Congress Debates Bank Secrecy Act Overhaul as AI Fraud Surges 500% and Crypto Demands Reform

Congress Weighs Bank Secrecy Act Reform Amid AI-Driven Financial Crime

The House Financial Services Subcommittee held a hearing on modernizing the BSA for financial crime in the 21st century, bringing together crypto executives, policy experts, and national security specialists to debate how anti-money laundering laws should evolve 1

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. The Bank Secrecy Act, a 1970 law requiring banks and financial institutions to report suspicious activity and large transactions, faces mounting pressure to adapt as AI fraud and digital assets reshape the threat landscape 2

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Subcommittee Chairman Warren Davidson opened by calling the BSA a "bloated surveillance machine demanding endless reports without delivering proportional results," noting institutions file nearly 5 million SARs and 21 million CTRs annually 1

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. He argued regulators should move toward actionable intelligence supported by AI tools rather than defensive compliance 2

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. Ranking Member Joyce Beatty countered that financial crime remains deeply embedded and modernization should not weaken controls as fraudsters increasingly use crypto and AI-enabled techniques 2

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AI Fraud Surge Compresses Response Windows

Ari Redbord, global head of policy at TRM Labs, warned that AI-enabled scam activity surged 500% over the past year while illicit funds now move across wallets within 24 to 48 hours 1

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. He told lawmakers that "retrospective reporting frameworks are structurally incapable of generating a response in time" because "the framework that helped us win yesterday will not be enough to win today" 1

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Redbord argued that AI investigative tools can compress weeks of manual analysis into minutes and called for federal funding of AI-native investigative tools across IRS-CI, FinCEN, OFAC, FBI, DEA, Secret Service, and HSI 1

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. He proposed modernized reporting structures that move from transaction-by-transaction alerts toward network-level intelligence products that law enforcement can operationalize more quickly, noting that fraudsters use AI to generate synthetic identities and automate fraud 2

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Witnesses Split on Reform Versus Repeal

Nicholas Anthony, research fellow at the Cato Institute, said the problem with BSA was not inefficiency but surveillance itself, noting "the history of financial surveillance has been a history of ever-moving goalposts" from tax enforcement to "fraud and immigration" 1

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. He laid out options ranging from inflation-adjusting thresholds to repealing the BSA regime entirely 1

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John Court, general counsel at the Bank Policy Institute, backed reform rather than repeal, calling Treasury's proposed AML rule "a vast improvement" and urging higher reporting thresholds, simpler filings, risk-based oversight, and explicit approval for banks to use AI in transaction monitoring 1

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. Court testified that banks have faced "an incessant focus on technical compliance and examiner benchmarking" rather than flexibility to use risk-based judgment to identify serious criminal activity 2

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National Security Concerns Temper Reform Ambitions

Carole House, senior fellow at the Atlantic Council and former White House and Treasury official, pushed back on deep cuts to the framework, noting that reducing compliance burden should not come at the cost of "opening the door to adversaries seeking to harm Americans and U.S. national security interests" 1

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. House observed that modern financial crime deliberately fragments activity across institutions and jurisdictions, making cross-institution visibility and structured information sharing increasingly important 2

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The hearing arrived days after President Donald Trump signed an executive order directing regulators to strengthen customer due diligence and customer identification requirements under the BSA while expanding scrutiny around account ownership and financial risks associated with immigration enforcement 1

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. The order directs Treasury to tighten BSA customer due diligence rules and flag risks tied to ITIN use, off-the-books wages, and foreign consular IDs 1

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Davidson, Redbord, House, and Court all backed broader use of machine learning and AI in transaction monitoring, representing a rare point of consensus 1

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. The debate centers on whether the existing framework should evolve into a faster, more targeted and technology-enabled system, or whether reducing reporting obligations risks creating new blind spots just as artificial intelligence and crypto infrastructure reshape financial crime 2

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