Coinbase’s Paul Grewal believes innovation is necessary to keep up with criminals.
The exchange maintains, among other things, that the use of AI can combat money laundering.
The Coinbase exchange presented to the United States Department of the Treasury a series of methods to detect illicit activities involving digital assets.
Paul Grewal, the company’s legal director, said: “When criminals innovate in financial crimes, the good guys must innovate to keep up,” highlighting some areas that he considers key.
One of them focuses on the use of APIs (application programming interface) as an official compliance tool, allowing the connection of transaction monitoring systems, sanctions databases and network analysis in real time.
Thus, Coinbase proposes the publication of guides that legally protect institutions that they use them responsibly, as well as the creation of regulatory and standard test environments to reduce costs.
Another key area is the responsible adoption of artificial intelligence (AI) to reduce incorrect alerts and process data in real time. According to Grewal, the lack of regulatory clarity limits its implementation, so Coinbase proposes instructions that allow its use under supervision and audit, promoting public-private collaboration to define risks.
Digital identity and real-time monitoring
In it document submitted to the Treasury Department, firm questions current identity verification standardsproposing decentralized digital IDs and zero-knowledge proofs (ZK Proofs) as safer and more efficient alternatives. These constitute a cryptographic method that allows proving that certain information is known or true without revealing the underlying data.
Therefore, the exchange suggests recognizing these tools within the Customer Identification Program (a set of requirements established under the United States Bank Secrecy Act, designed to prevent money laundering and the financing of terrorism), expanding the possibility of sharing prior verifications between institutions and promoting global standards.
Coinbase notes that these solutions can “reduce or eliminate KYC obligations, while improving transaction monitoring and sanctions controls through blockchain analytics.”
They also highlight the usefulness of network analysis and Know-Your-Transaction rules, which allow you to monitor transactions in real time to detect suspicious activities and assess risks.
Furthermore, they recommend publishing manuals that promote the use of these instruments and grant licenses that allow interaction with sanctioned entitiesthis in order to identify suspicious addresses.
According to the report, “encouraging novel and collaborative approaches to combating illicit finance allows regulatory and enforcement efforts to be more effective, without discouraging innovation in financial services.”
These proposals come shortly after the Base network, developed by Coinbase, suffered an interruption on October 20 due to a failure in Amazon Web Services (AWS) servers. This, as reported by CriptoNoticias, temporarily affected the processing of transactions and the display of balances.
The incident highlighted the importance of having robust systems, underscoring the relevance of Coinbase’s efforts to modernize regulation.