[Federal Register Volume 90, Number 157 (Monday, August 18, 2025)]
[Notices]
[Pages 40148-40151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-15697]
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DEPARTMENT OF THE TREASURY
Request for Comment on Innovative Methods To Detect Illicit
Activity Involving Digital Assets
AGENCY: Departmental Offices, Department of the Treasury.
ACTION: Request for comment.
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SUMMARY: The U.S. Department of the Treasury invites interested members
of the public to provide input on the use of innovative or novel
methods, techniques, or strategies to detect and mitigate illicit
finance risks involving digital assets. This notice fulfills a
requirement of the Guiding and Establishing National Innovation for
U.S. Stablecoins Act (GENIUS Act) and supports the Administration's
policy of supporting the responsible growth and use of digital assets,
as outlined in the January 23, 2025, Executive Order 14178 on
``Strengthening American Leadership in Digital Financial Technology.''
DATES: Comments must be received on or before October 17, 2025.
ADDRESSES: Please submit comments electronically via the Federal
eRulemaking Portal: www.regulations.gov. Follow the ``Submit a
comment'' instructions. If you are reading this document on
federalregister.gov, you may use the green ``SUBMIT A PUBLIC COMMENT''
button beneath this notice's title to submit a comment to the
regulations.gov docket.
Do not include any personally identifiable information (such as
name, address, or other contact information) or confidential business
information that you do not want publicly disclosed. All comments are
public records; they are publicly displayed exactly as received, and
will not be deleted, modified, or redacted. Comments may be submitted
anonymously.
Follow the search instructions on https://www.regulations.gov to
view public comments.
FOR FURTHER INFORMATION CONTACT: Julie Lascar, Director, Office of
Strategic Policy, Terrorist Financing and Financial Crimes,
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
On July 18, 2025, President Trump signed into law the GENIUS
Act,\1\ which creates a comprehensive regulatory framework for payment
stablecoin issuers in the United States. The GENIUS Act prioritizes
consumer protection, strengthens the U.S. dollar's reserve currency
status, and bolsters U.S. national security. It creates strong reserve
requirements, aligns state and federal stablecoin frameworks, and
requires clear and conspicuous redemption procedures, among other key
provisions. It requires permitted payment stablecoin issuers to be
treated as financial institutions for purposes of the Bank Secrecy Act,
and as such, ``be subject to all federal laws applicable to financial
institutions located in the United States relating to economic
sanctions, prevention of money laundering, customer identification, and
due diligence.'' \2\ The GENIUS Act also directs the Secretary of the
Treasury to seek public comment on innovative or novel methods,
techniques, or strategies that regulated financial institutions use, or
have the potential to use, to detect illicit activity involving digital
assets.\3\
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\1\ Guiding and Establishing National Innovation for U.S.
Stablecoins (GENIUS) Act, Publi Law 119-27, 139 Stat. 419 (2025).
\2\ GENIUS Act, section 4(a)(5) (Treatment Under the Bank
Secrecy Act and Sanctions Laws).
\3\ GENIUS Act, Public Law 119-27, 139 Stat. 419, at Sec. 9(a).
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The digital asset industry plays a crucial role in innovation and
economic development in the United States, and in our Nation's
international leadership. On January 23, 2025, President Trump signed
Executive Order 14178, ``Strengthening American Leadership in Digital
Financial Technology,'' which aims to support the responsible growth
and use of digital assets, blockchain technology, and related
technologies.\4\ It
[[Page 40149]]
also established the President's Working Group (Working Group) on
Digital Asset Markets to strengthen U.S. leadership in digital
finance.\5\ The Working Group was tasked to prepare a report for the
President within 180 days with recommendations for regulatory and
legislative proposals that advance policies identified in the order.\6\
The Working Group's report, which was published on July 30, 2025,
includes recommendations related to countering illicit finance and
promoting a transparent and resilient digital asset ecosystem.\7\ In
addition to recommendations to improve the U.S. anti-money laundering/
countering the financing of terrorism (AML/CFT) and sanctions
frameworks, the report proposes that the U.S. government evaluate and
consider issuing guidance on the use of digital identity verification
by financial institutions and increase public-private cooperation and
information sharing, including through FinCEN's 314(a) and 314(b)
programs.
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\4\ Exec. Order 14178, 90 FR 8647 (Jan. 31, 2025).
\5\ Id. at 8648.
\6\ Id.
\7\ White House, Strengthening American Leadership in Digital
Financial Technology (July 2025), https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf.
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II. Request for Comment Overview
The GENIUS Act directs the Secretary of the Treasury to seek public
comment to identify innovative or novel methods, techniques, or
strategies that regulated financial institutions use, or have the
potential to use, to detect illicit activity, such as money laundering,
involving digital assets.\8\ Consistent with the GENIUS Act, following
receipt of public comments, the Department of the Treasury (Treasury)
will conduct research on the methods, techniques, or strategies
identified in comments; submit a report that, inter alia, summarizes
the research and provides to the chairs and ranking members of the
Committee on Banking, Housing, and Urban Affairs of the Senate and the
Committee on Financial Services of the House of Representatives
legislative and regulatory proposals to allow financial institutions to
develop and implement novel methods, techniques, or strategies; and
issue guidance or notice and comment rulemaking based, in part, on the
research results arising from comments.
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\8\ The GENIUS Act defines the term ``digital asset'' to mean
``any digital representation of value that is recorded on a
cryptographically secured distributed ledger.'' GENIUS Act, section
2(6) (Definitions). The GENIUS Act states that the term
``distributed ledger'' means ``technology in which data is shared
across a network that creates a public digital ledger of verified
transactions or information among network participants and
cryptography is used to link the data to maintain the integrity of
the public ledger and execute other functions.'' GENIUS Act, section
2(8).
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The GENIUS Act lists four specific technologies on which Treasury
should seek comment: application program interfaces (APIs), artificial
intelligence (AI), digital identity verification, and use of blockchain
technology and monitoring.\9\ Consistent with the GENIUS Act, when
conducting research on these and other innovative or novel methods,
techniques, or strategies, Treasury will evaluate and consider: (a)
improvements in the ability of financial institutions to detect illicit
activity involving digital assets; (b) costs to regulated financial
institutions; (c) the amount and sensitivity of information that is
collected or reviewed; (d) privacy risk associated with the information
that is collected or reviewed; (e) operational challenges and
efficiency considerations; (f) cybersecurity risks; (g) and
effectiveness of the methods, techniques, or strategies at mitigating
illicit finance.\10\
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\9\ GENIUS Act, section 9(a) (Anti-Money Laundering Innovation).
\10\ GENIUS Act, section 9(b).
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Application Program Interfaces: APIs are a system access point or
library function that allow different software applications to
communicate and interact with each other, including internal and
external applications.\11\ This can include various applications used
by a financial institution for AML/CFT and sanctions compliance. APIs
can be used to share data automatically and facilitate access to
transaction information. Once deployed, they can also be used to help
enforce strict access controls, monitor transactions and activities,
and bolster security and integrity of financial institutions providing
digital asset services.
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\11\ See generally National Institute of Standards and
Technology (NIST), Securing Web Transactions TLS Server Certificate
Management (June 2020), https://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.1800-16.pdf, p. 54.
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Artificial Intelligence: As used in this notice, the term AI means
a ``machine-based system that can, for a given set of human-defined
objectives, make predictions, recommendations or decisions influencing
real or virtual environments.'' \12\ The Trump Administration is
prioritizing AI as a cornerstone of innovation, as outlined in the July
23, 2025, ``Winning the Race: America's AI Action Plan.'' \13\ At
financial institutions, AI is playing an increasing role in AML/CFT and
sanctions compliance, offering innovative solutions to help financial
institutions analyze significant amounts of data and more effectively
identify illicit finance patterns, risks, trends, and typologies.\14\
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\12\ Exec. Order 14179, 90 FR 8741 (Jan. 31, 2025); 15 U.S.C.
9401(3).
\13\ White House, Winning the Race: America's AI Action Plan
(July 2025), https://www.whitehouse.gov/wp-content/uploads/2025/07/Americas-AI-Action-Plan.pdf.
\14\ For Treasury observations on use of AI, see Treasury, 2024
National Strategy for Combatting Terrorist Financing and Other
Illicit Financing (May 2024), https://home.treasury.gov/system/files/136/2024-Illicit-Finance-Strategy.pdf, pp. 36-37, 89.
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Digital Identity Verification: Digital identity verification (also
known as identity proofing) is the process of establishing and
verifying that a person is who they claim to be in a digital
context.\15\ Treasury is aware of several efforts in the digital asset
industry to develop portable digital identity credentials designed to
support various elements of AML/CFT and sanctions compliance, maximize
user privacy, and reduce compliance burden on financial
institutions.\16\ These tools can incorporate different pieces of
information, such as government-issued identity documents or
biometrics, and can vary by operational models, governance, and
convenience. Digital identity verification tools can also potentially
be used by regulated digital asset intermediaries to support onboarding
or by decentralized finance (DeFi) services' smart contracts to
automatically check for a credential before executing a user's
transaction.
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\15\ See generally NIST, Digital Identity Guidelines (June
2017), https://nvlpubs.nist.gov/nistpubs/SpecialPublications/NIST.SP.800-63-3.pdf, p. 2.
\16\ See generally White House, Strengthening American
Leadership in Digital Financial Technology (July 2025), https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf, pp. 111-113.
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Blockchain Technology and Monitoring: Many digital assets operate
on public blockchains, enabling any person with access to the internet
to view the pseudonymous transaction on the blockchain's public
ledger.\17\ Blockchain monitoring refers to the process of observing,
tracking, and analyzing public blockchain data. The U.S. government,
like many financial institutions offering services in digital assets,
leverages public blockchain data and blockchain analytics to trace and
attribute illicit activity in digital assets. Financial institutions
can also use this data to evaluate high-risk counterparties and
activities, analyze transactions across multiple blockchains, trace or
monitor transaction activities, and identify patterns that indicate
potential illicit transactions.
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\17\ See generally Treasury, Illicit Finance Risk Assessment of
Decentralized Finance (Apr. 2023), https://home.treasury.gov/system/files/136/DeFi-Risk-Full-Review.pdf, p. 32.
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[[Page 40150]]
Innovative tools are critical to advancing AML/CFT and sanctions
compliance. Financial institutions can leverage these tools to protect
the digital asset ecosystem from misuse by illicit actors like drug
traffickers, fraudsters, ransomware attackers, terrorist financiers,
Iranian regime-linked sanctions evaders, and Democratic People's
Republic of Korea (DPRK) cybercriminals. Treasury has been a leader in
promoting innovation in this area over the past decade, including by
championing the use of regulatory technology (RegTech) solutions to
streamline compliance processes, soliciting feedback from industry on
novel tools, and providing guidance and resources on new
technologies.\18\ Treasury is conscious, however, that innovative tools
may present new resource burdens for financial institutions upon
introduction due to costs to acquire and integrate new tools and to
building necessary expertise. Financial institutions may also face
difficulties using these tools effectively, especially at early stages
of use, due to their novel nature. As such, it will be critical for
financial institutions to evaluate these tools and implement them as
part of a comprehensive AML/CFT and sanctions compliance program.
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\18\ See e.g., Treasury, 2024 National Strategy for Combatting
Terrorist Financing and Other Illicit Financing (May 2024), https://home.treasury.gov/system/files/136/2024-Illicit-Finance-Strategy.pdf; Treasury, Ensuring Responsible Development of Digital
Assets; Request for Comment, 87 FR 57556 (Sept. 20, 2022), https://www.federalregister.gov/documents/2022/09/20/2022-20279/ensuring-responsible-development-of-digital-assets-request-for-comment;
FinCEN, FIN-2019-G001, Application of FinCEN's Regulations to
Certain Business Models Involving Convertible Virtual Currencies
(May 9, 2019), p. 19, https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf; OFAC, Sanctions
Compliance Guidance for the Virtual Currency Industry (Oct. 15,
2021), https://ofac.treasury.gov/media/913571/download?inline.
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IV. Request for Comments
Treasury welcomes input on any matter that commenters believe is
relevant to Treasury's efforts to identify and evaluate innovative or
novel methods, techniques, or strategies that regulated financial
institutions use to detect and mitigate illicit finance risks involving
digital assets. For each method, technique, or strategy discussed in
your comment, Treasury welcomes input on the following research factors
that will be used to evaluate the methods, techniques, strategies, or
tools: (a) improvements in ability of financial institutions to detect
illicit activity involving digital assets; (b) costs to regulated
financial institutions; (c) the amount and sensitivity of information
that is collected or reviewed; (d) privacy risks associated with the
information that is collected or reviewed; (e) operational challenges
and efficiency considerations; (f) cybersecurity risks; and (g)
effectiveness of the methods, techniques, or strategies in mitigating
illicit finance.
When responding to one or more of the questions below, please note
in your response the number(s) of the questions to which you are
responding. When appropriate, your comment should include discussion of
regulatory or statutory changes that may be necessary to effectively
leverage the discussed methods, techniques, strategies, or tools. In
all cases, to the extent possible, please cite any public data related
to or that support your responses. If data are available, but non-
public, describe such data to the extent possible.
1. In your experience, what illicit finance risks and
vulnerabilities pose the greatest risk in the digital asset ecosystem?
What key trends in illicit finance risks have financial institutions
observed in the digital asset ecosystem?
2. What innovative or novel methods, techniques, or strategies
related to APIs are financial institutions using to detect illicit
activity and mitigate illicit finance risks involving digital assets?
What are the risks, benefits, challenges, and potential safeguards
related to APIs?
(a) What factors do financial institutions consider when deciding
whether to employ APIs for AML/CFT and sanctions compliance purposes?
For financial institutions that use or plan to use APIs for these
purposes, what specific compliance functions do/will APIs support? For
financial institutions that decided not to use APIs, please provide
additional details on the rationale for that decision.
(b) How are financial institutions using API tools in AML/CFT and
sanctions compliance efforts in relation to other tools (e.g., in
testing phase while using existing tools, to augment existing tools, or
to replace existing tools)? Please explain and, if possible, compare
the effectiveness of API tools with other existing or previous tools
used for similar purposes.
(c) Are there regulatory, legislative, supervisory, or operational
obstacles to using APIs to detect illicit finance and mitigate risks
involving digital assets? Please provide any recommendations related to
identified obstacles.
(d) What steps, if any, should the U.S. government take to further
facilitate effective, risk-based adoption of APIs for detecting illicit
finance involving digital assets?
(e) Treasury will evaluate APIs and consider their impact based on
the research factors identified in the GENIUS Act.\19\ Provide any
information pertinent to those factors.
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\19\ GENIUS Act, section 9(b)(2).
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3. What innovative or novel methods, techniques, or strategies
related to AI are financial institutions using to detect illicit
activity and mitigate illicit finance risks involving digital assets?
What are the risks, benefits, challenges, and potential safeguards
related to AI? Please describe the use of AI to conduct analysis of
transactional data, including transactions that occur on blockchains,
and to identify complex illicit financial networks, as well as key
lessons learned from use of AI in this context.
(a) What factors do financial institutions consider when deciding
whether to employ AI for AML/CFT and sanctions compliance purposes? For
financial institutions that use or plan to use AI for these purposes,
what specific compliance functions does/will AI support? For financial
institutions that decided not to use AI, please provide additional
details on the rationale for that decision.
(b) How are financial institutions using AI tools in AML/CFT and
sanctions compliance efforts in relation to other tools (e.g., in
testing phase while using existing tools, to augment existing tools, or
to replace existing tools)? Please explain and, if possible, compare
the effectiveness of AI tools with other previous or existing tools
used for similar purposes.
(c) Are there regulatory, legislative, supervisory, or operational
obstacles to using AI to detect illicit finance and mitigate risks
involving digital assets? Please provide any recommendations related to
identified obstacles.
(d) What steps, if any, should the U.S. government take to further
facilitate effective, risk-based adoption of AI for detecting illicit
finance involving digital assets?
(e) Treasury will evaluate AI and consider its impact based on the
research factors identified in the GENIUS Act.\20\ Provide any
information pertinent to those factors.
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\20\ GENIUS Act, section 9(b)(2).
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4. What innovative or novel methods, techniques, or strategies
related to digital identity verification are financial institutions
using to detect illicit activity and mitigate illicit finance risks
involving digital assets? What are the risks, benefits, challenges, and
potential safeguards related to digital identity verification? Please
describe the portable digital identity credentialing
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tools in use and how such tools are being used.
(a) What factors do financial institutions consider when deciding
whether to employ digital identity verification for AML/CFT and
sanctions compliance purposes? For financial institutions that use or
plan to use digital identity verification for these purposes, what
specific compliance functions does it/will it support? For financial
institutions that decided not to use digital identity verification,
please provide additional details on the rationale for that decision.
(b) How are financial institutions using digital identity
verification tools in AML/CFT and sanctions compliance efforts in
relation to other tools (e.g., in testing phase while using existing
tools, to augment existing tools, or to replace existing tools)? Please
explain and, if possible, compare the effectiveness of digital identity
tools with other existing or previous tools used for similar purposes.
(c) Are there regulatory, legislative, supervisory, or operational
obstacles to using digital identity verification to detect illicit
finance and mitigate risks involving digital assets? Please provide any
recommendations related to identified obstacles.
(d) What steps, if any, should the U.S. government take to further
facilitate effective, risk-based adoption of digital identity
verification for detecting illicit finance involving digital assets?
(e) Treasury will evaluate digital identity verification and
consider its impact based on the research factors identified in the
GENIUS Act.\21\ Provide any information pertinent to those factors.
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\21\ GENIUS Act, section 9(b)(2).
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5. What innovative or novel methods, techniques, or strategies
related to blockchain technology and monitoring are financial
institutions using to detect illicit activity and mitigate illicit
finance risks involving digital assets? What are the risks, benefits,
challenges, and potential safeguards related to blockchain technology
and monitoring? Please describe how financial institutions are
integrating information from blockchain analytics with off-chain data
and mention any key challenges associated with using blockchain
analytics (e.g., obfuscation tools and methods that can complicate
tracing and assessing confidence in attribution or complexities
inherent in cluster analysis).
(a) What factors do financial institutions consider when deciding
whether to employ blockchain technology and monitoring for AML/CFT and
sanctions compliance purposes? For financial institutions that use or
plan to use blockchain technology and monitoring for these purposes,
what specific compliance functions does it/will it support? For
financial institutions that decided not to use blockchain technology
and monitoring, please provide additional details on the rationale for
that decision.
(b) How are financial institutions using blockchain technology and
monitoring tools in AML/CFT and sanctions compliance efforts in
relation to other tools (e.g., in testing phase while using existing
tools, to augment existing tools, or to replace existing tools)? Please
explain and, if possible, compare the effectiveness of blockchain
technology and monitoring tools with other existing or previous tools
used for similar purposes.
(c) Are there regulatory, legislative, supervisory, or operational
obstacles to using blockchain technology and monitoring to detect
illicit finance and mitigate risks involving digital assets? Please
provide any recommendations related to identified obstacles.
(d) What steps, if any, should the U.S. government take to further
facilitate effective, risk-based adoption of blockchain technology and
monitoring for detecting illicit finance involving digital assets?
(e) Treasury will evaluate blockchain technology and monitoring and
consider their impact based on the research factors identified in the
GENIUS Act.\22\ Provide any information pertinent to those factors.
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\22\ GENIUS Act, section 9(b)(2).
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6. What innovative or novel methods, techniques, or strategies
related to any other innovative technologies such as cryptographic
protocols and other privacy-enhancing tools, cloud-based solutions, on-
chain compliance tools, oracles,\23\ or new verification tools for
smart contracts are financial institutions using to detect illicit
activity and mitigate illicit finance risks involving digital assets?
What are the risks, benefits, challenges, and potential safeguards
related to these other innovative technologies?
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\23\ Oracles connect external data sources to blockchain
networks. For further information, see White House, Strengthening
American Leadership in Digital Financial Technology (July 2025),
https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf, p. 12.
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(a) What factors do financial institutions consider when deciding
whether to employ other innovative technologies for AML/CFT and
sanctions compliance purposes? For financial institutions that decided
to use or plan to use other innovative technologies for these purposes,
what specific compliance functions does it/will it support? For
financial institutions that decided not to use other innovative
technologies for these purposes, please provide additional details on
the rationale for that decision.
(b) How are financial institutions using other innovative
technologies in AML/CFT and sanctions compliance efforts in relation to
other tools (e.g., in testing phase while using existing tools, to
augment existing tools, or to replace existing tools)? Please explain
and, if possible, compare the effectiveness of other innovative
technologies with other existing or previous tools used for similar
purposes.
(c) Are there regulatory, legislative, supervisory, or operational
obstacles to using other innovative technologies to detect illicit
finance and mitigate risks involving digital assets? Please provide any
recommendations related to identified obstacles.
(d) What steps, if any, should the U.S. government take to further
facilitate effective, risk-based adoption of other innovative
technologies for detecting illicit finance involving digital assets?
(e) Treasury will evaluate other innovative technologies and
consider their impact based on the research factors identified in the
GENIUS Act.\24\ Provide any information pertinent to those factors.
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\24\ GENIUS Act, section 9(b)(2).
Rachel Miller,
Executive Secretary.
[FR Doc. 2025-15697 Filed 8-15-25; 8:45 am]
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