Money Rehab with Nicole Lapin - How Powerful Cryptocurrency Really Is In the Wrong Hands

Episode Date: October 26, 2023

There's an assumption that cryptocurrency is particularly useful to bad actors and terror organizations... but how true are these assumptions? This is a question on the top of Nicole's mind as she continues to follow the money trail of Hamas' terrorist attack in Israel. To help her answer this question, Nicole speaks with Ari Redbord, the Global Head of Policy at the blockchain intelligence company TRM Labs.

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I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no

maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits

apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Some of the functional qualities of crypto has made it a currency associated with the dark web. But what's the real impact of crypto and how does it relate to what we're seeing in the Middle East right now? To help me untangle this web, I'm talking to Ari Redbord, who is the global head of policy at TRM Labs. It's a blockchain intelligence company. And before that, Ari was a senior advisor to the deputy secretary and the undersecretary of terrorism and financial intelligence at the U.S. Treasury. He's the guy to talk to about this.

Here's our conversation. Ari Redbord, welcome to Money Rehab. Hey, thank you so much for having me. I'm really looking talk to about this. Here's our conversation. Ari Redward, welcome to Money Rehab. Hey, thank you so much for having me. I'm really looking forward to the conversation. On the show, we've been talking, Ari, a lot about the money trail of terror and how Hamas got the funding for the terrorist attacks in Israel on October 7th. Then we traced the aid to Gaza. It gets routed into nefarious deeds by Hamas. But there's a whole other money trail that we really need to follow, the trail of crypto. So let's talk big picture for a second for our listeners. What is the role that cryptocurrency really plays in terror financing? Yeah, first and foremost, it's really important in any conversation in terms of crypto and terror

financing is to start with, it is not the preferred method of fundraising for terrorist organizations. Look, I think that crypto is a small piece of a much larger sort of terror financing picture that starts with nation state sponsors like Iran, some of the aid that you're talking about going into the hands of Hamas for this type of malign activity. They have a diaspora of individual donors all over the world who are helping fundraise. They're using charitable organizations or so-called charities to raise funds. So we're talking to the tune of hundreds of millions of dollars raised in other ways, and a much, much smaller amount raised in cryptocurrency. I will say that Hamas was an

early adopter, though, of using crypto to raise funds. We saw Hamas soliciting funds in crypto really back in 2019, first on Telegram channels, and then eventually creating website infrastructure to start to raise funds in crypto. So there certainly has been a move and an interest in the digital world. But to be very clear, it is a tiny part of a much larger terror financing puzzle. Like how tiny? Yeah. So I'd say, look, over the course of time, we have seen a number of different types of entities raising money for Hamas to include official channels. So I mentioned 2019. In 2020,

the US Department of Justice seized about 150 cryptocurrency addresses associated with Hamas and actually took down those websites, that fundraising infrastructure. And then over the last two years, you've seen Israeli authorities, including just this morning, seize hundreds of addresses associated with Hamas. Hamas. So there's a number of different channels from the official Hamas channels to more of what we've seen in the last two weeks, which I would call much more sort of supporters of Hamas. But to kind of give you some sort of baseline, the last time we saw sort of an uptick in violence, we saw an uptick in fundraising to the tune of about $400,000 within the course of a week or so around the violence. Over the course of the last two weeks, we've seen significantly less. We're talking in the tens of thousands, not in the sort of millions that have been reported even over the last couple of weeks. So I would say much, much smaller amounts. Right now, we're seeing in the thousands, tens of thousands, as opposed to the 100 million a year that comes from Iran, for example. So you said that Hamas is one of the most sophisticated, though,

crypto users in terror finance. Why? We saw them move to the digital space relatively early. And it's because, look, terror financiers, like any other type of illicit actors, are going to do anything and look to any source to raise funds. And the reality in crypto is the promise of this technology is cross-border value transfer at the speed of the internet, right outside of traditional financial institutions, and also sort of nation state actors. So if you are a terror organizations that trying to get funds from a sanctioned entity, you are looking to move those funds outside the traditional financial system. So just like North Korea, cyber actors, you know looking to move those funds outside the traditional financial system.

So just like North Korea, cyber actors, sanctioned Russian oligarchs and others, they want to move funds outside the traditional financial system. So they're looking to crypto. But again, a much smaller piece of a larger puzzle. I was a federal prosecutor for the US Department of Justice for about 11 years. And I investigated cases involving networks of shell companies, and hoalas and high value art and real estate. You know, there's no TRM to track and trace those things, right? They sort of move in the opaque traditional financial system. The unique thing about crypto, and I think it's so important in this conversation, is that crypto lives and moves on open blockchains, which are basically networks

of computers that form an open ledger. That means that every transaction on a blockchain is traceable and immutable, meaning forever, logged and immutable. So we have visibility on every transaction in crypto. And what we've seen over the last several years, particularly in the terror financing space, is some very successful investigations by US authorities, by Israeli authorities to track and trace and ultimately seize these funds in ways that we never could in the traditional space. In fact, in April 2023, just this year, Hamas came out and said, hey, we're actually going to stop raising funds in Bitcoin because US and Israeli authorities are targeting our supporters because of this transparency of the blockchain.

Now, are they doing that? You know, maybe, maybe not. But we have not seen a lot of official Hamas activity since the war began, which is a data point, at least. You mentioned Hawala, as we talked about this really briefly in our episode with Mosh Wenunu at the start of the terror attacks. Can you explain what those are in layman's terms? I've always been fascinated. It's really simple. I mean, look, they're money exchangers, right? And they go back years and years in terms of playing that role of middleman in financial

transactions. One of the real challenges for not just terror financiers, but any type of illicit actor who's trying to move funds in crypto is the reality is you can't use crypto to buy things in a meaningful way, legitimate things, diapers, right? But also missiles and guns. So you need to convert those funds to more usable traditional currencies, meaning you need to find on and off ramps. Those on and off ramps tend to be exchanges. meaning you need to find on and off ramps. Those on and off ramps tend to be exchanges. And the large exchanges, the Binances, the Coinbases, they have robust compliance controls. They use tools like TRM to make sure that they're monitoring transactions, that they're screening wallets, that they're making sure that they're not engaging with a terrorist financier. So terrorists, just like every other type of illicit actor, is looking for non-compliant

on and off ramps. And there are these crypto-hawalas, for lack of a better description. They are sort of middlemen, brokers that are out there. And that is where we're seeing law enforcement also really target today. In the Ukraine-Russia sanctions context, we've seen the U.S. Treasury Department and others go after those types of non-compliant exchanges in Russia. So, Chatex and Garantex and Bitslato and there's other names. We just saw last week Treasury do the same thing in the Hamas context, and that is sanctioned by cash, which is a Gaza-based, what I'd call crypto hawala. So you see basically a couple of things. One, you see better compliance at the large exchanges, which is having some success, but you're also seeing authorities target the non-compliant pieces of the ecosystem. There's been a lot of talk about crypto specifically for anyone who needs a refresher

that there's this expectation of anonymity with crypto, which is why some experts say terrorists seek out crypto, which makes sense, right? To what extent is the anonymity real? Obviously, seizures happen. Yeah. So just by way of really quick background, so what we do at TRM is we're a blockchain intelligence company. And what we do is we take that raw blockchain data, the alphanumeric address, and we layer it with threat intelligence. So what we're thinking about is anonymity is not really that it's pseudonymity, right? It's we can associate a certain type of threat category with a wallet address. So we see Hamas raising funds on a telegram channel, right? They put that Bitcoin address out there or another address.

We label that address in our tool, terror financing, which allows Israeli authorities, which allows the Department of Justice, the FBI to see that and then track and trace funds in and out of that tool. So it is certainly not anonymous, right? Law enforcement is able to track and trace funds on an entirely open ledger, right? You don't have to sort of unravel complex networks anymore. You follow funds on a blockchain where we lose visibility is essentially where we've always lost visibility. Sort of these when you go when you move funds off chain, when you convert them to dollars or euros. And I think that's still the challenge. But the reality is we see law enforcement having a lot of success tracking and tracing funds in crypto. But how does that happen? Like, what's the coordination that needs to happen with that intelligence community when crypto accounts have supposedly been lauded as being decentralized and impenetrable? Like these crypto bros say that all the time. that all the time. Yeah, look, it's interesting. I think the paradox of crypto and money laundering, if you will, is that there's this promise that you can now move larger amounts of funds cross border faster than ever before. But that's also attractive to illicit actors. But the reality is in this decentralized financial system where you're not relying on intermediaries, where

transactions are happening on an open ledger, law enforcement and regulators and compliance professionals at exchanges, at even DeFi protocols, right, are using tools like TRM, blockchain analytics tools, to track and trace the flow of funds to build investigations. Ultimately, in order to identify an individual to say that we know that that's Nicole's cryptocurrency address, That means you need to serve a subpoena on Binance or Coinbase or an exchange that has that customer information. But to know that that wallet address associated with Hamas is something that you can get in a tool like TRM today. So I think that one thing that I talk all the time to policymakers all

over the world about is that we can build investigations and trace the flow of funds in crypto in ways that we never could before. So this sort of myth around anonymity, you know, anti-money laundering is a use case for blockchain technology. It is a feature, not a bug. And I think the more folks understand that and really leverage this technology to investigate, to stop bad actors like Hamas. I think we could really make some progress in the space. So then what happens? Let's say you guys find out through a telegram channel or a signal channel or some encrypted messaging service that there are wallets being used by Hamas. What action can be taken to freeze those accounts? You said working with the Israeli government. It's an awesome question. And that's exactly what happens. You described it perfectly.

Hold on to your wallets. Money Rehab will be right back. I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts

with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself.

Find a co-host at Airbnb.com slash host. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. When you check out Chime, you'll see that you can overdraft up to

$200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and limits apply. Booths are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for

details. And now for some more money rehab. We have a team of threat hunters who are experts in terror financing, who are out there labeling the blockchain essentially to ensuring that we have attribution, that we know that that address is associated with Hamas. That information then is shared with law enforcement who investigate the case. So for example, in 2020, when the Department of Justice in the United States with the FBI and IRS criminal investigations and others were investigating not just Hamas at the time, it was Al-Qaeda and ISIS and other terrorist organizations. What they were able to do is they were able to take those addresses and trace out and build networks, ultimately then not just seizing the addresses

and the funds, but were also able to take over the websites that these terrorist financiers were using. And I think one super underreported part of that story when DOJ took down those terror networks is that the FBI and IRS, they actually took over those websites and were continuing to collect funds from Hamas supporters even after they seized the wallets. So there's a lot of tools that law enforcement has at their disposal. Israeli authorities seized a number of other addresses that were associated with Hamas. So they're using tools to seize back funds and then also target supporters who are raising funds. So I think there's lots of things that law enforcement can do. And they do have more visibility now than they ever did before.

So there's this idea that you can do illegal shit with crypto, basically. But that's not the case. Like the government can go in and shut down these wallets. I think there is some disconnect there. There is and there always has been. And I think that it's important to have the conversation and to understand that, look, as we move into a digital space, and I think that's something we're seeing playing out almost in real time over the last few years, I would argue that it started with Colonial Pipeline, when there was a ransomware attack on US critical infrastructure, taking down the basically oil

supply to the Eastern United States from a ransomware attack. I think it really moved this conversation from being a law enforcement issue. Hey, we're just going to do investigations in crypto to being a major national security issue. And I think with the war in Ukraine, and now what we're seeing in the Middle East, in Gaza and Israel, we're starting to see wars, at least in part, are fought in the digital space. And I think as more and more of this wars are fought on blockchains, we're going to see more investigators who have tools, who are able to investigate these cases and able to stop bad actors in the digital space, even as they're fighting a kinetic war in the physical space.

So has it reached a tipping point? Perhaps there was exploitation during a time when there weren't firms like yours to really investigate what was going on on the blockchain. Have we gone potentially back to old school money laundering because of all of this regulation and access that the government has to shut these things down? I think it's a mix still. I still think we're early. I believe in the power of this technology and the promise of this technology for lawful users. And I think as this ecosystem grows, I think as more people engage with cryptocurrency, stable coins, eventually maybe CBDCs, central bank digital currencies. We're going to see a growth of the ecosystem. And of course, bad guys are going to also be engaging in this space, right? Bad actors always go for where the money is. That's one thing that is absolutely certain is you will always see bad actors. There's a reason that North Korea has

been attacking the cryptocurrency ecosystem at unprecedented speed and scale over the last few years, stealing billions of dollars, right? It's because that's where the funds are today. But as they continue to attack, as law enforcement and others, hybrid controls and are able to stop bad actors, we're going to see that piece too. So I think we're early, but look, I think one thing is certain, and there's not much certain in this world right now, that bad actors are always going to go to where the money is. And I think as the ecosystem grows, we're going to see more of this. But there are also going to be tools like TRM. There's also going to be more law enforcement. There's going to be more training to actually stop bad guys in this space as well. What more do you think the international community or government agencies can do to stop the flow of crypto to terror organizations? or government agencies can do to stop the flow of crypto to terror organizations? It's a great question.

I think there are a number of different things. I think, first of all, I mentioned those off ramps. We have to stop bad actors from being able to take that cryptocurrency that they've gotten on blockchains and convert it into usable fiat, right? We need to stop North Korea from turning that stolen crypto into missiles. We need to stop Hamas from turning that stolen crypto into missiles. We need to stop Hamas from turning that stolen crypto into guns. And I think a lot of that is ensuring that there are really robust compliance controls on those on and off ramps. So at the exchanges, I then think it's really important to target the non-compliant exchanges to just make sure that we're taking out bad actors who don't have compliance controls in

place, who are essentially facilitating money laundering. So I think that's a huge part of it. I think it's really, really ensuring that regulation exists everywhere. I talk to regulators all the time. And recently, a regulator said to me, we're only as strong as our weakest link. And I think that's absolutely true. You can have all the controls you want in the United States and in the UK and in places like Singapore and Japan, but they have to be everywhere. So I think that a lot of that is ensuring that there's standards globally when it comes to anti-money laundering compliance. How techie are terrorist organizations? It's a great question. And what we've seen, I mentioned North Korea a few times. And the reason I do that is because they are

extremely sophisticated actors in this space. They have basically created an army of cyber warriors. It's almost like Russian gymnasts in the 80s or something. They take you at a very young age and you have a proficiency in math or science or engineering, and they build you into a member of Lazarus Group or one of these other cyber gangs, essentially. And they're out there all over the world attacking cryptocurrency exchanges. They're hacking Sony Pictures and the Bank of Bangladesh and really, really sophisticated actors. Terrorist financiers are very, very different. We're not seeing a lot of the sort of very sophisticated activity, the use of mixers, privacy coins, the other things that we're seeing from a North Korea.

So I would say for the most part, what we're seeing is individual donors sending funds directly to an address that a charity or so-called charity, right, a supporter of Hamas puts out there, and then attempting to take those funds and off-ramp them through a buy cash or another type of non-compliant exchange. So they're sophisticated enough to use the technology, but I would certainly not put them in the category of the most sophisticated nation state actors out there like in North Korea. Harry, this has been so, so helpful. We end our episodes by asking guests for a tip listeners can take straight to the bank. You mentioned stolen crypto. If somebody has a crypto wallet, what are some of the things that

they can do to make sure their funds are safe in this crazy world? Yeah, really, really smart question. And one thing that is also happening in a really legitimate way, and I should mention this, is that there are a lot of ways to send crypto to Israeli causes, things that are happening in Israel right now for humanitarian aid to help with hospitals and other types of things, really, really legitimate ways to use crypto, that cross-border value transfer at the speed of the internet for good. But we're also going to see a lot of scams around that as well, sending humanitarian aid to Gaza, sending humanitarian aid to Israel. And you've got to be really, really careful and make sure you're doing

your due diligence on different social media platforms to make sure you're sending it to the places that you want to send it to, not to scam artists or even terrorist financiers. So I'd say be careful out there, do your due diligence, and just make sure that if you do want to send crypto, you're sending it to the right place. Is there a red flag or green flag to know whether it's fishy or legit? There absolutely are. And there are so many. One just sort of like plug is there's an open source site called chainabuse.com, where people are actually able to report scams and fraud. Think of it as like a ways for crypto scams and fraud. It's a crowdsource platform that does an

amazing job of ensuring that you see the scams that are out there in these different sorts of spaces. I think that's sort of one way is to use chain abuse. And I think another way is just like, some of these things just are much more obvious if you just do a little digging. Don't just rely on Twitter, right? Like go to a website. What does that website look like? Does it look like something that you'd want to engage with

from a retail shopping perspective, right? Or does it look like something much different that you wouldn't want to send your money to? So I think it's a lot of it is just sort of like having a sense of what's out there, But just don't go through these social media platforms. Go see the website. Go see how they're selling themselves. I think that some of this becomes pretty intuitive, but you've got to like dig a little deeper than just like that immediate reaction that like, hey, I want to give to this.

Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.