US Treasury consults on crypto-related illicit finance detection
The US Department of the Treasury has opened a request for comments on ‘innovative or novel methods, techniques or strategies that regulated financial institutions use, or could potentially use, to detect illicit activity involving digital assets.’
The move fulfils a requirement under the relatively high-profile Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act), which was signed into law by president Donald Trump last month (18 July) to create a comprehensive regulatory framework for stablecoin issuers in the US.
In particular, the Treasury Department is asking for views about ‘application program interfaces [APIs], artificial intelligence, digital identity verification, and use of blockchain technology and monitoring,’ the department highlighted in a press release (18 August).
‘Innovative tools are critical to advancing efforts to address illicit finance risks but can also present new resource burdens for financial institutions,’ the department states. ‘As required by the GENIUS Act, Treasury will use public comments to inform research on the effectiveness, costs, privacy and cybersecurity risks, and other considerations related to these tools.’
Comments need to be submitted by 17 October.
STABLECOINS & APIs: EXPLAINED Stablecoins are a type of digital asset / cryptocurrency, minted on a blockchain network, that seek to maintain a stable value by having their market value pegged to an external reference, typically fiat currency. The world’s two biggest stablecoins (by market capitalisation) are Tether and USD Coin – both are, like most stablecoins, pegged to the US dollar |An API is a connection (or type of software interface) between computers or between computer programmes.
Stroke of GENIUS
The White House has described GENIUS as a ‘historic piece of legislation that will pave the way for the United States to lead the global digital currency revolution.’
The GENIUS Act ‘prioritises consumer protection, strengthens the US dollar’s reserve currency status and bolsters our national security,’ the White House stated in a ‘fact-sheet’, adding that the law ‘will make America the undisputed leader in digital assets, bringing massive investment and innovation to our country.’
Trump backs the GENIUS Act ‘because it protects consumers from nefarious actors in financial markets,’ the White House continued in the fact-sheet, explaining that the law – which requires stablecoins to have 100 per cent reserve backing with ‘liquid assets like US dollars or short-term treasuries and requires issuers to make monthly, public disclosures of the composition of reserves’ – will ‘ensure [stablecoins’] stability and trust through strong reserve requirements.’
Under the new law, stablecoin issuers ‘must comply with strict marketing rules to protect consumers from deceptive practices’, the White House stated, explaining that ‘they are forbidden from making misleading claims that their stablecoins are backed by the US government, federally insured or legal tender.’
The law was signed after the House of Representatives passed the GENIUS Act on 17 July by 308 votes to 122 during what US lawmakers dubbed ‘Crypto Week’ in Washington DC. The Senate (upper house) had already given its approval the previous month.
RELATED ARTICLE Trump signs stablecoin act into law as Washington steps on crypto gas – a news story (21 July 2025) on the presidential signing of the GENIUS Act into law
GENIUS vs illicit activity
The GENIUS Act is not immediately effective. It takes effect on the earlier of either the date that is 18 months after the enactment of the act (which would be 18 January 2027) or 120 days after the date on which the main federal payment stablecoin regulators issue any final regulations implementing the act.
On the challenge of ‘combatting illicit activity in digital assets,’ the White House highlighted in its fact-sheet that the new law explicitly subjects stablecoin issuers to the Bank Secrecy Act, ‘thereby clearly obligating them to establish effective anti-money laundering and sanctions compliance programmes with risk assessments, sanctions list verification and customer identification’; and stated that it also improves the Treasury Department’s ability to tackle illicit stablecoin activities by ‘enhancing its sanctions evasion and money laundering enforcement capabilities.’
Beyond Washington DC, the state of Wyoming last week announced the ‘mainnet’ launch of its own stablecoin – the Frontier Stable Token (FRNT). A mainnet launch is a reference to the official activation of a blockchain network – meaning FRNT is moving from a testing environment (‘testnet’) to a live, operational state where real transactions and applications can occur.
FRNT, which is pegged 1:1 to the US dollar, is a groundbreaking digital money programme for the public sector as the first fiat-backed, fully-reserved stablecoin issued by a public entity in the US – an eye-catching development given that traditional stablecoins are issued by private companies.
Meanwhile other government agencies worldwide are stepping up their use of identity verification to tackle financial fraud. For example, the UK’s Companies House confirmed earlier this month (5 August) that legal requirements for directors and ‘people with significant control’ of companies to verify their identities will begin on 18 November. ‘Companies of all sizes will benefit from more accurate and trustworthy register data and greater protections against fraud,’ the agency said, explaining that people can verify their identity through GOV.UK One Login or through an ‘Authorised Corporate Service Provider’ (ACSP).