Letter to the Treasury on Illicit Activity Involving Digital Assets

Dear Executive Secretary Miller:

The American Bankers Association supports innovation and commends Treasury's efforts to identify and evaluate the innovative and novel methods, techniques and strategies that banks and other financial institutions use to detect and mitigate illicit finance risks involving digital assets. We appreciate the opportunity to respond to this request for comment as Treasury works to implement the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), as well as the President's Executive Order 14178, Strengthening American Leadership in Digital Financial Technology.

I. Summary of the Comment

The responsible adoption and regulation of digital assets is necessary to maintain U.S. leadership in digital assets, as well as to protect the safety and soundness of the U.S. financial system. Effectively detecting and mitigating illicit finance risk involving digital assets, especially those that involve public, permissionless blockchains, requires a coordinated approach between digital market participants, banks and non-bank financial institutions, third-party service providers, and the government. We applaud regulators for taking important steps in April to remove supervisory barriers to banks adopting and transacting in digital assets, and Congress for passing essential legislation in July creating a new regulatory framework for payment stablecoins. However, more work is still needed to provide essential regulatory clarity and certainty to realize the promise of digital assets.

• First, equivalent Bank Secrecy Act (BSA) regulation —technology-neutral regulation— must apply to equivalent financial activity, whether conducted in digital or fiat currency.
• Second, the rules must be modernized to regulate digital assets both in light of both traditional illicit finance risks, as well as the novel risks presented by their unique decentralized character.
• Third, while those reforms are in progress, banks need additional interim guidance to apply existing BSA regulatory obligations in the context of digital assets.
• Fourth, those banks that choose to go beyond providing traditional banking services and act as digital market participants should be exempt from separate, duplicative, or contradictory BSA regulation.
• Finally, banks must be allowed to responsibly innovate without unnecessary regulatory barriers, so banks and other responsible actors can benefit from new tools and technology, and that bad actors cannot gain asymmetrical advantage in hiding their activities.

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