IV. Request for Comments

Treasury welcomes input on any matter that commenters believe is relevant to Treasury's efforts to identify and evaluate innovative or novel methods, techniques, or strategies that regulated financial institutions use to detect and mitigate illicit finance risks involving digital assets. For each method, technique, or strategy discussed in your comment, Treasury welcomes input on the following research factors that will be used to evaluate the methods, techniques, strategies, or tools: (a) improvements in ability of financial institutions to detect illicit activity involving digital assets; (b) costs to regulated financial institutions; (c) the amount and sensitivity of information that is collected or reviewed; (d) privacy risks associated with the information that is collected or reviewed; (e) operational challenges and efficiency considerations; (f) cybersecurity risks; and (g) effectiveness of the methods, techniques, or strategies in mitigating illicit finance.

When responding to one or more of the questions below, please note in your response the number(s) of the questions to which you are responding. When appropriate, your comment should include discussion of regulatory or statutory changes that may be necessary to effectively leverage the discussed methods, techniques, strategies, or tools. In all cases, to the extent possible, please cite any public data related to or that support your responses. If data are available, but non-public, describe such data to the extent possible.

1. In your experience, what illicit finance risks and vulnerabilities pose the greatest risk in the digital asset ecosystem? What key trends in illicit finance risks have financial institutions observed in the digital asset ecosystem?
2. What innovative or novel methods, techniques, or strategies related to APIs are financial institutions using to detect illicit activity and mitigate illicit finance risks involving digital assets? What are the risks, benefits, challenges, and potential safeguards related to APIs?

(a) What factors do financial institutions consider when deciding whether to employ APIs for AML/CFT and sanctions compliance purposes? For financial institutions that use or plan to use APIs for these purposes, what specific compliance functions do/will APIs support? For financial institutions that decided not to use APIs, please provide additional details on the rationale for that decision.

(b) How are financial institutions using API tools in AML/CFT and sanctions compliance efforts in relation to other tools (e.g.,in testing phase while using existing tools, to augment existing tools, or to replace existing tools)? Please explain and, if possible, compare the effectiveness of API tools with other existing or previous tools used for similar purposes.

(c) Are there regulatory, legislative, supervisory, or operational obstacles to using APIs to detect illicit finance and mitigate risks involving digital assets? Please provide any recommendations related to identified obstacles.

(d) What steps, if any, should the U.S. government take to further facilitate effective, risk-based adoption of APIs for detecting illicit finance involving digital assets?

(e) Treasury will evaluate APIs and consider their impact based on the research factors identified in the GENIUS Act.[19]

Provide any information pertinent to those factors.

3. What innovative or novel methods, techniques, or strategies related to AI are financial institutions using to detect illicit activity and mitigate illicit finance risks involving digital assets? What are the risks, benefits, challenges, and potential safeguards related to AI? Please describe the use of AI to conduct analysis of transactional data, including transactions that occur on blockchains, and to identify complex illicit financial networks, as well as key lessons learned from use of AI in this context.

(a) What factors do financial institutions consider when deciding whether to employ AI for AML/CFT and sanctions compliance purposes? For financial institutions that use or plan to use AI for these purposes, what specific compliance functions does/will AI support? For financial institutions that decided not to use AI, please provide additional details on the rationale for that decision.

(b) How are financial institutions using AI tools in AML/CFT and sanctions compliance efforts in relation to other tools (e.g., in testing phase while using existing tools, to augment existing tools, or to replace existing tools)? Please explain and, if possible, compare the effectiveness of AI tools with other previous or existing tools used for similar purposes.

(c) Are there regulatory, legislative, supervisory, or operational obstacles to using AI to detect illicit finance and mitigate risks involving digital assets? Please provide any recommendations related to identified obstacles.

(d) What steps, if any, should the U.S. government take to further facilitate effective, risk-based adoption of AI for detecting illicit finance involving digital assets?

(e) Treasury will evaluate AI and consider its impact based on the research factors identified in the GENIUS Act.[20]

Provide any information pertinent to those factors.

4. What innovative or novel methods, techniques, or strategies related to digital identity verification are financial institutions using to detect illicit activity and mitigate illicit finance risks involving digital assets? What are the risks, benefits, challenges, and potential safeguards related to digital identity verification? Please describe the portable digital identity credentialing tools in use and how such tools are being used.

(a) What factors do financial institutions consider when deciding whether to employ digital identity verification for AML/CFT and sanctions compliance purposes? For financial institutions that use or plan to use digital identity verification for these purposes, what specific compliance functions does it/will it support? For financial institutions that decided not to use digital identity verification, please provide additional details on the rationale for that decision.

(b) How are financial institutions using digital identity verification tools in AML/CFT and sanctions compliance efforts in relation to other tools (e.g., in testing phase while using existing tools, to augment existing tools, or to replace existing tools)? Please explain and, if possible, compare the effectiveness of digital identity tools with other existing or previous tools used for similar purposes.

(c) Are there regulatory, legislative, supervisory, or operational obstacles to using digital identity verification to detect illicit finance and mitigate risks involving digital assets? Please provide any recommendations related to identified obstacles.

(d) What steps, if any, should the U.S. government take to further facilitate effective, risk-based adoption of digital identity verification for detecting illicit finance involving digital assets?

(e) Treasury will evaluate digital identity verification and consider its impact based on the research factors identified in the GENIUS Act.[21]

Provide any information pertinent to those factors.

5. What innovative or novel methods, techniques, or strategies related to blockchain technology and monitoring are financial institutions using to detect illicit activity and mitigate illicit finance risks involving digital assets? What are the risks, benefits, challenges, and potential safeguards related to blockchain technology and monitoring? Please describe how financial institutions are integrating information from blockchain analytics with off-chain data and mention any key challenges associated with using blockchain analytics (e.g., obfuscation tools and methods that can complicate tracing and assessing confidence in attribution or complexities inherent in cluster analysis).

(a) What factors do financial institutions consider when deciding whether to employ blockchain technology and monitoring for AML/CFT and sanctions compliance purposes? For financial institutions that use or plan to use blockchain technology and monitoring for these purposes, what specific compliance functions does it/will it support? For financial institutions that decided not to use blockchain technology and monitoring, please provide additional details on the rationale for that decision.

(b) How are financial institutions using blockchain technology and monitoring tools in AML/CFT and sanctions compliance efforts in relation to other tools (e.g., in testing phase while using existing tools, to augment existing tools, or to replace existing tools)? Please explain and, if possible, compare the effectiveness of blockchain technology and monitoring tools with other existing or previous tools used for similar purposes.

(c) Are there regulatory, legislative, supervisory, or operational obstacles to using blockchain technology and monitoring to detect illicit finance and mitigate risks involving digital assets? Please provide any recommendations related to identified obstacles.

(d) What steps, if any, should the U.S. government take to further facilitate effective, risk-based adoption of blockchain technology and monitoring for detecting illicit finance involving digital assets?

(e) Treasury will evaluate blockchain technology and monitoring and consider their impact based on the research factors identified in the GENIUS Act.

Provide any information pertinent to those factors.

6. What innovative or novel methods, techniques, or strategies related to any other innovative technologies such as cryptographic protocols and other privacy-enhancing tools, cloud-based solutions, on-chain compliance tools, oracles, or new verification tools for smart contracts are financial institutions using to detect illicit activity and mitigate illicit finance risks involving digital assets? What are the risks, benefits, challenges, and potential safeguards related to these other innovative technologies?

(a) What factors do financial institutions consider when deciding whether to employ other innovative technologies for AML/CFT and sanctions compliance purposes? For financial institutions that decided to use or plan to use other innovative technologies for these purposes, what specific compliance functions does it/will it support? For financial institutions that decided not to use other innovative technologies for these purposes, please provide additional details on the rationale for that decision.

(b) How are financial institutions using other innovative technologies in AML/CFT and sanctions compliance efforts in relation to other tools (e.g., in testing phase while using existing tools, to augment existing tools, or to replace existing tools)? Please explain and, if possible, compare the effectiveness of other innovative technologies with other existing or previous tools used for similar purposes.

(c) Are there regulatory, legislative, supervisory, or operational obstacles to using other innovative technologies to detect illicit finance and mitigate risks involving digital assets? Please provide any recommendations related to identified obstacles.

(d) What steps, if any, should the U.S. government take to further facilitate effective, risk-based adoption of other innovative technologies for detecting illicit finance involving digital assets?

(e) Treasury will evaluate other innovative technologies and consider their impact based on the research factors identified in the GENIUS Act. Provide any information pertinent to those factors.