|

Inside the FBI: Crypto, Crime and National Security: Podcast Ep. 171

With over a decade of expertise, James Barnacle (Deputy Assistant Director, Federal Bureau of Investigation (FBI)) joins Jonathan Levin (CEO & Co-founder, Chainalysis) for a deep dive into the nexus of cybercrime, cryptocurrency, and the evolving challenges confronted by regulation enforcement. 

You can hear or subscribe now on Spotify, Apple, or Audible. Keep studying for a full preview of episode 171.

Public Key Episode 171: Digital Frontlines: Law Enforcement and National Security Strategy in the Crypto Era

With over a decade of expertise, James Barnacle (Deputy Assistant Director, Federal Bureau of Investigation (FBI)) joins Jonathan Levin (CEO & Co-founder, Chainalysis) for a deep dive into the nexus of cybercrime, cryptocurrency and the evolving challenges confronted by regulation enforcement. 

James shares insights into the historical past and development of the FBI’s methods in combating cryptocurrency-enabled crimes, shedding gentle on intricate instances involving ransomware, fraud, and terrorism financing.

This dialog goes in depth on the FBI’s strategy to multi-agency cooperation, together with the institution of the Virtual Assets Unit and response groups throughout area workplaces and the significance of sufferer reporting in the case of pig butchering and different crypto funding schemes.

This is an episode you received’t overlook. 

Quote of the episode

“ Victim reporting to the Internet Crime Complaint Center, which is IC3 confirmed a 48% improve yr over yr in the pig butchering losses to about $5.8 billion roughly in reported losses.” – James Barnacle (Deputy Assistant Director, Federal Bureau of Investigation (FBI))

Minute-by-minute episode breakdown

2 | Background of James Barnacle 

4 | Beginning of the FBI’s Involvement with Cryptocurrency

7 | The Evolution of Cryptocurrency Use in Criminal Investigations

10 | Establishment of the Virtual Assets Unit in the FBI

14 | FBI’s Approach to Ransomware Investigations

20 | International Private Sector Collaboration and Strategy in Fraud Cases

25 | Addressing Elderly Fraud and Pig Butchering

31 | Impact of Sanctions on Fraud Prevention

37 | North Korea’s Involvement in Cryptocurrency Theft

40 | Importance of AI and Machine Learning in Law Enforcement

48 | Encouragement for Public and Private Sector Cooperation

Related sources

Check out extra sources offered by Chainalysis that completely complement this episode of the Public Key.

Speakers on right this moment’s episode

This web site might comprise hyperlinks to third-party websites that aren’t beneath the control of Chainalysis, Inc. or its associates (collectively “Chainalysis”). Access to such data doesn’t indicate affiliation with, endorsement of, approval of, or advice by Chainalysis of the website or its operators, and Chainalysis shouldn’t be liable for the merchandise, providers, or different content material hosted therein.

Our podcasts are for informational functions solely, and usually are not supposed to supply authorized, tax, monetary, or funding recommendation. Listeners ought to seek the advice of their very own advisors earlier than making most of these selections. Chainalysis has no duty or legal responsibility for any resolution made or another acts or omissions in connection along with your use of this materials.

Chainalysis doesn’t assure or warrant the accuracy, completeness, timeliness, suitability or validity of the data in any explicit podcast and won’t be liable for any declare attributable to errors, omissions, or different inaccuracies of any a part of such materials. 

Unless acknowledged in any other case, reference to any particular product or entity doesn’t represent an endorsement or advice by Chainalysis. The views expressed by friends are their very own and their look on the program doesn’t indicate an endorsement of them or any entity they symbolize. Views and opinions expressed by Chainalysis workers are these of the workers and don’t essentially mirror the views of the firm. 

Transcript   

Jonathan L. 

Hey, Jim, Jonathan, I can’t imagine it’s taken us 10 years to do that. It’s not fairly 10, it’s not fairly 9 years and possibly six months or so. Yeah, nicely, I’m glad we obtained it in earlier than our 10 yr anniversary. I used to be questioning if you happen to may simply introduce your self and actually inform a little bit bit about your background and how you bought into assembly me all these years in the past and why this space grew to become essential to you? Yeah, I’d love

James B.

So my title’s James Barnacle. I’m the Deputy Assistant Director in the Criminal Investigative Division for the FBI, and I oversee about half of our felony packages, so all of our white collar packages, so fraud, monetary crimes, cash laundering, additionally the public corruption civil rights packages. I’ve the undercover packages for the FBI, and I even have the violent crimes towards kids packages. So years in the past, I began in the New York Field Office, and I labored monetary crimes. Was finally promoted to a public corruption supervisory job in New York. And 10 years in the past, I obtained a cellphone name and was requested to come back right down to headquarters. They had been beginning a cash laundering unit, and I used to be requested to come back down and lead that unit. So I got here down, and there have been a pair folks in the workplace that had been working cryptocurrencies, and they speak in my ear off about crypto. And after all, I attempted to disregard them. It dawns on me that this can be a actual factor. It’s an actual menace.

Jonathan L. 

And earlier than we type of dive into the place that went from there. How was it perceived at the time inside the Bureau, and like, How come it landed on the cash laundering desk? Yeah,

James B. 

so it got here to cash laundering, Well, two causes. One, we had some intelligence analysts that had been actually sensible and noticed this as an issue, or a possible drawback house the place criminals would exploit, and I feel it’s any new know-how criminals are going to attempt to capitalize and use that know-how. So in the crypto house, we had some fraudsters, and we had some folks in the cash laundering house that had been attempting to maneuver illicit proceeds by way of Bitcoin, primarily at the time, and so we would have liked to have the ability to hint these transactions. The purpose it fell in the cash laundering was due to these folks, primary and quantity two, the worth transfers, transferring a worth. Terry, a few of worth from one place to a different falls beneath the cash laundering program. And we had the alternative to speak to management in the FBI and articulate the crime drawback and the way it impacted a number of crime issues. At the time, it wasn’t actually that many crime issues, however we had been capable of get purchase in from administration and begin exploring

Jonathan L. 

the menace. And the menace at the time was largely in the type of cyber crime and on-line drug trafficking kind issues had been these type of predominantly the kinds of crime that the bureau was involved about. Yeah,

James B. 

again then is loads of darkish marketplaces promoting illicit items and asking for cost in cryptocurrency due to the perceived anonymity, or how nameless it’s to make use of cryptocurrency. And we noticed a little bit bit in the fraud house as nicely, however that was just about it. It was, it was pretty slim. 

Jonathan L. 

And so the felony division inside the FBI type of takes this type of lead place on with the ability to perceive how one can truly resolve most of these instances. Was it profitable? Like, how did it go? I might

James B. 

inform you this, we by no means checked out cryptocurrency, Bitcoin, or any of the completely different currencies which might be on the market as the crime drawback, as the menace. We checked out criminals that had been committing different crimes utilizing cryptocurrency to additional their scheme, whether or not it was switch funds from one place to a different, as I stated, So, we needed to do two issues. We needed to get a worldwide understanding. We needed to make our brokers perceive what’s cryptocurrency. And so we actually began the program with coaching. We got here up with a pair PowerPoint displays cryptocurrency, 101 and 102 and I took these three analysts, I recognized an agent, put them in cost, and stated, hit the street. And they began going round the area workplaces and giving displays. They went to US Attorney’s Office and gave displays. They had been street warriors.

Jonathan L. 

And in order that collaboration clearly goes from possibly type of some wholesome stress between the felony and cyber division on what instances needs to be executed the place. But finally, then there’s formation of, like an precise unit, and you herald type of broader capabilities to have a look at as the menace turns into a lot, a lot bigger. There’s a humorous anecdote that I bear in mind, you truly walked me out of a gathering as a result of I used to be, I used to be current in a gathering, and everybody wanted to truly collaborate on a case. And they had been like, Jim, are you able to escort Jonathan out of the constructing, please? And I used to be like, that’s the greatest type of success, if I had to consider what a profitable assembly appears to be like like.

James B. 

Yeah, it’s one thing turns into delicate. And we’re like, yeah, do away with the man from the personal sector.

Jonathan L. 

But that’s actually what I feel is superb about this, is that it goes from, like, a really slim a part of the crime spectrum to, you recognize, what does it appear to be right this moment? Like, quick ahead 9 years and six months. Like, what does it truly

James B. 

appear to be we see cryptocurrency in nearly each kind of investigation we now have, we now have over. Over 200 and round 250 investigative classifications in the FBI. So if you happen to have a look at a classification, it may very well be fraud, cash laundering, public corruption, terrorism, terrorism, finance, ransomware. So you have a look at roughly 250 or so, we now have about 170 completely different classifications which have cryptocurrency part to the investigation. So it’s throughout our complete enterprise. We have nicely over 2500 investigations throughout the FBI which have crypto as a part of the investigation, no less than a chunk of it. So the panorama has shifted from a really slim factor to, like I stated earlier, dangerous guys are going to seek out one thing. They’re going to attempt to exploit it. So we see it in terrorism financing. We see it in elevating cash for Hamas and different terrorism organizations. We see it in the fraud house. See it in the ransomware house, simply form of throughout the board of the FBI 

Jonathan L. 

and how straightforward has it been to get the different divisions on board with capabilities in schooling? Because clearly people who find themselves used to working whether or not it’s counter terrorism, possibly weren’t used to this know-how beforehand. Like, how straightforward has it been to get everybody on the identical 

James B. 

web page? So that’s been our massive evolution, and it was our problem that was our rising ache. Some very sensible folks in the FBI determined that we had pockets of specialists. So the Criminal Investigative Division, cyber division, Counterintelligence Division, all had some specialists, and they had been cryptocurrency specialists. And after all, they collaborated, and they talked collectively, and they met usually, however somebody stated, why don’t we simply put them collectively? And so about, I don’t know, possibly 434, years in the past, we began a digital property unit the place we co situated our crypto subject material specialists in the identical workplace house. So we took the cyber brokers and the felony brokers and analysts, and we put them collectively, and that was the begin of a brand new manner for the FBI to do enterprise on this house, and our unit matured. So as an alternative of hitting the street and doing cryptocurrency 101, displays, we needed to do two issues. One, we had to verify our workforce understood what crypto was. If they do a search warrant, and they see 26 characters and numbers. Could that presumably be a pockets deal with for cryptocurrency? So we would have liked the recognition of what cryptocurrency was. We additionally wanted brokers to know how one can do some investigative steps in the event that they had been to come across crypto, and in the event that they didn’t know how one can do it, the place may they go for a useful resource? So the digital property unit grew to become that sources we recorded with the assist of chain evaluation coaching periods, we created an in home coaching program to coach our workforce. They can go into our laptop system and they’ll watch pre recorded movies. We have about 16 of these, I feel it’s truly as much as 18 now, and that may give the baseline coaching to of us, and then we do extra superior or specialised coaching for what are our energy customers in the crypto house? So understanding what crypto is, understanding the way it may contact your investigation, and then build up our subject material specialists. So like I discussed, we simply have a handful of individuals at the digital property unit in Washington, DC, however we now have 14,000 brokers unfold throughout the United States and in lots of international locations round the world. And so how will we faucet into that? And so we began a digital forex response group, and we recognized folks in the completely different area workplaces that had an curiosity and a flair to do blockchain tracing, and we now have a number of 100 members of our digital forex Response Team, and they’re in area workplaces all through the United States, and they assist investigations. They are our subject material specialists in area, however that useful resource is managed by our digital property unit,

Jonathan L. 

the type of hub and spoke the place you possibly can have triage in the area for instances that cross over all of those completely different crime sorts, and then additionally, like a hub of precise type of experience, if folks get caught, or if there’s a really difficult side of the case or some type of obfuscation approach or some type of superior functionality that should

James B. 

be leveraged. Yeah, our hub can be our headquarter unit. Those are clearly our most superior specialists. And then we don’t formally rank folks so far as their ability set, however, you recognize, we form of hold an inventory of who’re our energy customers and who’re a little bit bit higher than others in the area. We throw extra coaching their manner. You attempt to take our high folks and make them higher. And so it’s humorous is we’ve had some of us in the area which have turn out to be absolute specialists. Some of our greatest reside tracing was executed by brokers in the area. Of course, we had been capable of recruit a few of them again to headquarters to take a seat with a unit, however a few of our greatest reside tracers are in the area.

Jonathan L. 

I’ve usually discovered that it’s pretty random the place crypto expertise sits, and it looks like there’s simply type of an excellent distribution of expertise round the completely different workplaces, and it’s simply random the place they’re. And possibly we may get into a few of the several types of instances which have come to gentle. And the FBI has clearly been main in loads of these domains. But what has occurred with ransomware? I really feel like the FBI has taken. Very type of robust stance about ransomware, and been a precedence for a very long time. What’s been occurring with type of ransomware investigations that you simply’ve seen the

James B. 

FBI is nicely positioned in the US authorities as each an intelligence company and a felony investigative company that we will work with companies on each side in the crypto house, identical to the FBI has subject material specialists, all of our federal companions do, whether or not they’re federal regulation enforcement companies or they’re intelligence companies. In the ransomware house, you will have felony actors and you will have nation state actors, in order that menace crosses each that intelligence aspect of the FBI and the Criminal Investigative aspect of the FBI, what we discovered to achieve success is to get folks in a room and discuss these crime threats. So we now have working teams with the numerous threats. We have a ransomware working group, we now have a terrorism fundraising working group, we now have fraud working teams, and we simply get collectively fairly usually and we talk about the tendencies, what we’re seeing, the typologies and focusing on. We additionally do a major quantity of engagement with the personal sector. So ransomware, as you recognize, they’re focusing on companies, industries, hospitals. There’s hospitals which were focused for ransomware heights, and we’ve been capable of interdict and go to the hospital previous to the assault and say, hey, you might want to have a look at your laptop methods. And so our cyber brokers all through the nation interact with the personal sector and say, right here’s what we’re seeing, right here’s the new variants of ransomware which might be on the market. And then we’re serving to the place we will the personal sector take mediation steps or mitigation steps,

Jonathan L. 

and oftentimes there’s clearly the stance that don’t pay the ransom, however for enterprise continuity causes, or whether or not there’s some type of emergency healthcare purpose, like individuals are nonetheless paying ransoms, and we see that in the knowledge and What occurs after that.

James B. 

So ransomware being a extra refined kind of assault, the dangerous guys are refined in how they take the ransom funds and hack the ransom funds. So usually these funds are in cryptocurrency, as you’re conscious, and we instantly attempt to hint that cryptocurrency by way of the blockchain ledger the place we now have good engagement with the personal sector. So if a sufferer firm involves the FBI very early on, we will attempt to mitigate that and get well their cash. Sometimes firms for his or her enterprise resolution, a, we don’t inform them to make a ransom cost and B, we’re not going to intervene in what a enterprise does, however we simply encourage establishments, once they’re focused, attain out the FBI, we’ll attempt to assist, and then we’ll attempt to get well their cash if we will. But we’ve been fairly profitable in recovering cash. There’s been some important a monetary establishment, a couple of yr in the past, was hit with a ransomware assault. They paid out 15 million or so. I feel we recovered 12 of it. So not dangerous. They nonetheless misplaced 3 million. They obtained entry to their laptop methods, however we had been capable of get a few of it again.

Jonathan L. 

I feel that’s an superior outcome. When folks first began this, even getting any a reimbursement appeared unimaginable. And so there’s now positively, like a handful of those instances, now that the FBI has been capable of truly go in. And as you say, these targets aren’t straightforward targets. They usually in overseas jurisdictions, there’s usually very refined obfuscation methods and different issues that make that case tougher to truly have the ability to go after that could be very spectacular.

James B. 

It is the problem. It’s one in all right this moment’s challenges. But by way of coaching, by way of schooling, by way of constructing the abilities and skills of our workforce and engagement with the personal sector had been ready to achieve success, and we would have liked to interact the personal sector, a for the instruments, however B for the relationships. And identical to the place we put our subject material specialists collectively internally, the personal sector your organization and all these firms and in monetary establishments, all of them have crypto specialists as nicely. And so we attempt to get these folks in the room and they speak

Jonathan L. 

store, yeah, and actually, the collaboration between the public sector and the personal sector is what ends in these nice wins. And it’s everybody from the cryptocurrency exchanges and the cost firms, the bigger monetary establishments that are actually concerned, even the Googles of the world, the hyperscalers and everyone seems to be what are the items of infrastructure which might be being leveraged and abused by these felony networks or nation states, and it takes all of these personal sector gamers to play nicely with the public sector to truly thwart these abuses. Yeah, 100%

James B. 

the Internet has introduced folks collectively for some great issues, but it surely has additionally introduced the dangerous guys out and in the felony house, like fraud, for example, you recognize, Americans are being focused by fraudsters from abroad, and the web is what brings folks collectively, primarily by way of social media. And if the social media firms simply buried their head of their sand, they’d have loads of dissatisfied prospects. So they’ve rightfully. Stepped up and tried to determine fraudulent accounts and fraudsters working on their platforms. The tracing firms have are available with instruments all the sectors you talked about, proper? So banks, no financial institution needs to have their buyer ship cash abroad and be misplaced and gone perpetually. It’s not a terrific enterprise mannequin. So it’s not a terrific enterprise mannequin for anybody. So the personal sector has actually stepped in into this house fairly a bit, and we’ve seen a big effect in the final yr or two with a now, I ought to say this fraud has gone up in the final couple of years. Significantly, 48% final yr, is what our reporting is saying in the crypto house. However, the efforts of personal sector and authorities have led to some successes, and have additionally led to, I feel, elevated reporting and extra recognition of the schemes which might be on the market, which we wouldn’t have been capable of do by ourselves. I feel

Jonathan L. 

that’s touched on it, as a result of it’s impacting lots of people. And clearly it’s not solely folks’s cash, it’s folks’s lives. And it has like, an enormous human value, each in the United States and overseas that has been type of broadly reported on trafficked people which might be perpetrating a few of these scams beneath duress and beneath orders in a few of these labor camps in Southeast Asia. And we’ve written loads about it, and it’s a really unhappy story on each side of the human tragedy behind fraud. What has the FBI executed about aged fraud and pig butchering, because it’s referred to as? And you recognize that kind of fraud, as a result of that was your outdated world. Now, actually coming in to marry up with crypto?

James B. 

Yeah, completely. So the crypto funding frauds is as we name and they’re they’re generally known as pig butchering on the market in 2024 sufferer reporting to the Internet Crime Complaint Center, which is IC three of us can go to the web site. IC three.gov confirmed a 48% improve yr over yr in the choose butchering losses to about $5.8 billion roughly in reported losses, a major greenback determine. And so we’re attempting to mitigate that crime drawback. We’ve had some success in the final couple of years. One of the issues we’ve executed is we began an initiative that we name Level Up. And degree up is an ideal instance of engagement between the authorities and the personal sector. On the authorities aspect, the FBI, the United States Secret Service, Postal Inspection Service and Homeland securities investigations work this collectively on the personal sector aspect, the tracing firms, monetary establishments and principally the digital asset service suppliers, the vasps, are all in the house. And what we’re trying to do is we’re trying to determine victims of of pig butchering, and we proactively, we choose up the cellphone, or we knock on the door of the sufferer and we inform them we imagine you’re a sufferer of a criminal offense. We should construct some rapport to try this. We clarify why we predict they’re a sufferer of a criminal offense, and that’s what we do. So in the final 1516, months, we now have talked to over 6300 folks, of which about 76% weren’t conscious they had been being victimized at the time. That’s stunning, astonishing numbers, and we had been ready to have a look at some knowledge, the common sufferer loss is about 150,000 so while you you have a look at the losses, we estimate, we save victims about $275 million of losses that they they’d have put in had they not been notified one in all the unlucky sides of pig butchering, apart from folks shedding their cash on home aspect, proper? We have victims right here. Lots of people lose each greenback they’ve, and lots of people have chosen to finish their life. They’ve dedicated suicide. With our intervention, we had been capable of refer a little bit bit over 60 folks to our sufferer service specialists. We have specialists in the FBI for counseling, and so I feel that’s one in all the issues that basically resonates, that we had been capable of interdict there and assist folks. But as you talked about on the different aspect of it, there are fraud compounds round the world, and we noticed loads of them in Cambodia, Laos, that a part of the world, but it surely’s unfold. We’ve seen them in Africa. We see them in South America. They’re all through the world. And we’ve been capable of work with the federal companies companions. And as you recognize, the FBI and all the regulation enforcement companies have folks embedded abroad. We name them our authorized attaches, and we’ve been capable of interact with our overseas companions and have mitigated a few of these compounds. Certainly not all. There’s loads of them. And then clearly the tales of the victims, which you alluded to, individuals are taking jobs out of the country, and they assume it’s a terrific job alternative pays very well. Lo and behold, once they present up for the job, they’re working in a fraud compound. It’s a modern-day slavery. These folks can not depart. They are caught in a compound. They reside there, they work there. They work very lengthy hours, and their job is to defraud folks. It’s fairly unhappy on that aspect too.

Jonathan L. 

We’ve additionally seen that there’s a full financial system too, the place folks take that job and then their households are literally held to ransom to get their member of the family again. And that’s. Paid for in crypto, and we’ve truly been capable of tie all of these completely different funds collectively, from the victims in the United States getting scammed all the manner again to the wallets additionally owned by these folks which might be monetizing on the different aspect as nicely, for ransom for those who are in slavery. Effectively,

James B. 

it’s disgusting habits. I imply, up and down all the manner throughout, folks can select to contribute to this world positively, or they’ll look to make the most of folks, and that’s what we now have right here.

Jonathan L. 

I feel that the lesson for me from a bunch of those completely different crime sorts, however this one specifically, is an evaluation of that complete provide chain that with a view to actually exit and disrupt a menace, understanding not simply the sharp fringe of the menace, but additionally truly understanding what led as much as that’s actually type of the essential facets of it, and understanding the cash circulation that goes by way of the complete provide chain is definitely The manner which you can perceive the intelligence about how giant that menace is, or how important it’s, or the timing of these issues, and I feel that one in all the issues that I’ve come to understand over the final decade is that cryptocurrency provides you that capability to have actual time intelligence about the full provide chain of These kinds of threats, if you happen to’re monitoring it shut sufficient. And actually, with pig butchering and even with scams usually, with the ability to scale that assortment construct the strategic intelligence lets you take a extremely, rather more proactive stance than responding to sufferer studies 100%

James B. 

First off, loads of victims don’t ever report being a sufferer. I imply, there’s analysis and research on the market that say about wherever between 10 and 20% of victims truly report being a sufferer of a fraud scheme. So it’s underreported. We know that. Don’t know the proportion, but it surely’s beneath reported victims. Some will report it immediately. Often it’s manner down the street as a result of they didn’t know the place they’re a sufferer of a criminal offense, proper? And degree up over 70% of the folks we talked to didn’t know they had been a sufferer of crime, so that they had not reported being a sufferer of crime. And so all the reporting to the FBI final yr for frauds and ransomware and our IC three complaints, the losses reported had been over $16 billion

Jonathan L. 

and I feel that you simply spoke about this earlier, however I feel it’s like a extremely good level about how one can measure success, which is, not solely is it the quantity that’s seized or the quantity that’s recovered or frozen, or the variety of instances, it’s truly the quantity of hurt that’s then prevented, and getting an excellent understanding about the life cycle of, for instance, a rip-off, you possibly can truly, then estimate, not solely did you freeze the cash from the dangerous actor, however truly you managed to forestall, like, much more losses than than what would have occurred in any other case,

James B. 

completely. So make no mistake, the primary aim of the FBI is to place folks in jail. And we try to determine topics. We try to develop instances, if they’re in the United States, is to arrest them. If they’re abroad, is to arrest them. That is our primary aim. However, that takes time, and typically we will’t function in that timeframe, so we’ve obtained to make an impression now. So how will we step in? How will we mitigate these crime issues? When we will’t get the folks immediately, we’ll get them. The fraudsters which might be working these compounds abroad will probably be arrested, whether or not they’re charged by the FBI or overseas authorities. It will occur. But what can we do in the brief time period? So we will speak to victims. We can step in and attempt to mitigate it. We can strive to have a look at the completely different providers the dangerous guys are utilizing to use our foes. What form of communication methods are they utilizing? Who units up their web accounts? Now I’ll provide you with an instance. We recognized a Philippine house firm, a Fano, that was creating 1000s of web websites and apps as nicely that victims of pig butchering had been accessing. Loads of these websites had been mirrored and similar to a reliable monetary establishment. So we had been capable of work with the United States Treasury Department workplace of RNA OFAC, and OFAC sanctioned this firm and the CEO, the head of the firm, just a few months in the past. And so that may be a place the place regulation enforcement labored with a regulatory company in the United States to make an impression all through the world, and to placed on discover to that firm and that CEO and everybody working for that firm, we’re after you 

Jonathan L. 

and their monetary property. So in that case, the precise itemizing on the OFAC SDN listing, the particular designated nationals listing, which she was added to, her cryptocurrency addresses had been additionally printed on that listing, and so then all of our personal sector prospects at chainalysis, we now have greater than 1000 prospects that display screen transactions towards chainalysis for cash laundering danger, and they then know to not do enterprise with that firm.

James B. 

That’s proper. We discover the sanctions to. Be very helpful. Financial establishments round the world respect sanctions, and they have a look at the OFAC listing and they they cease doing enterprise with folks which might be on it. So it’s a essential software that we now have in the United States to impression this house,

Jonathan L. 

talking of instruments and different authorities and tough challenges which might be throughout borders. There’s been loads of discuss DPRK being concerned in stealing cryptocurrency. We’ve had loads of reporting on overseas tech employees. I do know that the bureau is once more, type of taking a fairly robust stance and lead on with the ability to assist with this. Could you elaborate a little bit bit about what you’ve seen DPRK do with cryptocurrency.

James B. 

Yes, look, there’s a number of instances which were charged. I might refer folks to the US Attorney’s Office press releases. But DPRK, as you recognize, has hacked firms. Has stolen cryptocurrency, and they attempt to transfer it throughout the blockchain. The FBI tries to interdict these transactions, so we work with the personal sector firms like yours and the digital asset service suppliers to attempt to determine illicit cash that DPRK is stealing, that they’re transferring by way of the system, and that they’re attempting to make use of to acquire nuclear weapons. Last yr, we seized about $50 million in crypto worth that DPRK moved. So that’s a extremely essential factor, proper? It’s nationwide safety. It’s a worldwide impression. The FBI is working with companions domestically, clearly, companions globally, to attempt to cease DPRK, and we’re going to proceed to place sources to 

Jonathan L. 

that. And we’ve additionally seen that they’re very refined in most of these assaults. I imply, the purchase bit hack that occurred earlier this yr was $1.4 billion this can be a very high greenback worth, and with the ability to transfer that shortly and collaborate with the personal sector is clearly crucial to have the ability to cease that exercise from occurring. What has occurred with the capability to proceed to hint when they’re working at that degree and scale.

James B. 

Two issues. One is we needed to get higher. Our of us which have the tracing capability may now not depend on watching a transaction that was already executed, come into it afterwards and simply observe the transaction. We needed to get good at reside tracing the place the adversary is transferring the cash, we needed to observe it reside. And that’s what DPRK does. And so we raised our ability set. The second and the most essential was the engagement with the personal sector. And so one in all the issues we’ve executed that I feel, is a extremely profitable software, is we created what’s referred to as is called Ivan, the illicit digital asset notification system, and that may be a group of presidency companies and personal sector companions which have signed a memorandum, and we work collectively. And what we do is we share soiled wallets. So right here’s a pockets that’s transferring, we share it with all the members, and if a member sees some exercise with that, if it’s on their platform or their system, they flag it. Chain now flags some stuff to us, and they inform us, hey, this could be DPRK, and we step in. So we clearly should undergo a course of. I

Jonathan L. 

assume that is one other actually good instance of how getting new know-how and marrying that with the proper authorities is like the key to fixing a few of these issues. And it takes not simply, you recognize, the know-how, but it surely additionally takes the technique of the investigation, and then it takes truly doing work throughout DOJ with prosecutors and even educating judges about what are the proper authorities to be utilizing to truly cost these instances and take these steps to interdict cash. Maybe speak a little bit bit about it doesn’t simply cease at the FBI. How does it go together with participating with prosecutors that are actually doing these instances?

James B. 

Well, I feel you stated it there. Just like internally, we needed to educate our workforce. We should externally educate prosecutors. There are some subject material specialists at DOJ, however not sufficient to go round. Our prosecutors are sensible of us. They’re extremely educated. They’re fairly straightforward to coach, and so we prepare them. DOJ will maintain conferences and coaching periods, however once we get right into a case, we’ll have the prosecutor that’s assigned to the case, and we’ll simply begin coaching them up and educating them what they should know to assist with the case. So I feel the one factor folks don’t essentially perceive is the FBI is an investigative company, and we’re a federal investigative company, so we don’t examine state crimes or native crimes. It needs to be a violation of federal regulation, and we will examine a case, nonetheless, we can not cost a case and we can not prosecute a case. That is as much as the Department of Justice. And round the nation, there are United States Attorney’s workplaces, and they lead prosecutions. So we gather proof, we conduct an investigation, we work hand in hand with the prosecutors, however in the end it’s as much as them. Them to take that piece of the case and transfer it ahead, and then they’ve to enter the judicial system. Right? They’re going to courts, and that presents one other problem, proper? Judges might not know a lot about cryptocurrency. The jury might not know a lot about cryptocurrency. So we now have our subject material specialists will usually should testify in trials to show the jury, to coach the jury, or educate the choose, what that is, what’s the drawback right here? And so there’s loads of steps after our investigation that we’re alongside for the journey. Once the investigation is over, concluded, and in the instances charged, we’re now not the lead. DOJ is the lead, and we’re there as a supporting position, and we are going to assist them till the case is adjudicated.

Jonathan L. 

I bear in mind again once we first began coming and speaking to members of DOJ, members of the FBI, about this know-how, and one in all the first issues that folks stated was, you’ll by no means persuade a jury, or it’s going to be unimaginable to persuade a choose that that is dependable proof in courtroom. That was fallacious, clearly, and it has been one thing that the FBI and DOJ have managed to with subject material specialists and coaching and schooling managed to actually create the reliability of this as admissible proof in these instances,

James B. 

our system, proper? Each case has its personal case, and every case has its personal jury. We don’t have standing juries in the United States, so each time we go to trial, we begin the schooling course of throughout the trial. But we discovered, like a template, a course of that works, and so we simply go to that course of, and it’s been pretty profitable,

Jonathan L. 

I feel, the the capability to then prosecute these instances is sort of a main step in proving out, you recognize, this technique and this know-how. The different factor, although, is then additionally then seizing cryptocurrency. And I’ve heard that there’s additionally possibly some specialist useful resource in the FBI that may be a canine that may seize cryptocurrency. Is this true? There

James B. 

is not any canine that may seize cryptocurrency. We do have canines that may level out digital gadgets, and we now have all types of great canines. We have canines that may assist with investigations, and we now have canines that may assist are available and assist with stress, all ranges of canines in the bureau,

Jonathan L. 

I really feel like that’s a recruitment software that’s underutilized. The FBI is

James B. 

the best regulation enforcement company in the world. Is an outstanding place to work. And if a golden doodle is what I’ve to make use of to recruit folks to come back to the FBI, I feel I’ll use it.

Jonathan L. 

I feel that the capability to have the ability to have the situational consciousness in these instances the place somebody goes right into a room or a home or on a search warrant and have the ability to determine digital gadgets, as you say, or cryptocurrency materials has been type of a extremely essential ability that needs to be rolled out to a whole workforce. I imply, that’s one thing that’s fairly tough. How does that work?

James B. 

Well, it began with displays, as I discussed, and it’s about three 4 years in the past once we recorded the video displays, we made the first couple in the sequence necessary for each agent and analyst in the FBI. So there’s a little bit over 14,000 particular brokers in the FBI. They all needed to watch the first two so all of them have a baseline consciousness of what cryptocurrency is. As the workforce turns over, folks retire, new folks come on board, we request that the new brokers try this coaching once more, and in order that they’ve a baseline understanding of crypto. What we don’t want was, we don’t want 14,000 brokers to analyze crypto and to have the ability to hint crypto. We don’t want that, however we do want them to acknowledge the way it could also be used of their instances and to search for and then in the event that they need assistance, they go to the digital property unit or the digital or forex response group members of their area workplace. We have an online web page that lists these folks, in order that they have the level of contact, and they only stroll down the corridor say, Hey, Jonathan, are you able to assist me with this Bitcoin?

Jonathan L. 

And I feel that that’s one thing that we now have additionally began to consider mirroring our know-how to the precise organizational design of an company like the bureau that clearly has spent 10 years growing and constructing organizational construction to take care of digital property or cryptocurrencies strategically, is we’ve began to construct know-how that makes it truly much more easy For anybody in the FBI to have the ability to get a fundamental perception, and then additionally constructed instruments for the most superior traces on the market to do the most tough and complicated investigations, all the solution to considering rather more strategically, as you’ve type of outlined loads, is considering macro degree about these threats and how one can perceive the complete provide chain and truly go after the cash earlier than you essentially can get to the individual. Yeah.

James B. 

I imply, it’s actually essential that you simply step in and try this. I feel one in all the issues I’ve been remiss in speaking about is once we established the digital property unit, we embedded our intelligence analyst leads our intelligence group, and she. Is one in all the 4 ladies pioneers. I imply, she’s in all probability the foremost professional in the United States authorities in cryptocurrency. She’s been, I might say, 2011 or 2012 she obtained into it, proper? We Bitcoin began in 2009 so it’s been a very long time. So she leads an intelligence group. So after I discuss the completely different threats, the terrorism menace, the counterintelligence menace, the felony menace, cyber menace, her intelligence group appears to be like at, Okay, how’s crypto utilized in these completely different threats? How is it being utilized by fraudsters, versus the cartels, versus DPRK, and they write intelligence merchandise, and these intelligence merchandise are shared all through the FBI. They’re briefed to folks in the FBI. They’re placed on an internet site internally so folks can learn them. They’re shared with our federal regulation enforcement companions, some intelligence companies, so we’re sharing that intelligence. I feel the largest factor, and I’ve tried to speak about this, is collaboration in partnerships the FBI, nobody program can lead the cost on this. So internally in the FBI, we’re attempting to achieve out and share throughout the enterprise. Externally, we’re attempting to share the information and the experience we’ve gained with the authorities and with the personal sector. Because, as you recognize, the overwhelming majority of use of crypto is reliable. It’s not enterprise. It’s good enterprise. We’re simply the illicit use of it. That’s all we care about.

 Jonathan L. 

And one in all the massive threats that we haven’t actually spoken about is counter terrorism financing. And I feel when this primary got here throughout everybody’s desk, truly, in the 2015 16 timeframe, there was loads of concern about cryptocurrencies use for terrorist financing. How has that developed over the time that you simply’ve been it? And then I wish to deliver all of it the manner by way of to right this moment and the Iranian menace and how to consider the use of cryptocurrency in Iran. 

James B. 

When I first obtained into the house of 2015 we began participating with the counter terrorism division, and that they had some instances right here and there. The first actual success story that I used to be a part of was about 2019 an analyst got here into my workplace and he says, I’ve recognized a pockets that a few of the worth is being transferred, and I see people who have contributed cash to that pockets. I stated, Okay, what do you will have? And in order that they recognized the place the folks had been situated, and what our investigation revealed is these folks had been donating cash to ISIS fighters. And so I had our analyst and Agent name the area workplaces and say, right here’s what we’re seeing. Teach them what cryptocurrency is, present them what we see. It resulted in sending my group to these workplaces. Fast ahead to October 7, the Hamas assault on Israel. What was our response? What would we search for? Well, one in all the issues we needed to search for is determine cryptocurrency wallets, and we attempt to step in and thwart terrorism, which is a really actual menace to the United States

Jonathan L. 

homeland. And I feel that one in all the issues that this success and the complete image of with the ability to determine these instances is that they are often important indicators to an precise assault or a functionality that would exist in part of the world that we didn’t actually assume may very well be associated to these instances. And I feel that one in all the issues that I’ve seen on this area is that with the ability to view the full community and have the ability to map that and transfer from one case to the subsequent to the subsequent has been type of instrumental in mapping a few of these terrorism networks which have dabbled with cryptocurrency over time. We’ve seen loads of it with a few of the Iranian spies which were arrested in several components of the world, the place cryptocurrency was an integral a part of the manner that these spies had been truly arrested. In phrases of the outlook from right here. We’ve spoken loads about the several types of crime and the completely different threats. What does the panorama truly appear to be transferring ahead? If we sat right here, in just a few years from now, are we nonetheless doing the identical technique, identical approach, or issues altering?

James B. 

Well, issues continuously change. I feel residing in the best nation in the world, the United States, the ingenuity of businessmen and folks and the inventive minds this digital panorama goes to alter. It has developed loads over the final 10 years, and it’s going to proceed to evolve. And it’s exhausting to say the place we’re going to be in 12345, years. However, we all know it’s going to alter, and our job is to maintain up with the modifications, to interact with the sensible minds in the personal sector which have these concepts, and have a look at the FBI shouldn’t be going to get away of enterprise. That’s not our job in any respect. Our job is to battle crime, shield the homeland from cyber assaults and terrorism and counterintelligence threats, and that’s what we’re going to do. And so nonetheless, the dangerous actors are going to make use of cryptocurrency or no matter the new factor is on the market will alter and will keep on the forefront of these applied sciences 

Jonathan L. 

We have a fairly broad viewers that that listens to the podcast. I feel that possibly it’s the true crime viewers. Maybe it’s individuals who work in monetary establishments which might be crime fighters of their jobs as nicely. We have loads of public sector. To employees round the world. You’ve obtained simply an enormous wealth of expertise for these folks. I imply, what ought to they be fascinated with when they consider the FBI? Well, we’re

James B. 

right here to assist. So I feel lots of people are afraid to speak to the FBI. It’s actually in the enterprise world, we see that loads, proper? Lawyers are available and say, oh, you possibly can’t speak to the FBI. They may do no matter. I’m probably not positive what we’d do, however what I might encourage folks in trade is to interact their native area workplace. We have 55 area workplaces throughout the United States, and we now have satellites, about 430 satellite tv for pc workplaces. We name them resident companies throughout the United States. If you’re in the house and you haven’t spoken to your native FBI workplace, it’s best to speak to the Financial Crime Squad, speak to the cyber squad. They will come out and speak to you about the menace panorama, the tendencies and the typologies that they’re seeing. They’ll share data with you. I might refer you to our web site. I might refer you to IC three.gov, in each locations, we now have public service bulletins and we now have information tales about lots of the issues we spoke about right this moment. We continuously launch public service bulletins to make trade and residents conscious of the completely different threats that they’re going through, and we are going to proceed to try this. We share intelligence studies so we do intelligence studies for particular sectors. So if you happen to’re in the cyber trade, or if you happen to’re in the monetary trade, and we solely launch these studies to folks in that sector, but it surely takes them to interact. We can’t attain out to everybody, however of us, be at liberty to achieve out to the FBI, and we wish to work with you, and we wish to assist you to in your trade.

Jonathan L. 

I’ve heard of many examples of enterprise folks getting warned by the FBI about some type of cyber menace, some type of fast menace to a enterprise that has actually truly saved an organization’s existence. And I feel that the most tragic types of this are the place you sit on some intelligence and you simply don’t have the capability to contact these folks. And so I assume, how does somebody even discover a native area workplace?

James B. 

We’re in the cellphone e-book. I assume there is no such thing as a cellphone e-book anymore, yeah, simply name one 800 name FBI. They can put you in contact with the native workplace. You may simply Google, otherwise you do an web seek for the space you might be, and the cellphone quantity for the native workplace will come up. We do proactive engagement with companies, particularly in the cyber house. So once we know there’s a cyber menace, whether or not it’s a overseas adversary, which we see now, we are going to exit and we are going to interact companies. So we’re proper now knocking on the doorways of cyber firms and sharing the typologies and the tendencies that we’re seeing in order that the firms can take mitigation efforts to guard themselves from assaults. It’s actually essential to have that relationship earlier than an organization is attacked. I feel I discussed earlier, there was a hospital in Boston final yr. They had been being attacked. We obtained the knowledge to point that they had been being attacked, and we had been capable of go to the hospital, knock on their door. Hey, right here’s what we’re seeing, right here’s the code, right here’s what’s on the market their laptop, of us. CISA went in, seemed and stated, Yeah, you’re proper. We are being attacked. They had been capable of take mitigation efforts, and the assault wasn’t profitable. So these conversations are occurring. So we’re knocking in your door. Just verify that we’re truly the FBI. Same factor if we name, simply verify it’s the FBI. Just there are regulation enforcement impersonation schemes. So typically, while you get a name from the FBI, simply get their title and you possibly can name again to that nationwide quantity and they’ll join you, or you possibly can name the native workplace and they’ll join you, if you happen to’re undecided, and ask a bunch of questions to determine if they’re. But have them come to your workplace, we are going to go and we’ll sit down and we’ll clarify

Jonathan L. 

that to you. We’ve spoken loads about completely different threats and every thing unfavorable about the world at giant. What provides you the optimism to come back to work day-after-day 

James B. 

I like to put dangerous guys in jail. I like to mitigate threats to the United States in the native communities the place I work, that is the best job in the world. There is, bar none, no higher job than the FBI. So it’s very straightforward to come back to work. I work with about 34,000 folks. I don’t know all 34,000 however they arrive from throughout this nation with one mission in frequent, and that’s to guard the United States. It’s a terrific place to work. It’s very straightforward to go to work.

Jonathan L. 

I really feel like we’re out in the world. And each third phrase has the phrase AI. In reality, chainalysis has AI. In chainalysis, what’s the FBI doing about AI?

James B. 

We have very restricted sources. 34,000 folks. We’re not going to develop. So we’re at all times trying to leverage know-how to make ourself extra environment friendly and more practical. We have an inner AI Working Group at headquarters that’s how AI can be utilized to assist what we’re doing and machine studying, one in all the issues we’re doing, we simply had a group down doing a little work on BSA and. Analysis, proper? So some machine studying on BSA evaluation to determine suspicious exercise studies, to determine new instances and to reinforce ongoing and present instances. So we’re continuously trying internally for know-how. We’ll look externally for know-how, and we’re additionally going to look how dangerous guys use AI to focus on Americans, which they’re doing, and so we now have investigations into the illicit use of AI. That’s 

Jonathan L. 

actually encouraging. I imply, the Bank Secrecy Act knowledge for most of these patterns, it’s been an enormous problem that the knowledge is pretty unstructured, and it’s exhausting to get a few of the new know-how to work on that. And AI does appear to have, like, a extremely essential position to play in with the ability to perceive structured and unstructured knowledge that’s actually crucial to the mission, and so discovering the proper path and the proper controls and steadiness on what insights are capable of be derived from Ai, it looks like a extremely essential activity.

James B. 

When I got here in the FBI practically 20 years in the past, we had BSA SAR overview groups and they IRS and US Attorney’s Office all throughout the nation as SARE UTS. They truly nonetheless have them, the place they print off the SARS and their space of duty, and they manually undergo it. The final time I did that was 2009 as a result of it takes perpetually. It’s not that helpful, and you possibly can’t learn each single SAR however you need to use knowledge evaluation. You can use AI, you need to use machine studying to funnel down that universe of SARS to deal with the threats you might want to deal with. And I feel that’s actually essential. So as a SAR overview group, if I’m working fraud, I solely care about fraud, however what if I miss a counter intelligence SAR, or counter terrorism SAR, or all these different violations that we work and all these different threats which might be impacting the United States. It’s higher if I take advantage of knowledge analytics to slim that down and tailor our searches to the completely different menace streams that we now have, and then I can get these SARS to the subject material specialists to undergo, quite than that inhabitants two plus million SARS, possibly they’re 100 SARS of their AOR, and so, yeah, it’s so essential to make use of I get a little bit bit on a soapbox after I hear Saar overview groups that manually undergo it, as a result of you possibly can’t be an professional in each single violation. And I do know I can’t be, however I can go to the specialists and say, Hey, what do you want out of this knowledge? What do you search for? What are the pink flags in the SAR that you’d overview to your violation, and then I work with our knowledge groups, and I say, Okay, right here’s what they’re saying. How do you seize that? How do you funnel that down? And we’re continuously doing that. I 

Jonathan L. 

assume it’s a extremely good instance of the course of automation that’s the essential side of this know-how. We’re not going to be in a world the place AI is deciding and making a call on what somebody needs to be charged with or not, however there’s big alternative to consider course of automation, the place the knowledge may be collected, offered, collated, analyzed to Be capable of simplify the job of the precise investigative work that should occur, which is the human evaluation of is that this one thing that I want to have a look at or not?

James B. 

As a supervisor in the FBI, I’m attempting to at all times assist the brokers be extra environment friendly and efficient. To take an even bigger caseload, if I’ve an agent that’s working 5 instances, can I get them to eight to 10? If I’ve an agent that was working 10, can I get them 12? The use of know-how goes to permit us to have extra investigations by the identical variety of brokers that we at present have. That goes to alter over the subsequent 5 years. I assure it. I simply don’t know what it appears to be like like, and I received’t be round for it, but it surely’s going to be nice. I

Jonathan L. 

assume that the KPI of caseload is sort of a actually fascinating one, and I feel that that’s one thing that we predict loads about at chainalysis, is what number of investigations can a crypto tracer do, and what are the methods wherein we will construct higher merchandise to assist improve the variety of investigations that somebody may run at a single cut-off date? And I feel that that’s a extremely useful factor for folks to truly monitor and measure the progress on how good the know-how is at enabling that to occur.

James B. 

We are aligned in that I 100% agree with you. I feel that’s gonna be nice,

Jonathan L. 

superior. Well, thanks, Jim. I actually respect you coming all the solution to our lovely podcast studio in North Carolina. Oh,

James B. 

I respect it. Jonathan, it was a pleasure to speak to you and stay up for speaking once more. Thanks.

 

The publish Inside the FBI: Crypto, Crime and National Security: Podcast Ep. 171 appeared first on Chainalysis.

Similar Posts