Do banks have to own or police a blockchain's underlying infrastructure to use it without violating U.S. anti-money-laundering or sanctions rules?
The answer is no, according to Rebecca Rettig, chief operating officer at Jito Labs, a developer of software for the Solana blockchain.
She argues that financial institutions can apply anti-money-laundering, terrorism-financing and other controls to customers, counterparties and transactions, even if they don't control the underlying network that money is moving on. Rettig penned an essay on the topic, published Sept. 19 in a newsletter for a16z crypto, an influential venture capital firm focused on blockchain investments.
Such a model represents a paradigm shift from the architecture of today's dominant payment systems. Swift, a dominant international financial messaging network that says it carries the equivalent of global GDP roughly every three days, is run by a cooperative of banks, its board of directors made up of executives from the likes of JPMorgan Chase, Citigroup and HSBC.
"Institutional compliance departments think permissionless networks are irreconcilable" with the laws and compliance standards, Rettig wrote. But "there is no precondition, regulatory or otherwise."
The argument challenges a basic assumption behind banks' preference for closed, permissioned networks: that compliance teams must know and screen every participant, including blockchain validators.
Rettig, who previously served as chief legal and policy officer at Polygon Labs and general counsel at Aave Companies, argues that the Bank Secrecy Act and sanctions laws require controls proportionate to risk, not the elimination of all risk.
A bank could screen customers and counterparties, monitor transactions and report suspicious activity without identifying every validator that might process a transaction or receive a protocol-set fee.
The topic may resonate with decentralized AI developers, many of whom argue that agents will need to transact freely on open networks for a new era of commerce to flourish. Projects that are trying to keep up with fast-moving blockchain technologies may not want to depend on gaining access to closed networks controlled by banks.
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