I haven't read the full report yet, but their summary gives a sense of how their approaching this. Here are some excerpts:
Our report outlines the problem, identifies solutions, and proposes a path forward. We show why the current AML/KYC regime fails to catch criminals while putting ordinary people at risk. We then describe three shifts that can make compliance both more effective and more respectful of privacy: moving from siloed documentation to passportable credentials, from identity verification to attribute verification, and from static risk scoring to dynamic proofs.As we develop and standardize technologies to achieve these shifts, we must anchor them in seven principles—no backdoor, no phone home, no chokepoint, no honeypot, no leaks, no dead zones, and no lockout—so that digital identity reflects American commitments to liberty and autonomy. This work is not without risk; an inefficient and easily evaded AML/KYC regime may be less of a threat to American values than reliable digital ID controls affording too much power and visibility to governments and corporations. We at Coin Center nonetheless believe that these systems have become inevitabilities and—accepting that—wish to see standards developed that would maximize privacy and liberty. If we don’t do that work, simpler, more intrusive, and inevitably repressive tools will become the default.
"Imagine if identity worked like your wallet, not like a call center."
To give this effort a focal point, the report proposes the John Hancock Project: a voluntary, private-sector initiative to develop open standards for maximally privacy-preserving digital identity.