Treasury Arms AML Fight with AI, Blockchain, and Digital Identity Tools

The U.S. Department of the Treasury has initiated a public comment period aimed at identifying innovative methods, techniques, and strategies that regulated financial institutions can employ to detect and mitigate illicit finance risks involving digital assets. This action, mandated by the GENIUS Act, underscores the administration's focus on leveraging technological advancements to strengthen the nation's anti-money laundering (AML) and counter-terrorist financing (CFT) frameworks in the evolving digital asset landscape [1]. The request emphasizes four core technologies: application program interfaces (APIs), artificial intelligence (AI), digital identity verification, and blockchain technology and monitoring. Additional feedback is sought on emerging tools like cloud-based solutions, on-chain compliance tools, and privacy-enhancing technologies [2].

The Treasury’s initiative aligns with broader regulatory efforts to promote responsible innovation in digital finance. The GENIUS Act, signed into law by President Trump in July 2025, created a robust regulatory framework for payment stablecoin issuers, mandating full reserve backing and aligning state and federal oversight [3]. It also tasked the Secretary of the Treasury with soliciting public input on innovative methods for detecting illicit activity. This process is designed to inform future legislative and regulatory proposals that will allow financial institutions to adopt cutting-edge tools while addressing associated risks [4].

APIs are highlighted as a critical tool for automating data sharing and enhancing transaction monitoring. By enabling secure and real-time access to transactional information, APIs can support financial institutions in enforcing compliance protocols and monitoring digital asset activities [5]. Similarly, AI is increasingly being integrated into AML/CFT systems, offering enhanced data analysis capabilities to identify complex illicit financial patterns and trends [6]. The Treasury acknowledges the potential of AI to streamline compliance efforts but also emphasizes the need to address operational challenges, such as model accuracy and interpretability, and the risks related to data privacy and cybersecurity [7].

Digital identity verification is another key area of interest, with the Treasury seeking input on portable digital identity credentials that can streamline onboarding processes and reduce compliance burdens [8]. These tools, which may incorporate biometric data and government-issued identification, are seen as a way to bolster AML/CFT compliance while enhancing user privacy [9]. Additionally, blockchain monitoring is gaining traction as a method to track and analyze public blockchain data. Financial institutions and governments are already using blockchain analytics to trace illicit activities, assess counterparties, and detect suspicious transaction patterns [10]. However, challenges such as the use of obfuscation tools and the complexity of cluster analysis remain significant barriers to effective monitoring.

The Treasury’s call for public feedback is not limited to U.S. institutions; it is part of a broader effort to establish a globally recognized framework for digital asset compliance. This aligns with the Trump administration’s push for U.S. leadership in digital financial technology, as outlined in Executive Order 14178 [11]. The initiative also supports the recommendations of the President’s Working Group on Digital Asset Markets, which emphasized the need for improved public-private cooperation and regulatory clarity to foster a resilient digital asset ecosystem [12].

Financial institutions are encouraged to evaluate the costs, privacy implications, and cybersecurity risks associated with these technologies while providing data-driven insights to inform policy development [13]. The Treasury’s emphasis on a risk-based approach reflects a recognition that while innovative tools can enhance compliance, their implementation must be balanced with operational efficiency and institutional capacity [14]. As the deadline for public comments draws closer, stakeholders are expected to highlight the benefits and challenges of adopting these tools, with the goal of shaping a regulatory environment that supports innovation while safeguarding financial integrity [15].

Source:

[1] 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)

[2] Treasury Seeks Public Comment on Innovative Methods to Detect Illicit Digital Assets (https://www.texasbankers.com/treasury-seeks-public-comment-on-innovative-methods-to-detect-illicit-digital-assets/)

[3] Treasury Seeks Input on Digital Asset Illicit Finance Detection Methods (https://www.ledgerinsights.com/treasury-seeks-input-on-digital-asset-illicit-finance-detection-methods/)

[4] U.S. Treasury Department Starts Work on Stablecoin Law, Gathering Views on Illicit Activity (https://www.coindesk.com/policy/2025/08/18/u-s-treasury-department-starts-work-on-genius-gathering-views-on-illicit-activity)