Treasury Arms Compliance With Tech's New Frontline Tools

The U.S. Treasury has launched a public consultation seeking innovative methods to detect illicit activities involving digital assets, particularly in the context of money laundering and fraud. This initiative, outlined in a request for comment, follows the enactment of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act on July 18, 2025. The legislation extends the Bank Secrecy Act to payment stablecoin issuers, imposing anti-money laundering and customer identification requirements on them without altering the tax treatment of stablecoins.

The Treasury is soliciting input from financial institutions and technology firms on the use of tools such as application program interfaces (APIs), artificial intelligence (AI), digital identity solutions, and blockchain monitoring systems to identify illicit activity. Feedback on cryptographic protocols, privacy tools, cloud solutions, on-chain compliance, oracles, and smart contract verification is also encouraged. The request highlights the agency’s growing focus on leveraging technology to enhance compliance and enforcement efforts in the rapidly evolving digital asset sector.

The IRS has similarly emphasized digital asset compliance as a top enforcement priority, deploying advanced analytics to detect underreporting and fraudulent transactions. Initiatives like Operation Hidden Treasure utilize blockchain analysis to uncover tax evasion and money laundering, particularly among high-net-worth individuals and entities. In recent years, the IRS has introduced measures such as mandatory digital asset disclosures on Form 1040 and the requirement for brokers to report gross proceeds from digital asset sales on Form 1099-DA, effective for 2025 transactions. These efforts are part of a broader strategy to modernize tax compliance in the digital era.

The GENIUS Act marks a new phase of federal scrutiny of digital assets, signaling heightened regulatory expectations. Alongside the IRS’ efforts, the Treasury aims to strengthen detection mechanisms through public input. The consultation underscores the agency’s recognition that combating digital asset crime requires collaboration with industry stakeholders and innovative technological solutions. This approach aligns with global efforts to adapt regulatory frameworks to the challenges posed by decentralized finance.

Meanwhile, state-level regulatory actions continue to shape the landscape. In Illinois, Governor JB Pritzker signed legislation in August 2025 to enhance consumer protections for digital asset transactions, including the Digital Assets and Consumer Protection Act and the Digital Asset Kiosk Act. These measures aim to establish regulatory oversight of cryptocurrency exchanges and kiosks, imposing safeguards such as transaction caps and refund policies for victims of scams. The legislation reflects a broader trend of state governments stepping into the regulatory void left by inconsistent federal policies.

In parallel, state securities regulators have intensified their role in crypto enforcement, with the North American Securities Administrators Association (NASAA) actively advocating for the preservation of state antifraud authority amid federal legislative efforts. NASAA has submitted detailed comments on proposed federal laws such as the Digital Asset Market Clarity Act and the Responsible Financial Innovation Act, urging lawmakers to ensure that state regulators retain jurisdiction over investment contracts and related activities. This push for regulatory clarity underscores the complexity of the evolving legal framework governing digital assets.

The U.S. regulatory landscape is further shaped by broader international developments. While the U.S. continues to resist the creation of a central bank digital currency (CBDC), other nations such as China and the European Union have advanced their own CBDC initiatives. The U.S. approach prioritizes private sector innovation while limiting government involvement in digital currency issuance. This stance reflects a strategic decision to avoid the perceived risks of state-controlled digital currencies, particularly in terms of surveillance and financial autonomy.

As the Treasury’s public consultation period progresses, it remains to be seen how the input received will influence the development of federal tools for detecting digital asset crimes. The interplay between federal, state, and international regulatory efforts will likely continue to define the trajectory of the digital asset sector in the coming years. With technology evolving rapidly and the market expanding, the need for robust, adaptive regulatory frameworks has never been more critical.

Source:

[1] IRS Asks for Help With Combatting Digital Asset Fraud (https://tax.thomsonreuters.com/news/irs-asks-for-help-with-combatting-digital-asset-fraud/)

[2] Gov. Pritzker Signs Historic Legislation to Protect Consumers from Cryptocurrency Scams (https://gov-pritzker-newsroom.prezly.com/gov-pritzker-signs-historic-legislation-to-protect-consumers-from-cryptocurrency-scams)

[3] State Securities Regulators Stake a Claim in Crypto Asset Markets | Insights | Sidley Austin LLP (https://www.sidley.com/en/insights/newsupdates/2025/08/state-securities-regulators-stake-a-claim-in-crypto-asset-markets)

[4] Latest crypto developments so far in August (https://www.oanda.com/us-en/trade-tap-blog/asset-classes/crypto/mid-month-crypto-update-august/)

[5] Cryptocurrency Regulation: A Guide to U.S. & Global Policies (https://www.britannica.com/money/cryptocurrency-regulation)