Crypto Organization Calls for Tech Innovation in AML/CFT Compliance
The Crypto Council for Innovation ("CCI") urged the U.S. Department of the Treasury to promote innovation-driven approaches to combat illicit finance in the digital asset sector.
In a letter responding to Treasury’s Request for Comment on innovative methods to detect illicit digital asset activity, the CCI highlighted significant risks in the digital asset ecosystem and recommended policies to encourage the adoption of advanced compliance tools using AI. The CCI emphasized that emerging technologies can significantly strengthen anti–money laundering and countering the financing of terrorism ("AML/CFT") programs when supported by clear, risk-based regulatory guidance.
The CCI identified risks in the digital asset ecosystem include: (i) cyberhacks linked to weak cybersecurity on centralized platforms, (ii) scams such as "pig butchering" involving non-compliant foreign exchanges, (iii) unregulated crypto kiosks lacking AML/CFT controls under the Bank Secrecy Act ("BSA"), and (iv) global regulatory arbitrage stemming from uneven AML/CFT enforcement.
To address these risks, the CCI recommended the following measures:
- Supervisory Clarity over the use of AI. The CCI noted that financial institutions are increasingly deploying AI to detect suspicious patterns, assist in compliance investigations, and enhance cyber resilience. The CCI recommended greater supervisory clarity in order to encourage firms to fully integrate AI into compliance programs.
- Digital Identity. The CCI highlighted decentralized identity tools as a privacy-preserving alternative for Know-Your-Customer verification, using cryptographic proofs instead of document uploads to reduce data exposure. The CCI recommended that FinCEN publish guidance confirming that decentralized identity solutions can satisfy AML/CFT and sanctions compliance requirements under the BSA and encouraged continued engagement through FinCEN’s digital identity sprints.
- Blockchain Analytics. The CCI emphasized the importance of blockchain analytics for tracing asset provenance and identifying illicit wallets. It noted that inconsistent standards and unclear supervisory expectations hinder effective adoption.
- Privacy-Enhancing Technologies. The CCI cited tools such as zero-knowledge proofs, association sets (privacy pools), and attestation tokens as ways to embed compliance tools within blockchain protocols while preserving user privacy.