Treasury Seeks Tech Solutions to Outsmart Stablecoin Criminals

The U.S. Department of the Treasury has launched a public comment period to gather input on innovative technologies that could be used by financial institutions to detect illicit activity involving digital assets, as required under the recently enacted Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act [3]. The request, published in the Federal Register on August 18, 2025, seeks feedback on application programming interfaces (APIs), artificial intelligence (AI), digital identity verification, and blockchain monitoring tools [4]. These technologies are deemed critical to mitigating risks from digital asset misuse, including money laundering, ransomware attacks, and illicit financing by state-sponsored cybercriminals. The comment period will remain open until October 17, 2025, after which the Treasury will conduct research and propose regulatory or legislative changes to enhance the effectiveness of these tools [3].

The GENIUS Act, signed into law by President Donald Trump on July 18, 2025, establishes a federal regulatory framework for payment stablecoins while reinforcing anti-money laundering (AML) and sanctions compliance obligations under the Bank Secrecy Act. Under the act, stablecoin issuers must be treated as financial institutions, subjecting them to federal economic sanctions, customer identification, and due diligence requirements [3]. The legislation also mandates a study of “anti–money laundering innovation,” acknowledging the potential for evolving compliance strategies to address illicit finance risks [1]. This initiative aligns with broader digital asset policy outlined in Executive Order 14178, which aims to strengthen U.S. leadership in digital financial technology while promoting responsible innovation [4].

The Treasury’s request for comment emphasizes the need to evaluate the balance between innovation and the potential challenges associated with these technologies. For example, APIs can facilitate real-time data sharing and enhance transaction monitoring but may also introduce operational complexities and privacy concerns. AI tools offer advanced capabilities for analyzing large datasets and identifying illicit patterns, though they require significant investment and expertise to deploy effectively. Digital identity verification is highlighted as a method to improve user authentication while reducing the compliance burden on institutions. Meanwhile, blockchain monitoring allows institutions to track pseudonymous transactions on public ledgers, offering insights into high-risk activities and counterparties [3]. The Treasury also acknowledges the resource constraints that financial institutions may face in adopting these tools, particularly smaller entities with limited technological capacity [4].

The implementation of the GENIUS Act is expected to proceed 18 months after its enactment or 120 days after the Treasury and Federal Reserve finalize related regulations, whichever comes first [6]. This timeline suggests that the law will not serve as a prominent campaign issue in the 2026 midterm elections, given the delayed implementation. The move also reflects a broader legislative effort by the Republican-led Congress, which passed the GENIUS Act alongside the Digital Asset Market Clarity (CLARITY) Act and the Anti-CBDC Surveillance State Act in July 2025 [6]. While the Senate is currently in recess, the Banking Committee has indicated its intent to prioritize crypto-related legislation, including a potential version of the CLARITY Act, by October 2025.

Critics of the GENIUS Act, including the Independent Community Bankers of America (ICBA), have raised concerns over the potential for regulatory arbitrage and weakened consumer protections. In a letter to the Senate Banking Committee, ICBA and other groups urged the removal of Section 16(d) of the act, which permits state-chartered depository institutions with stablecoin subsidiaries to operate nationwide [2]. The group argues that this provision undermines state sovereignty and creates opportunities for regulatory inconsistencies. ICBA has advocated for a range of modifications to the legislation, including strengthened language on Federal Reserve access, expanded prohibitions on yield-bearing stablecoins, and enhanced oversight of permissible issuer activities [2].

The debate over the GENIUS Act highlights broader tensions between fostering innovation in the digital asset space and safeguarding financial stability, privacy, and consumer interests. The Treasury’s public comment initiative represents a critical step in refining the implementation of the act and addressing concerns from industry stakeholders. By soliciting input from financial institutions, technology developers, and other interested parties, the Treasury aims to ensure that the regulatory framework is both effective and adaptable to emerging threats and innovations in the digital economy [4].

Source:

[1] The GENIUS Act Is Not Pure Genius (https://www.aei.org/technology-and-innovation/the-genius-act-is-not-pure-genius/)

[2] ICBA, other groups ask Congress to fix GENIUS Act flaw (https://www.icba.org/newsroom/news-and-articles/2025/08/14/icba-other-groups-ask-congress-to-fix-genius-act-flaw)

[3] Request for Comment on Innovative Methods To Detect Illicit Activity Involving Digital Assets (https://www.federalregister.gov/documents/2025/08/18/2025-15697/request-for-comment-on-innovative-methods-to-detect-illicit-activity-involving-digital-assets)

[4] Treasury Issues Request for Comment Related to the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act (https://home.treasury.gov/news/press-releases/sb0228)

[6] US Treasury Calls For Public Comment On GENIUS (https://cointelegraph.com/news/us-treasury-public-comment-stablecoin-bill)