Treasury Chief Says Smarter AML Starts With Better Identity

A Wednesday (April 22) hearing on sanctions and illicit finance placed the machinery of anti-money laundering (AML) under scrutiny, as lawmakers and Treasury officials examined whether existing frameworks are keeping pace with the speed and structure of modern payments.

Formally titled “Evaluating the Effectiveness of U.S. Sanctions Programs,” the back and forth between members of the House Subcommittee on National Security, Illicit Finance, and International Financial Institutions and Jonathan Burke, assistant secretary for terrorist financing at the Treasury Department, moved beyond geopolitics to consider how financial institutions screen transactions, manage data flows and deploy technology in compliance regimes.

Lawmakers repeatedly returned to a central concern: whether banks are expending resources on low-value alerts while more sophisticated threats move through less visible channels.

Subcommittee chairman Rep. Warren Davidson, R-Ohio, crystallized that mindset when he noted that suspicious activity reporting thresholds have remained unchanged for decades, adding that “the concern is that we get a lot of noise and not enough signal.”

That statement aligns with the broader pressures outlined in the recent PYMNTS Intelligence report on fraud and financial crime done in collaboration with Block. Financial institutions now confront a setting in which unauthorized-party fraud accounts for the majority of incidents and losses, driven by credential theft and account takeover schemes. At the same time, regulatory and operational demands are converging. Nearly half of institutions cite regulatory requirements as a primary challenge, while a comparable share point to faster and more varied payment flows as sources of strain.

From Reporting to Risk-Based Enforcement

Against that backdrop, Burke framed the current moment as one requiring a recalibration of priorities. In his testimony, he emphasized that illicit finance threats now span both longstanding risks and newer vectors shaped by digital systems. Fraud, he noted, has become a defining challenge, enabled by social media, artificial intelligence (AI) and rapid payments infrastructure.

Burke argued that addressing those threats requires coordination across agencies and deeper engagement with the private sector.

“A lot of the illicit finance issues require a whole-of-government approach,” he told congresspeople at the hearing, adding that “banks have been seen and see themselves as the front line in the fight against financial crime.”

His testimony repeatedly returned to the principle of risk-based supervision. Rather than applying uniform compliance burdens, regulators are seeking to direct attention toward higher-risk actors and activities.

As Burke explained in response to lawmakers’ concerns about rising compliance costs, “more resources are spent against higher risk activities … a community bank is going to have a different risk profile than a major global institution.” This approach reflects a shift away from checklist compliance toward a model that prioritizes outcomes and effectiveness.

Digital Identity

The hearing also underscored the growing importance of digital identity in payments ecosystems.

Rep. Bill Foster, D-Ill., highlighted the fragmentation of identity standards across jurisdictions and the operational challenges that fragmentation creates for financial institutions. In a setting increasingly shaped by automated agents and machine-driven transactions, he observed, banks must be able to determine “who is the legally traceable human behind this agent that has just contacted my agent.”

That question sits at the intersection of payments and AML. As transactions accelerate and move across multiple platforms, identity verification becomes both more complex and more central to risk management. The PYMNTS Intelligence data reinforces that dynamic, showing that institutions are turning to behavioral analytics and machine learning as foundational tools for detecting fraud patterns in real time.

Burke acknowledged that shift, noting that financial institutions are increasingly capable of improving know your customer (KYC) and customer validation by drawing on broader data sources and advanced technologies. The implication is that compliance effectiveness will depend less on static rules and more on the quality of data and the sophistication of analytical systems.

AI, Sanctions and System Design

AI featured in both the testimony and the broader discussion. Treasury has already begun to incorporate AI and digital identity into its regulatory modernization efforts, including work tied to emerging frameworks for digital assets and payments systems.

At the same time, Burke pointed to structural inefficiencies within existing sanctions regimes. Screening processes generate large volumes of false positives, diverting attention from higher-risk threats. The current effort to review sanctions lists and refine compliance expectations is intended to address that imbalance, shifting resources toward activities that carry greater national security implications.

Institutions are being asked to move away from volume-driven compliance metrics and toward systems that deliver actionable intelligence. In practical terms, that means fewer alerts, but more meaningful ones, supported by technology capable of distinguishing routine activity from emerging threats.

A System Under Revision

The hearing made clear that both lawmakers and regulators recognize the limits of legacy approaches. The combination of faster payments, digital assets and increasingly organized fraud networks has exposed gaps in systems designed for a different era. Data fragmentation, outdated thresholds and uneven adoption of advanced tools all contribute to those gaps.

“The message that we’re hearing from the [financial services] industry,” he told lawmakers, “is that they can be more effective in performing their compliance requirements around KYC and understanding their customers and validating their identities using the technologies that are available, including different data sources.”

Burke’s testimony suggested that the response will involve both regulatory adjustment and technological adoption. “I do think that sanctions are a valid tool to support policy objectives,” he said, while cautioning that effectiveness should be measured by outcomes rather than scale.

In that sense, the discussion in Washington reflects a broader transition within financial services. AML and sanctions compliance are moving toward continuous monitoring, data integration and intelligence-led decisioning.