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Coinbase has called on US regulators to replace outdated anti-money laundering systems with AI-powered blockchain analytics, arguing that crime detection rules based on 1970s legislation are failing to combat modern crypto threats.
In a 30-page filing submitted to the Treasury Department, the exchange proposed adopting artificial intelligence, zero-knowledge proofs, and transaction monitoring tools as the foundation for next-generation compliance frameworks.
The company emphasized that smarter crypto crime detection tools could help law enforcement combat digital threats more effectively without compromising consumer privacy or innovation.
“When bad guys innovate in financial crime, good guys need innovation to keep pace,” Paul Grewal, Chief Legal Officer at Coinbase, wrote on X (formerly Twitter). “We need policy that rewards progress in compliance and not punishes it.”
Coinbase contends that the U.S. anti-money-laundering regime, still based on the Bank Secrecy Act (BSA), often yields low-value reports while increasing compliance costs and data exposure. The exchange’s letter urged regulators to update these frameworks to reflect how financial crime has evolved in the digital economy.
In its submission, Coinbase outlined several modern approaches to crypto crime detection. Chief among them are artificial intelligence, application programming interfaces (APIs), and blockchain-based analytics systems that can trace illicit activity across public ledgers in real time.
The company also highlighted decentralized digital IDs and zero-knowledge proofs, cryptographic tools that verify identity without revealing personal information. These privacy-preserving technologies, it said, could reduce the risk of data leaks while ensuring compliance with AML standards.
Coinbase’s filing further proposed adopting a know-your-transaction (KYT) framework, which monitors digital asset transfers directly on blockchain networks. The firm argues this method offers more transparency and accuracy than traditional know-your-customer (KYC) practices.
Transaction-based monitoring allows regulators and institutions to see patterns that static customer data can’t, Caroline Hill, Director of Global Policy at Blockchain Analytics Alliance, told Coin Center. If adopted, KYT could become the backbone of modern crypto crime detection systems.
The proposal also calls for “safe harbor” provisions that protect firms experimenting with innovative compliance tools, allowing them to collaborate with regulators before full-scale implementation.
Coinbase is also urging the Treasury to establish regulatory sandboxes controlled testing environments where private firms and government agencies can trial new AML technologies without immediate risk of penalties. This model, already used in jurisdictions like the U.K. and Singapore, could accelerate innovation while ensuring oversight.
In addition, the exchange advocates for an outcome-based regulatory framework which is one that evaluates whether firms effectively reduce financial crime rather than rigidly enforcing procedural checklists. This shift, Coinbase says, would enable companies to direct more resources toward real-time crypto crime detection and less toward redundant reporting.
Flooding agencies with low-value reports helps no one, Coinbase letter noted. We need a smarter model that targets results, not paperwork.
Analysts argue that such collaboration could relieve pressure on compliance teams and law enforcement alike. According to a recent Financial Action Task Force (FATF) report, most AML filings worldwide fail to result in actionable leads highlighting the need for more data-driven, focused tools.
Coinbase’s push for technology-led crypto crime detection reforms comes amid heightened debate in Congress over digital asset regulation. Senate Banking Committee Democrats recently circulated a draft bill to expand AML rules to decentralized finance (DeFi) platforms and self-hosted wallets, sparking concern across the industry.
Critics including several Republican lawmakers and blockchain advocacy groups warned that the proposal could “criminalize code” and hinder U.S. innovation. Coinbase’s filing contrasts sharply with that enforcement-heavy approach, favoring instead a cooperative framework between the public and private sectors.
“The choice before policymakers is simple,” — Paul Grewal, Coinbase CLO, wrote. “Do we double down on outdated systems, or do we build the next generation of crypto crime detection that works for everyone?”
The Treasury is expected to review submissions from industry stakeholders over the coming months, with potential updates to AML guidance anticipated in early 2026. If Coinbase’s recommendations gain traction, the U.S. could move toward a more adaptive and privacy-conscious compliance regime balancing innovation with accountability in the fight against digital financial crime.
