The Coinbase exchange has presented a set of methods to the U.S. Treasury to detect illegal activities related to digital assets.
“As criminals innovate in financial crime, good people must innovate to keep up,” said Paul Grewal, the firm’s legal director, highlighting several areas he believes are important.
One of them focuses on the use of APIs (Application Programming Interfaces) as official compliance tools, enabling the connection of transaction monitoring systems, sanctions databases, and network analysis in real time.
Therefore, Coinbase suggests Publication of guides that provide legal protection for institutions It requires not only creating regulated and standard test environments to reduce costs, but also using them responsibly.
Another key area is the responsible deployment of artificial intelligence (AI) to reduce false alerts and process data in real time.
Grewal said a lack of regulatory clarity has limited its implementation, so Coinbase is proposing instructions to allow use under oversight and audit, and encouraging public-private collaboration to define risks.
Digital ID and real-time monitoring
In a document submitted to the Ministry of Finance, Questioning current identity verification standardspropose decentralized digital identities and zero-knowledge proofs (ZK proofs) as more secure and efficient alternatives. These constitute cryptographic techniques that can prove that certain information is known or true without revealing the underlying data.
Exchanges are therefore proposing to allow these tools within their Customer Identification Programs (a set of requirements established under the US Bank Secrecy Act aimed at preventing money laundering and the financing of terrorism), expanding the possibility of sharing pre-verification across institutions and promoting global standards.
Coinbase says these solutions can “reduce or eliminate KYC obligations while improving transaction monitoring and sanctions management through blockchain analytics.”
It also highlights the usefulness of network analysis and Know-Your-Transaction rules. This allows you to monitor transactions in real time to detect suspicious activity and assess risk.
Additionally, it recommends that manuals be published to promote the use of these devices. Grant a license that allows interaction with authorized entitiesthis is to identify suspicious addresses.
“Encouraging innovative and collaborative approaches to combating illicit finance can make regulatory and enforcement efforts more effective without stifling innovation in financial services,” the report said.
These proposals were announced shortly after the Base network, developed by Coinbase, was disrupted on October 20 due to an Amazon Web Services (AWS) server failure. As reported by CriptoNoticias, this temporarily affected the processing of transactions and the display of balances.
This incident highlights the importance of having a robust system and underscores the relevance of Coinbase’s efforts to modernize regulations.