U.S. Treasury Seeks Public Input on Combating Crypto Crime with New Tech

The U.S. Treasury Department has initiated a public consultation on how to address illegal activity in the cryptocurrency space, signaling a pivotal step in shaping regulatory strategies for digital assets. This follows the passage of the GENIUS Act in July 2024, which mandates the Treasury to explore innovative technologies like APIs, artificial intelligence, and digital identity systems to detect and prevent illicit financial activities involving cryptocurrencies [1]. The department is now seeking input from stakeholders to refine its approach and ensure that regulatory frameworks keep pace with technological developments.

A key focus of the consultation is the application of digital identity verification tools in decentralized finance (DeFi) environments, where traditional compliance mechanisms are often ineffective [2]. The Treasury has emphasized the need to modernize compliance standards to prevent criminal misuse of crypto platforms. However, some experts have warned that these tools could be exploited if not properly secured [3], highlighting the complexity of balancing innovation with regulation.

The move aligns with broader regulatory efforts across the U.S. government. The IRS has also launched a parallel initiative, inviting public feedback on innovative strategies to identify fraud in the digital asset space [4]. These coordinated efforts indicate a growing consensus among regulators that traditional enforcement methods are insufficient to address the evolving tactics used by bad actors.

In a related development, the Treasury has renewed sanctions against Russian cryptocurrency exchanges for their role in facilitating illicit transactions [5]. Reports suggest that these platforms have processed over $100 million in illegal activities since 2019 [6]. While digital assets offer significant innovation potential, the Treasury has made it clear that they must not be used to evade sanctions or fund criminal operations.

The call for public comment reflects a shift toward a more collaborative and adaptive regulatory model. By engaging with technologists, industry experts, and civil society, the Treasury aims to build a robust framework that supports innovation while safeguarding financial integrity. The insights gathered from this consultation could shape not only domestic policy but also influence international standards for cryptocurrency governance [7].

Sources:

[1] U.S Treasury Seeks Public Comment to Tackle illicit activity... (https://coincentral.com/u-s-treasury-seeks-public-comment-to-tackle-illicit-activity-under-genius-act/)

[2] U.S. pushes digital identity as cornerstone of crypto ambitions (https://www.biometricupdate.com/202508/u-s-pushes-digital-identity-as-cornerstone-of-crypto-ambitions)

[3] US Treasury Pushes DeFi IDs to Curb Crypto Crime, But ... (https://blockonomi.com/us-treasury-pushes-defi-ids-to-curb-crypto-crime-but-hackers-have-loopholes-zachxbt/)

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

[5] U.S. Renews Sanctions on Russian Crypto Exchange ... (https://www.thecybersyrup.com/p/u-s-renews-sanctions-on-russian-crypto-exchange-garantex-and-successor-grinex-5215)

[6] The $100 Million Crypto Scandal: How Russian Exchanges ... (https://medium.com/@ismailtasdelen/the-100-million-crypto-scandal-how-russian-exchanges-played-hide-and-seek-with-us-sanctions-47638a077408)

[7] The U.S. Treasury Department Calls for Public Comment on Cryptocurrency Illegal Activity (https://www.theblockbeats.info/en/flash/307954)