1970s Laws vs. 2020s Tech: Why the US is Hurriedly Reviewing Financial Surveillance
The US financial system is facing a paradox: while bad actors leverage artificial intelligence and near-instantaneous blockchain rails, regulators are forced to rely on the Bank Secrecy Act (BSA), a framework enacted over half a century ago. At a recent hearing held by the House Financial Services Subcommittee, crypto executives, traditional banking representatives, and security experts urged lawmakers to immediately modernize anti-money laundering (AML) rules.
The reformers’ core argument is simple: legacy reporting mechanisms cannot keep pace with the speed of the digital era, creating mountains of useless paperwork while failing to stop actual threats.
A ‘Bloated Surveillance Machine’: Criticizing the Current BSA Regime
Subcommittee Chairman Warren Davidson opened the hearing with sharp criticism of the existing BSA framework, calling it a “bloated surveillance machine demanding endless reports without delivering proportional results.”
Annual Reporting Volume in the US:
- Nearly 5 million Suspicious Activity Reports (SARs) filed.
- Over 21 million Currency Transaction Reports (CTRs) filed for transactions exceeding $10,000.
According to critics, this massive influx of data overwhelms law enforcement agencies, turning their work into finding a needle in a haystack while real-world criminals operate at machine speed.
Next-Gen Threats: North Korean Hackers and AI-Powered Scams
The Global Head of Policy at blockchain intelligence firm TRM Labs, Ari Redbord, presented lawmakers with shocking statistics illustrating the scale of modern cyber threats.
“The framework that helped us win yesterday will not be enough to win today. As threat actors are moving at machine speed, retrospective reporting frameworks are structurally incapable of generating a response in time.”
— Ari Redbord, TRM Labs
Redbord highlighted several key metrics showcasing the scale of the issue:
- North Korea-linked hackers stole over $2 billion in digital assets in 2025 and another $600 million in early 2026.
- Pig butchering networks stripped more than $35 billion from Americans last year.
- AI-enabled scam activity surged 500% over the past year.
- Illicit funds now move across wallets within 24 to 48 hours, rendering standard retrospective reviews obsolete.
Concrete Proposals: Safe Harbors and Data Minimization
To address these vulnerabilities, TRM Labs and other industry leaders proposed several actionable steps:
- Digital Asset Hold Law: Giving crypto exchanges a statutory safe harbor to temporarily freeze suspect funds pending law enforcement review.
- Formalizing Private Initiatives: Recognizing stablecoin financial intelligence units like T3 FCU (a collaboration between Tether, TRON, and TRM), which has frozen over $450 million in illicit USDT since September 2024.
- Data Minimization: Urging institutions to hold the least amount of customer information necessary to mitigate risk, preventing databases from becoming “honeypots” for ransomware groups and state-sponsored hackers.
The Great Debate: Reform vs. Repeal
Witnesses were divided on how deep the legislative cuts should go. Nicholas Anthony of the Cato Institute argued that the core issue with the BSA is surveillance itself, suggesting options ranging from adjusting reporting thresholds for inflation to repealing the BSA regime entirely.
Conversely, John Court, general counsel at the Bank Policy Institute, advocated for reform over repeal. He urged higher reporting thresholds, simplified filings, and explicit approval for banks to utilize machine learning and AI in transaction monitoring.
Atlantic Council Senior Fellow Carole House pushed back against deep cuts, warning that reducing compliance burdens must not come at the cost of opening the door to adversaries seeking to harm US national security interests.
The Impact of the Trump Executive Order
The congressional hearing took place just days after President Donald Trump signed an executive order directing regulators to tighten customer due diligence (CDD) and customer identification requirements under the BSA. The order focuses on flagging risks tied to ITIN use, off-the-books wages, and foreign consular IDs, linking financial compliance directly to immigration enforcement efforts.
Frequently Asked Questions (FAQ)
What is the Bank Secrecy Act (BSA)?
The BSA is a 1970 US law that requires financial institutions to assist government agencies in detecting and preventing money laundering, specifically by filing reports on cash transactions exceeding $10,000.
Why is the crypto industry pushing for BSA modernization?
Digital assets move instantly, while traditional BSA reporting takes weeks to process. The industry wants AI-native monitoring tools and legal safe harbors to freeze suspicious transactions in real time.
What is the T3 FCU?
T3 FCU is a joint initiative by Tether, TRON, and TRM Labs designed to combat the illicit use of stablecoins. It has successfully frozen hundreds of millions of dollars in illicit USDT.
