Lawmakers, crypto executives, policy researchers and security experts converged on Capitol Hill this week to argue that the United States’ half-century-old anti-money laundering framework is lagging behind an era of AI and digital assets—and that the Bank Secrecy Act (BSA) needs a serious overhaul.
What happened
The House Financial Services Committee’s National Security, Illicit Finance, and International Financial Institutions Subcommittee held a hearing titled “Modernizing the BSA for Financial Crime in the 21st Century.” The session revisited the 1970 law that forces banks and registered crypto firms to file suspicious activity reports (SARs), currency transaction reports (CTRs) for transactions over $10,000, and to collect customer identity information.
Why it matters for crypto
Witnesses argued the BSA today produces mountains of data but not timely, actionable intelligence—especially as bad actors adopt AI and digital-asset tools that move money at “machine speed.” Key takeaways:
- Scale of the problem: TRM Labs’ Global Head of Policy Ari Redbord told the panel North Korea stole more than $2 billion in digital assets in 2025 and another $600 million in early 2026. “Pig butchering” scams—long-con confidence frauds—drained an estimated $35+ billion from Americans last year.
- Speed and sophistication: Redbord warned AI-enabled scams jumped roughly 500% year-over-year and that illicit funds can hop across wallets in 24–48 hours, compressing response windows and rendering retrospective reporting less useful.
- Reporting overload: Subcommittee Chair Rep. Warren Davidson (R-OH) called the BSA a “bloated surveillance machine,” noting roughly 5 million SARs and 21 million CTRs are filed annually—data that can drown investigators and produce privacy concerns.
Policy proposals on the table
Witnesses offered a mix of technical fixes and structural changes—some aimed specifically at crypto:
- Actionable intelligence over volume: Many asked Congress to refocus the regime on risk-based reporting that yields usable leads rather than indiscriminate filings.
- Digital asset tools and safe harbors: Redbord urged formal recognition for stablecoin-focused financial intelligence units such as T3 FCU (a Tether–TRON–TRM initiative that TRM says has frozen over $450 million in illicit USDT since September 2024), and proposed a “digital asset hold law” to give exchanges a statutory safe harbor to freeze suspect funds while law enforcement reviews.
- Minimize data exposure: Redbord also argued institutions should retain “the least amount of information they need” to assess risk, warning that every new customer database is a honeypot for ransomware and state-sponsored hackers.
- AI and automation: There was broad support for using machine learning and AI in transaction monitoring. Redbord pushed for federal funding of “AI-native” investigative tools across agencies including IRS-CI, FinCEN, OFAC, FBI, DEA, Secret Service and HSI to keep pace with threat actors.
- Regulatory relief: John Court, general counsel at the Bank Policy Institute, favored reform—not repeal—backing Treasury’s proposed AML rule as an improvement and calling for higher reporting thresholds, simpler filings, risk-based oversight, and explicit permission for banks to deploy AI in monitoring.
- Civil liberties concerns: Nicholas Anthony of the Cato Institute pressed a different critique—arguing the problem is financial surveillance itself—and floated options from inflation-adjusted thresholds to outright repeal of the BSA regime. Atlantic Council’s Carole House cautioned against “opening the door to adversaries,” urging that any compliance relief must preserve national security protections.
Political context: an executive order and immigration tie-ins
The hearing took place days after President Trump signed an executive order directing regulators to tighten customer due diligence and identification requirements under the BSA, while also expanding scrutiny tied to immigration-related risks. The order instructs Treasury to sharpen due diligence around ITIN use, off-the-books wages and foreign consular IDs, and asks the CFPB to consider potential deportation-related risks in lending decisions—moves that critics say broaden the scope of financial surveillance to non-citizens.
What this means going forward
Congressional debate is shifting from whether to change the BSA to how. Expect competing priorities:
- Industry and national security voices pushing for risk-based rules, higher thresholds, AI-enabled monitoring, and legal tools that let crypto firms freeze illicit funds safely.
- Civil-liberties advocates warning against expanded surveillance and larger data collection.
- Regulators balancing tighter due diligence mandates (including immigration-related flags) with industry calls to reduce filing volume and improve the usefulness of reports.
For crypto firms, exchanges and compliance teams, the likely near-term implications are more regulatory scrutiny plus continued pressure to deploy advanced analytics and AI to detect and disrupt illicit flows—alongside a push for clearer legal protections when freezing suspect assets. Congress and the Treasury will be key to whether reform ends up easing compliance burdens and enabling faster intervention, or broadening surveillance and reporting obligations.
Bottom line: The BSA’s paper-based, retrospective model is under intense scrutiny. Lawmakers, industry and security experts broadly agree modernization is needed—but they sharply disagree on scope, privacy trade-offs and who should bear the cost and responsibility of policing the digital-asset ecosystem.
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