What is Proof's “verify once, trust everywhere” approach?

Proof proposes a digital identity system based on cryptographically signed digital credentials. When a certificate authority verifies identity or conducts sanctions screening, they issue a reusable X.509 certificate that signs transactions, creating portable trust tied to the user.

How does Proof's system improve BSA/AML compliance?

Cryptographic evidence provides clear records of who verified whom, when, and to what standard, and Proof recommends allowing financial institutions to rely on digital credentials from certified providers for all BSA attribute verifications.

What standards and frameworks does Proof recommend using?

Proof recommends using existing NIST standards for identity verification quality and leveraging established certification frameworks like the Kantara Initiative to create a trusted marketplace.

How can users prove compliance without exposing personal information?

Using W3C Verifiable Credentials with zero-knowledge proofs, users can prove they’ve passed sanctions screening or verify the source of funds without revealing unnecessary personal information.

A Policy Framework for Digital Credentials and BSA Compliance in the Digital Age

The article proposes a policy framework by Proof to overhaul Bank Secrecy Act compliance through a cryptographically signed digital credential system using reusable X.509 certificates, enabling secure, portable, and efficient identity verification across financial institutions to reduce redundancy, enhance fraud prevention, and facilitate seamless interaction between traditional banks and crypto platforms.

Financial institutions spend billions annually verifying the same identities repeatedly. In response to the U.S. Treasury's Request for Comment on Innovative Methods to Detect Illicit Finance in Digital Assets, Proof proposes a solution: verify once, trust everywhere. This framework aims to reimagine Bank Secrecy Act (BSA) compliance for the entire financial system, not just digital assets.

The Problem

The current system is inefficient. Every financial institution requires customers to upload the same documents, undergo the same checks, and store the same data for identity and sanctions screening. This redundancy is costly, unpopular with consumers, and vulnerable to exploitation by criminals using deepfakes and stolen documents. The implementation has strayed from the BSA's original intent, resulting in widespread, risky data collection. KYC rules were meant to ensure institutions know their customers, not to encourage mass data hoarding.

A Better Way Forward

Proof proposes a digital identity system based on cryptographically signed digital credentials. When a certificate authority like Proof verifies someone's identity or conducts sanctions screening, they issue a reusable X.509 digital certificate. Unlike systems where credentials are simply presented, these certificates sign transactions directly. This cryptographic binding provides mathematical proof of authorship, prevents identity swapping, and makes transactions non-repudiable. Identity verification thus becomes portable trust that moves with the user.

This approach enables:

Seamless movement between crypto platforms and traditional banks
Faster account opening with higher confidence
Authorization of agents for digital commerce with verified human approval
Actual fraud prevention, not just post-factum detection

Why Proof, Why Now

Proof is already building this system as a certificate authority issuing X.509 digital certificates. The cryptographic signature binds verified identity to each transaction, creating irrefutable proof and eliminating fraud. This foundational identity can serve as a root of trust for next-generation credential ecosystems, such as W3C Verifiable Credentials, enabling selective disclosure through zero-knowledge proofs. For example, users could prove they've passed sanctions screening without revealing personal information or verify the source of funds without exposing their full financial history.

Proof's recommendations to the Treasury are:

Use existing NIST standards for identity verification quality
Leverage established certification frameworks like Kantara Initiative to create a trusted marketplace
Allow financial institutions to rely on digital credentials from certified providers for all BSA attribute verifications

This approach avoids new bureaucracy and experimental technology, instead recognizing that cryptographic verification with digital credentials fulfills the true intent of financial regulations more effectively than redundant document collection.

The Real Impact

This framework addresses the root problem, not just incremental improvements:

Better compliance: Cryptographic evidence removes ambiguity, providing clear records of who verified whom, when, and to what standard.
Actual fraud prevention: Cryptography cannot be deepfaked or modified, undermining the forgery economy.
Privacy by design: Users can prove compliance (e.g., sanctions screening) without exposing unnecessary personal information.
Market integrity: When compliant platforms are the fastest and most secure, the market shifts away from weaker alternatives.

The Opportunity Ahead

As digital assets converge with traditional finance, identity challenges affect the entire ecosystem. There is an opportunity to build infrastructure that achieves regulatory goals: knowing business partners while protecting consumers and preventing illicit finance.

The Treasury's engagement in this dialogue shows recognition of the moment's importance. The infrastructure built today will determine whether American finance leads or follows in the digital age. Proof expresses gratitude for the Treasury's leadership and eagerness to help build this future.

For more details, readers are encouraged to consult Proof's full submission to the Treasury for the complete framework.