public comment.

Coinbase is urging the United States government to adopt blockchain technology, artificial intelligence (AI), and digital tools. This is to help law enforcement better address crypto-related financial crime. 

The exchange submitted a formal response to the U.S. Treasury Department’s request for comments on detecting and preventing illicit activities involving digital assets.

Coinbase Pushes for Tech-Driven Financial Crime Prevention

In a letter dated October 17, Coinbase’s Chief Legal Officer Paul Grewal argued that criminal networks are using advanced technologies to conduct money laundering. He said law enforcement must evolve its tools and strategies.

 “Blockchain and other innovative technologies can counter these emerging risks,” Grewal wrote.

He added that using blockchain analytics and digital tools aligns with the goals of the Anti-Money Laundering Act of 2020. The law aims to modernize the Bank Secrecy Act and give regulators better tools to detect and prevent financial crime.

Coinbase’s Chief Policy Officer, Faryar Shirzad, echoed this position on X, saying that the U.S. should follow the example of crypto firms by embracing AI, APIs, digital IDs, and blockchain analytics.

Regulatory Clarity for AI and API Use Urged

Coinbase is calling on the Treasury to consider creating regulatory exceptions under the Bank Secrecy Act for companies using AI and API-driven compliance tools. Grewal suggested a safe-harbor framework focusing on governance and outcomes rather than a one-size-fits-all approach.

He also noted that firms hesitate to adopt AI due to a lack of clear rules. APIs, too, face challenges such as regulatory fragmentation and lack of standardization. 

Coinbase recommended that Treasury issue guidance outlining accepted use cases, privacy requirements, and data interoperability standards.

Such guidance, Grewal wrote, would help firms confidently adopt these technologies in their Anti-Money Laundering programs without fear of non-compliance.

Blockchain-Based Identity Verification Proposed

Coinbase also asked the Treasury to recognize decentralized identity (DID) systems and zero-knowledge proofs as valid tools for customer verification.

Grewal said updated guidance should support blockchain analytics and clustering tools for compliance, while also avoiding overburdening users with excessive recordkeeping requirements.

He stressed the importance of allowing data sharing related to illicit activity while maintaining privacy and operational efficiency. Grewal called for clear direction to help companies align with U.S. law and avoid risk.

Alternative View: Focus on Communication Systems

While Coinbase focused on digital tools, others offered different ideas. 

Jim Harper of the American Enterprise Institute proposed a direct communication system between crypto firms and law enforcement. In his blog post, Harper suggested such a system could help investigations without increasing financial surveillance on the general public.

His approach is based on a paper released in September, where he argued this method could preserve privacy while still supporting enforcement efforts. Harper’s proposal contrasts with Coinbase’s push for technology-based modernization.

The Treasury closed its comment window on October 18 after collecting feedback on how digital tools can help detect illicit crypto activity.

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