US Treasury Bets on AI to Tackle Crypto Fraud After $9B Losses

The U.S. Department of the Treasury has released a sweeping new report to Congress that marks a turning point in how America plans to fight financial crime in the digital asset space.

Published in March 2026, the report—mandated under Section 9(e) of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, which President Trump signed into law on July 18, 2025—lays out the government’s most comprehensive vision yet for deploying cutting-edge technologies against crypto-enabled money laundering, sanctions evasion, and terrorist financing.

At the heart of the report is a clear message: traditional compliance methods are no longer sufficient. Treasury is now formally urging banks, crypto exchanges, and other regulated financial institutions to embrace four technology pillars—artificial intelligence, digital identity solutions, blockchain monitoring and analytics, and application programming interfaces (APIs)—as the new frontline of defense against illicit finance.

The report reviewed over 220 public comments from industry stakeholders and conducted extensive research before arriving at its recommendations.

A $9 Billion Problem That Traditional Tools Cannot Solve

According to the Treasury’s findings, victims reported more than $9 billion in losses from digital asset fraud to the FBI’s Internet Crime Complaint Center (IC3) in 2024. Of that total, $5.8 billion came from crypto investment schemes alone—a staggering 47 percent increase over the previous year.

These so-called “pig butchering” scams, often run by transnational criminal organizations operating out of scam centers in Southeast Asian countries like Burma, Cambodia, and Laos, have become one of the fastest-growing financial crimes targeting American citizens.

Meanwhile, state-sponsored cyber theft has reached unprecedented levels. The report highlights that North Korean (DPRK) cybercriminals stole at least $2.8 billion in digital assets between January 2024 and September 2025.

The most dramatic single incident was the February 2025 theft of $1.5 billion from a digital asset service provider, Bybit—the largest crypto heist ever recorded. These stolen funds are funneled into North Korea’s weapons of mass destruction and ballistic missiles program, making crypto crime a direct national security concern.

Ransomware payments, though declining from their 2023 peak of $1.1 billion to roughly $734 million in 2024 thanks to stronger law enforcement action and better victim defenses, remain overwhelmingly denominated in digital assets.

Russia and Iran have also been caught using stablecoins and other digital assets to circumvent U.S. and international sanctions, though their primary financial flows still rely on traditional fiat currency.

Banks, Crypto Exchanges, and Digital Asset Service Providers

The report’s recommendations apply broadly to any entity classified as a financial institution under the Bank Secrecy Act (BSA), which includes traditional banks, money services businesses, broker-dealers, and—critically—digital asset service providers (DASPs).

Most crypto firms operating in the United States are classified as money services businesses under FinCEN regulations, meaning they are already subject to AML/CFT obligations, including suspicious activity reporting, record-keeping, and customer identification requirements.

However, the report identifies significant compliance gaps. Some DASPs have failed to register with FinCEN despite operating in or serving U.S. customers. Others have actively helped customers conceal their U.S. presence during onboarding.

Digital asset kiosks—commonly known as crypto ATMs—are flagged as particularly vulnerable, with over 10,900 complaints and approximately $246.7 million in victim losses reported in 2024, driven in part by high rates of non-compliance among kiosk operators.

The Technological Centrepiece of the New Strategy

Artificial intelligence occupies a dedicated section in the Treasury report and is positioned as perhaps the most transformative tool in the compliance toolkit. Financial institutions are already using AI for transaction monitoring, where machine learning models analyze vast volumes of blockchain data to flag suspicious patterns that human analysts would miss.

AI-powered systems can detect anomalies in real time—identifying unusual transaction velocities, wallet clustering behaviors, or connections to sanctioned entities—and generate alerts far more efficiently than legacy rule-based systems.

The report also notes that AI is being deployed for customer due diligence and identity verification, using natural language processing to screen documents and biometric tools to authenticate users.

In the fraud detection space, machine learning algorithms are increasingly capable of identifying the digital fingerprints of investment scams, phishing campaigns, and social engineering attacks before victims suffer losses.

This endorsement aligns with a broader push by the Treasury. On February 19, 2026, the department released two new resources—a shared AI Lexicon and a Financial Services AI Risk Management Framework (FS AI RMF)—designed to standardize terminology and establish governance practices for AI use across the financial sector.

Treasury Secretary Scott Bessent stated that the U.S. must lead on developing innovative AI applications, particularly in the financial sector, reinforcing the administration’s view that responsible AI is a force multiplier for national security.

Mixers, Bridges, and Jurisdictional Gaps

A substantial portion of the report is devoted to the mechanics of crypto money laundering, particularly the role of mixers, bridges, and swapping services. Mixers obscure the trail of digital assets by pooling funds from multiple users, splitting transactions, or using code to manipulate transaction structures.

The report notes that North Korean cyber actors are especially adept at chaining together mixers, decentralized exchanges, and cross-chain bridges to launder stolen funds, making tracing extremely difficult.

According to Treasury’s own analysis, since May 2020, over $37.4 billion in withdrawals from more than 50 bridges have been denominated in the two largest stablecoins.

During the same period, approximately $1.6 billion in deposits from mixing services flowed into these bridges, with over $900 million directed to a single bridge that faced scrutiny for failing to block DPRK-linked transactions. Illicit actors commonly convert stolen Bitcoin through mixers, swap it into stablecoins, and transfer it to fresh wallets to break the chain of traceability.

Jurisdictional arbitrage remains a critical vulnerability. Many DASPs operate across multiple countries with fragmented or absent AML/CFT regimes, registering in one jurisdiction while hosting servers and personnel in others. Despite the Financial Action Task Force (FATF) clarifying global AML standards for digital assets six years ago, enforcement remains patchy, creating havens for illicit actors.

Treasury’s 2026 Action Plan

The report outlines a series of concrete next steps that Treasury plans to take in 2026 and beyond. These include issuing new guidance to help financial institutions understand how they can adopt innovative technologies within the existing regulatory framework, updating AML/CFT regulations to better accommodate digital asset-specific risks, and expanding public-private partnerships to improve information sharing between industry, law enforcement, and national security agencies.

Treasury has committed to a technology-neutral, risk-based approach—meaning it will not mandate specific tools but will actively encourage and support the adoption of AI, blockchain analytics, digital identity, and API-based solutions.

The department views well-governed technology as a “force multiplier” for combating illicit finance and wants financial institutions to concentrate their most substantial resources on high-risk areas while deprioritizing lower risks.

A Regulatory Landscape in Rapid Transformation

This report does not exist in a vacuum. It arrives at a moment of extraordinary regulatory change for the crypto industry. The GENIUS Act itself—passed by a bipartisan Senate vote of 68–30 in June 2025—was the first comprehensive federal stablecoin framework in U.S. history, requiring issuers to maintain 1:1 reserves and submit to federal oversight.

Federal regulators must publish implementing rules by July 2026, with full enforcement beginning no later than January 2027. The broader regulatory climate has shifted dramatically since 2023. That year, the Treasury’s $4.3 billion settlement with Binance over AML failures sent shockwaves through the industry.

Since then, the SEC has pivoted from aggressive enforcement to structured rulemaking under Chair Paul Atkins, the OCC granted conditional trust charters to five crypto firms in December 2025, and the FATF held its February 2026 plenary in Mexico, where it advanced two new reports on stablecoin and offshore DASP risks—while imposing additional countermeasures on Iran.

The convergence of AI regulation and crypto compliance is also accelerating globally. The EU’s Markets in Crypto-Assets (MiCA) regulation has been fully enforced since December 2024, with a grandfathering deadline for unlicensed operators approaching in July 2026.

Japan is moving to cut crypto capital gains taxes and reclassify digital assets, while Hong Kong has licensed 12 virtual asset trading platforms for retail access. In this context, the U.S. Treasury’s embrace of AI-powered compliance tools signals an intent to maintain American competitiveness in both fintech innovation and financial crime prevention.

By formally endorsing AI and other emerging technologies as central to the fight against digital asset crime, the U.S. government is making clear that the future of anti-money laundering enforcement is algorithmic, real-time, and data-driven. For banks, crypto exchanges, and DASPs, the message is unambiguous: invest in technology or risk falling behind—both the criminals and the regulators.

Also Read: Democrats Vs. Trump: Stablecoin Regulation or Backend Deal for WLFI?