New Treasury Report Pushes AI, Digital Identity to Strengthen Crypto Oversight

A new policy report released to Congress from Treasury Secretary Scott Bessent on Monday (March 9) argues that if blockchain transactions can be monitored effectively and users can be identified where necessary, digital assets may be able to coexist with existing financial safeguards.

In the report, which covers the use of innovative technologies to counter illicit finance involving digital assets and is tied to the implementation of the GENIUS Act, the Treasury department described digital assets as playing a “crucial role in global innovation and economic development,” and outlined a national objective to restoring “U.S. leadership in digital asset technologies.”

To achieve that goal, the report highlighted four technological pillars for modern financial monitoring: artificial intelligence (AI), digital identity systems, blockchain analytics and interoperable data-sharing APIs.

Rather than banning digital assets, Washington appears intent on redesigning the ecosystem so that digital innovation can continue under a technological architecture that makes its financial flows more transparent.

More here: Global Stablecoin Boom Draws Regulators Into the Fight Against Fraud

The US Treasury’s Crypto Compliance Blueprint

The Treasury report is explicit in its assertion that AI can streamline traditional AML (anti-money laundering) systems. The cited reason is that AI tools can help identify patterns associated with complex laundering techniques such as chain-hopping transactions across multiple blockchains, or the use of numerous wallets to structure transfers, that traditional rules-based monitoring systems often struggle to detect.

Findings in the “2025 State of Fraud and Financial Crime in the United States” report, produced by PYMNTS Intelligence in collaboration with Block, show that 68% of financial institutions increased fraud-detection spending year over year.

The government’s own strategy is to use the four technology pillars to form a new architecture of programmable financial compliance:

• AI for transaction monitoring
• Digital identity for onboarding
• Blockchain analytics for tracing funds
• APIs for data sharing across institutions

This essentially builds a compliance layer over crypto’s decentralized finance landscape.

AI would analyze transaction flows in real time, flagging suspicious patterns and identifying potential money laundering networks. Digital identity systems would ensure that users interacting with financial services are verifiable individuals or institutions. Blockchain analytics would trace funds across decentralized networks, identifying links between wallets and illicit actors. And APIs would allow data sharing across exchanges, banks and regulatory bodies.

The growing importance of the regulatory push behind the digital asset space’s domestic compliance reality was also highlighted in the PYMNTS Intelligence and Citi report “Chain Reaction: Regulatory Clarity as the Catalyst for Blockchain Adoption,” which found that evolving regulatory guidance is beginning to create the foundations for safe, scalable blockchain adoption.

See also: Behind the Stablecoin Buzz, Old-School Infrastructure Still Runs the Show

The Identity Debate

Identity fraud has become a central vulnerability across financial services, and digital assets are no exception. Criminal networks increasingly rely on stolen personal information, synthetic identities and deepfake media to bypass onboarding procedures at exchanges and financial platforms.

The Treasury report endorses digital identity verification systems, stressing that future financial systems will require stronger identity layers. Financial institutions could rely on verified credentials issued by trusted providers rather than repeatedly collecting sensitive personal data from customers. The Treasury suggests that such systems may eventually support automated verification within blockchain-based applications, including smart contracts that check credentials before executing transactions.

The report acknowledged fears that large repositories of personal information could become attractive targets for cybercriminals. Others worry that identity requirements could undermine the pseudonymous character of decentralized financial systems. The Treasury’s response is largely procedural: it proposes working with the National Institute of Standards and Technology and international partners to develop interoperable identity frameworks that balance privacy protections with regulatory requirements.

At the same time, the Treasury noted that “lawful users of digital assets may leverage mixers to enable financial privacy when transacting through public blockchains,” while reiterating that “criminals commonly use tools like mixing.”

As Andrew Balthazor, associate and co-lead of the crypto asset disputes team at Holland and Knight LLP, told PYMNTS last month during a discussion for a recent “From the Block” podcast with PYMNTS CEO Karen Webster and Citi Global Head of Digital Assets for Treasury and Trade Solutions Ryan Rugg, the crypto industry still hasn’t found a solution to prevent criminals from exploiting the technology, and until it does, expanding access without enhanced guardrails mostly expands harm.