Coinbase CLO Urges Modernization of AML Approaches with AI and Blockchain

Coinbase CTO's open letter to the U.S. Treasury.

On October 20, 2025, Paul Grewal, the Chief Legal Officer at Coinbase, took to social media platform X to encourage the U.S. government to leverage blockchain technology to combat cryptocurrency-related crimes. “When bad actors innovate in financial crime, good actors need to innovate too,” Grewal stated, while sharing an open letter he wrote on behalf of Coinbase, containing suggestions for the government on how to address crypto crime.

Key Points from Grewal’s Message

Grewal forwarded his letter to the U.S. Treasury on October 17, and subsequently shared it on October 20, concluding a thread on X. In his posts, Grewal made four key recommendations for the U.S. government, emphasizing the need for the Treasury and Congress to remain innovative in the face of evolving financial crimes.

What Does the Coinbase Letter Contain?

In a comprehensive 40-page letter, Grewal expressed gratitude to the U.S. Treasury for the chance to submit solutions to combat crimes involving digital assets. In the executive summary, Grewal highlighted that the Treasury's call for comments arose at a time when money laundering schemes had grown increasingly sophisticated, enabled by advanced technologies that allow criminal transactions to occur quickly and in large volumes.

To address these challenges, Grewal proposed the incorporation of blockchain and other innovative techniques to detect illicit activities and modernize the Anti-Money Laundering Act of 2020 and the Bank Secrecy Act. This modernization would involve removing outdated and unnecessary provisions.

The letter includes recommendations tailored to each topic raised by the Treasury.

Emphasizing the Use of APIs

Grewal suggested that the Treasury should promote the use of Application Programming Interfaces (APIs) through regulation. This would assist financial institutions in adhering to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) standards. He urged the Treasury to provide guidance under the Bank Secrecy Act, highlighting that APIs would allow institutions to access data from various blockchains and analytics platforms more efficiently. Grewal emphasized the need for API regulations to tackle issues like standardization and data quality.

Advocating for Artificial Intelligence

Regarding the use of artificial intelligence, Grewal proposed that the Treasury support the responsible application of AI in AML compliance. He believes that this could transform how law enforcement and financial institutions address illicit activities by significantly reducing the occurrence of false positives, enabling real-time processing at scale, and reallocating resources to focus on higher-risk activities.

Modernizing Digital Identification Guidelines

On the topic of digital identification, Grewal encouraged updates to ensure that decentralized identification methods and zero-knowledge proofs are included in the approved identity verification processes. He called for amendments to the Financial Crimes Enforcement Network regulations or the issuance of new guidance that recognizes these digital forms of identity verification as valid. Grewal highlighted the need for interoperability in identity ecosystems and the reuse of identification data, stressing that the existing customer identification policies under the Bank Secrecy Act are outdated and potentially hazardous.

Recognizing On-Chain Data

In the section discussing blockchain technology, Grewal urged the Treasury to explicitly recognize and incentivize the use of on-chain data, which would enhance AML and CFT compliance. He stated that this would necessitate amendments to the Bank Secrecy Act, suggesting that adopting native blockchain technologies for compliance will lead to more accurate, efficient, and user-data-protective practices.

The remainder of the letter addresses specific questions posed by the Treasury’s request concerning innovative methods to identify illicit activities involving digital assets, detailing the risks and inefficiencies present in current regulations and other specific challenges.

Earlier in his career, Paul Grewal played a crucial role in exposing Operation Choke Point 2.0, an initiative by the Financial Crimes Enforcement Network (FinCEN) aimed at compelling banks to withdraw services from cryptocurrency users. By utilizing the Freedom of Information Act (FOIA), he obtained documents that contained proof of such actions, leading to the eventual cessation of Operation Choke Point 2.0 during the Trump Administration.

Key Takeaways

Paul Grewal of Coinbase urged the U.S. government to innovate in the fight against cryptocurrency-related crimes using blockchain technology.
In a letter, he made several recommendations to modernize AML legislation and improve compliance measures.
Important proposals include the adoption of APIs, responsible use of AI, updated digital identification practices, and recognition of on-chain data.
Grewal has a history of advocating for transparency and against regulatory overreach in the cryptocurrency space.