The Jordan Harbinger Show - 25: Joshua Fruth | The War on Money Laundering and Why You Should Care

Episode Date: April 5, 2018

Joshua Fruth is a military intelligence officer, police captain, financial crime expert, and Director of Anti-Money Laundering Advisory Services at Matrix-IFS who joins us to discuss the war on money laundering and why it matters. What We Discuss with Joshua Fruth: What money laundering is and how it works. Who benefits and who loses from money laundering. How an investigator learns to think like the people he or she is investigating. What needs to happen before intelligence gathering can even begin. Why tracking the money trail is so valuable in the fight against criminals and terrorists. And much more... Sign up for Six-Minute Networking -- our free networking and relationship development mini course -- at jordanharbinger.com/course!  Like this show? Please leave us a review here -- even one sentence helps! Consider including your Twitter handle so we can thank you personally! Full show notes and resources can be found here.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Basically, every corrupt act in the world, drugs, human trafficking, organ trafficking, terrorism, it all revolves around money. It all revolves around corruption. So it's the things that you do to get money that makes money the root of all evil. Welcome to the show. I'm Jordan Harbinger. As always, I'm here with my producer, Jason DePhilippo. Today, we're talking with my friend Joshua Fruth.

Now, this is a little bit of a random sort of tangent episode, but, you know, at some point, I just got to do stuff that calls to me. And this sort of subject matter always just pokes the little teenage kid in me and says, hey, this is something you probably always wanted to know about and you have a chance to learn about it. Josh is a military intelligence officer, a police captain, financial crime expert, and the director of anti-money laundering advisory services at a New Jersey-based company called Matrix International Financial Services. So Matrix IFS. There he works with many of the world's largest financial institutions, tech companies.

They develop these financial crime detection rules, which we'll talk a little bit about today, and investigates a lot of money laundering, fraud, corruption, terrorist financing, sanctions evasion. This is just something I've been curious about and interested in. And a lot of the cases he's worked on, some of which we'll discuss today, terrorism financing, drug cartels, human trafficking, fraud rings, misappropriation of funds from businesses, non-profits, chop shops, counterfeit goods. I mean, the list goes on and on. And the reason that I thought this stuff was interesting is because we're hearing a lot

about money laundering today because of everything that's in the news about the current political situation here in the States, all the things that are going on in China, Russia, cryptocurrency stuff are on the web. And what I realized is that even though I worked on Wall Street and I have a financial background, I know almost nothing about this. And Wall Street, I worked in Wall Street. heart of the financial United States itself, and I just have very, not even a basic understanding of all this stuff. So I wanted to talk to Josh, get some inside info, and learn how an investigator

learns to think like the people he is pursuing, especially in a niche like this. Without further ado, here is Joshua Fruth from Matrix IFS. When I first heard about you and money laundering, the first thing that came to mind, I got to say was, have you ever seen office space where they pulled a guy in who's selling magazines? I have. And they try to, all right, tell us. us about money laundering? And the guy has no idea, of course. And truthfully, none of us really have any idea how this stuff works. Most of my money laundering knowledge comes from watching Breaking Bad or something like that. So car washes and laundromats, right? Right. So this is a bigger deal, though. It's not just street gangs trying to hide some cocaine or crack profits. It goes deeper than that.

And I want to get into that. But first, tell us a little bit about how you ended up being a money launderer slash anti-money launderer. Well, you know, I didn't study accounting growing up. I wasn't a lawyer. I wasn't an accountant. I wasn't a finance guy. I wasn't a numbers guy. So it's kind of a weird story how I ended up.

I had a pretty normal life growing up. I had a nice family. You know, I was an athlete. Yeah. But I was a fighter. And as a young guy, I was a cultural type of person. You know, I loved foreign languages. I loved cultures.

I thought there was too many things in the way. this world that were dividing us. And for me, it was always about finding ways to bridge connections with different people. I was a cultural person, and I did a lot of missionary work. I traveled quite a bit. I was on different Indian reservations. I spent time in Latin America. And those young experiences that I had had exposed me to a lot of things that I really didn't see in my life. It exposed me to to drug trafficking and drug addiction. I saw prostitutes. I saw human trafficking. I saw violence. I saw gangs. And I realized, you know, there was a whole big world of scary things and people that were, I suppose, under circumstances different than my own, that were suffering. And for me, as a person

that, you know, was interested in culture, I realized from a young age that to bridge connections with people, that it was going to be my role to help people, to help people that were suffering. When I first enlisted in the Army, I said, hey, Dad, I'm going. You know, I want to, you know, go fight terrorists. And I really want to get into intelligence. And he said, I knew when you were eight years old that you would do this. And I said, what are you talking about? What did I do at eight years old?

He said, eight years old, we're sitting watching an old Sean Connery, James Bond movie. And you come out and you say, I know that this is not real. I know this is a movie. But I know that the intelligence field is real and it's important. And when I grow up, I'm going to find out what it's all about. Did you consciously pursue this? Or was it kind of like me. When I was eight, I wanted to be a radio talk show host and then forgot about it for 20 years.

I never forgot about it. You never forgot about it. I studied foreign cultures. I studied languages. I soaked up the news from the time I was a kid. I was a teenager and I was looking at BBC and Al Jazeera and, you know, news in Russia, news in the Middle East, learning everything I could. So I never forgot about it. So you go to the Army?

Yeah. So initially I enlisted. an infantryman, which is like your grunt, your front line, you know, combat guy. I went through the ROTC program. I commissioned. I had my choice of any branch that I wanted. I could have gone and flown helicopters. I could have been, you know, in the combat arms.

I could have done whatever I wanted. And there was only one thing that I wanted, and that was to be an intelligence officer. And that's what I got. That's good. Yeah, those languages would have sealed that up for you, probably. Yeah. I might, you know, my background was international affairs. You know, I studied the Middle East and Africa that was.

my focus area, you know, Spanish, Japanese, Arabic. It was a good background for it, but the intelligence business, I had no idea what I was getting into. I had no idea as a young guy. Have you ever seen the movie The Matrix? I have, of course. So there's this scene in the Matrix where Morpheus is talking to Neo before he becomes Neo and opens his hands and there's a blue pill and a red pill.

And he says, you take, you know, this blue pill and you wake up, you take the red pill and you see how deep the rabbit hole goes. That, in a nutshell, is how I would describe the intelligence business. And it's not that any one thing that you see or experience or learn is so shocking. It's just the nature of managing information related to threat groups and high-risk places. And you're really being part of history to some extent. And not getting a lot of sleep for various reasons? I mean, does this stuff keep you up at night?

I feel like knowing a lot of these things would keep me up at night. Well, I know General Mattis. or Secretary Mattis may sleep fine at night because, you know, obviously our enemies are worried about him. But for me, yeah, I do lose sleep on certain things. And, you know, I came in during what's called the coin fight, which is counterinsurgency. You know, our focus is on terrorism. So it's not like the Red Army where, you know, everybody's in a uniform and you know who the enemy is. Right. You know, the counterterrorism, you know, counterinsurgency environment in the military over the last, you know, 16, 17 years, it's been unique because the enemy doesn't wear a unit. form. They look just like everybody else. They blend into a crowd. You know, my role is an all-source intelligence officer. That was my job in the Army, all-source intelligence officer. And just like the

name denotes, my role was to manage all sources of intelligence. So within the intelligence field, there's a whole bunch of different sub-disciplines. So you have, you know, human intelligence. This is your sexy James Bond type guy, if you will, but in real life, it's very different. Real life, you know, they're doing interrogations. They're, you know, out talking to people, collecting information. You know, it's basically what we're doing now. Anything that, you know, you're listening to information from human to human contact, a police detective outrunning sources. That would be human intelligence. And, you know, there's signals intelligence, which I think there's enough about it in the news. Sure. You know, we have cyber intelligence. You have

what's called emint or imagery intelligence, which has to do with unmanned aerial surveillance, UAS, drones, basically, in the sky with, you know, high-tech cameras. And there's just so many different information collection assets. And I say information rather than intelligence because what information is, you're collecting information, but it doesn't necessarily mean anything yet. So a drone could be flying through the sky and could see some dudes walking out, you know, on the road at nighttime. And if it doesn't know to look at those dudes that they're playing in IEDs, that it doesn't really mean anything. So information has to be collected, aggregated, and analyzed, and then the dots need to be connected, and then it becomes

intelligence. So for me, as an intelligence manager, as an officer, you know, this is not an operational role. I'm not out doing, you know, Navy SEAL stuff. This is an analytic role, right? So I'm managing information collection assets, and those collection assets feed information into what's called like a fusion capacity, if you will. And then you have all of these sources of information that are analyzed and the dots are connected. And basically, it tells a story. That's the, idea, is that a briefable product comes out in the end. It tells a story. And that story, and that story is what intelligence is. So, you know, in my various roles as an intelligence officer, one of those was to be what's called an ISR manager. ISR is an acronym for intelligence,

surveillance, and reconnaissance. So this is those various information collection assets. And one thing that I learned in the war on terror in, you know, post-9-11 is, you know, as I'm learning about all of these different disciplines and trying to become an expert to some extent in all of these information collection assets, I realize that very few of these intelligence resources are what I would call queuing assets. And by a queuing asset, I mean something that starts the process in the first place. If Jordan is a bad guy, I don't know that Jordan's a bad guy. Something has to cue me off. Something has to start that investigatory process. And usually it's something that I've done that should have been prevented, right? Right. But I mean, if you think of like, you know,

signals, intelligence, cyber, you know, all of these things are reactive in nature. You know, if you think about the drone. So the drone doesn't know to go out to this place in this country at this time a night and look for three dudes walking out by the roadside. They don't know unless something else tells that drone to be there because those guys are going to plant IEDs that are going to kill U.S. soldiers. So there are only so many things that queue that process. And I would really say there's two. One is human intelligence, which we talked about. And the other is money, tracking the money.

You know, we went into Iraq based on human intelligence. Now, I'm not trying to be political here. I'm not debating the Iraq war. Saddam Hussein was a terrible guy. Right. It's an awful regime. I'm glad he's out of power. But the point is, human intelligence isn't always reliable.

But the thing about money and about money laundering, tracking the money trail, numbers don't lie. So it quickly became in my army career, my favorite information collection resource. And then, you know, obviously, you know, I had a totally different career that involved money laundering as well. So then you became a police officer after leaving the military? Yeah. So, you know, I'm still in, you know, I'm in a reserve unit in the Army now. But yeah, I became a cop in the inner city. And it was a lot of things that I saw growing up, you know, as a missionary in Latin America. I've been predominantly, you know, African-American, you know, inner city exposure to the Bloods gang, to gangster disciples.

to heartless felons, you know, major criminal organizations, major gangs, narcotics, guns. It's been like an action movie, you know, foot pursuits, jumping fences in the middle of nights, people getting shot and dying, mothers overdosing in front of their kids, teenage girls, high on cracking PCP selling themselves on the street corner, everything you could imagine in an action movie, it was all that and more. Yeah, you said in the car on the way here that you, every other day you have your fingers and some guy's bulletles. Yeah, guys are getting shot left. right. You know, you're trying to stabilize them for for EMS to get there and, you know, it's kids.

I mean, 15, 16 year old kids, they get tied up in these gangs and, you know, they're getting shot left and right. The level of violence is, it's shocking. And, you know, it comes back to the drugs. It comes back to the drugs. That is the form of currency, if you will, that the business that keeps everything on going in the hood. And I think with the drugs, with the gangs, what I didn't realize when I first started and it was just run and gun, go, go, go, go, go, go. What I didn't realize is the thing that sustains all of the problems in the city was money laundering. It was the money trail, whether it's drugs, whether it's prostitution and human trafficking, whether it's gun running, whether it's counterfeit goods.

It all comes back to the money. So in a nutshell, I had these two careers. You know, I was in the Army, you know, focusing on intelligence matters, and the police force focusing on gangs and drugs and, you know, prostitution, human trafficking, and weapons. and no matter where I was, no matter what uniform that I was wearing, it all came back to the money. Okay. So now that you know what's all about the money, one of the things we talked about prior to this and you being a man of faith is you wrote in the prep, money is the root of all evil. Tell us about what you mean by that. Yeah. So, you know, everybody's heard that saying money's the root of all evil.

The full verse is actually in 1 Timothy chapter 6, verse 10, for the love of money is the root of all evil, which while some coveted after, they have aired from the truth. the faith and pierced themselves through with many sorrows. And I think, you know, this is Paul that wrote this in the New Testament. I think that this verse is often taken out of context. I think that a lot of people think, you know, you can't be wealthy. It's not wealth that's the problem. It's not wealth that's the root of all evil. It's the desire for wealth. It's desire for riches that is so strong that it causes a person to stray from the straight path. It's this push to corruption. The reference to erring from the faith, all the things that happen as a result of that strong desire for money, explain the reference to piercing oneself with many sorrows.

Basically, every corrupt act in the world, drugs, human trafficking, organ trafficking, terrorism, it all revolves around money. It all revolves around corruption. So it's the things that you do to get money that makes money the root of all evil. So what is money laundering? Like I said, My knowledge and that of many of us listening comes from Breaking Bad and or office space and or some mob movie we watched when we were seven years old that shows a restaurant with five customers selling out hundreds of thousands of dollars a month in income. I mean, it just we don't really get what this is in the modern age, most of us. So the thing about money laundering, it's unlike fraud. It's unlike other financial crimes. You know, fraud is basically stealing.

The thing about money laundering is it's never the initial criminal act. Money laundering means that you've already done something to obtain illicit wealth. It may have been fraud. It may have been selling drugs. It may have been that, you know, you're coming from a sanctioned country or you're part of a terrorist group or you're on a watch list. But you've done something bad to obtain that illicit money, and now you have to clean it. So anything that you can think about that bothers you, whether it's drugs, whether it's, like I said, human trafficking, whether it's illegal guns, any type of illicit

trade you can think of, you have to launder the money. So individuals are not out laundering money, not at least for themselves. So it might be a person that's on a personal account, you know, it's not a business account, but the vast, vast, vast majority of money laundering globally is not done by individuals, at least on their own accord. The vast majority of money laundering globally is done by threat organizations. So the top three sources of money laundering globally are corruption, state level currency cleansing to evade basically our sanctions. Sure.

So, you know, sanctioned countries like Iran and North Korea. And the third is transnational criminal organizations, crime syndicates. And people who always say, every time I say this, they say, Josh, what about terrorism financing? Yeah, sure. And I say, well, what are you talking about? I just covered that in one through three. Right, right. You know, corruption, sanction states and criminal organizations.

You know, in 2018, these nations. these networks are hybrid in nature. You have these hybrid threat networks of terrorist groups working with foreign intelligence agencies, working with crime groups, and they're all interconnected and extends to their finances. So you're messing with people's money,

and you're messing with people who are like dictators, cartels, criminal families that run countries like North Korea and other kinds of fanatics and just the worst people that you can imagine, don't you worry about this at some point? I mean, do these people know who you are? Yeah, so I should back up. So obviously, you know, I had these two careers. I was in law enforcement.

I was in the military. And, you know, I don't do that now. That's not my full-time job. Now I work in anti-money laundering, and I work for a company called Matrix International Financial Services, Matrix IFS. So we are one of the largest financial crimes-specific firms in the United States. You know, when I first started, I wasn't for Matrix. I came in on a contract for another bank. Some consulting firm called me up and they said,

Hey, Josh, we heard your name from somebody. They said, you're really good at money laundering and fraud. Hey, do you want a job? You know, I was working as a cop at the time. And I said, well, I don't know. I like what I do. I don't know if I want to work in banks, you know, behind a desk. Well, they offered me like three to four times the money I was making as a cop.

Of course. And fewer bullet holes. Right, right. Yeah, nobody's shooting at me in this. It was interesting because the first week that I was on the job and the first bank that I was at, the very first case that I was on was a terrorism financing case. It was a case involving what I thought was material and financial support to an IED cell in a very, very high-risk country. And I told my supervisors that, and they looked at me like I was insane.

They looked at me like I was absolutely crazy. They're like, what are you talking about me? And you just got here. But, you know, the background that I had had, all of the elements were there. I ended up doing really well as an investigator. You know, I worked in a few different banks. You know, I worked terrorism cases. I worked, you know, drugs. I worked human trafficking, you know, chop shops. I mean, the things that you would see, you couldn't even believe.

I mean, look, think about a pastor in a church stealing from the church. You can see it. You know, if you have a church that gets a lot of cash on Sundays, you expect them deposited in their account on Monday morning, right? Right. What you don't expect is transfers from that church, the business bank account, over to the pastor's personal account. What you don't expect is them to bust out that cash and rapidly withdraw it. You know, you look at, you know, a body shop, an auto body shop in L.A.

You know, we're here in California. Look at a body shop in L.A. If you're a body shop, what's your primary source of business? People's insurance paying for dent in their car? Exactly. Accidents, right? Car accidents. So your primary source of funds should be from insurance companies.

What happens when your primary source of funds is all from cash? What happens when you're sending all that money by wire transfer to Mexico? What happens when you're selling all these parts on eBay? It's a chop shop. You're taking stolen cars and you drop them off and they're ripping the cars off and they're selling all the parts. Or it's why those guys have nine car fresheners hanging from the rearview mirror and they're buying them all in cash. Right. But I mean, there's so many different things that I was seen in the early years.

You know, I looked for what I called personal anonymity tradecraft. So I would look for patterns of people trying to hide in plain sight. So cash is always something that's concerning because the source of cash funds is unknown. We always look at cash as a concerning thing. But other things that we would look at, you know, we would look at, you know, bulk burner phone purchases. You know, Metro PCS Boost Mobile. Guy would have his Verizon payment on the account, but he's spending 350 bucks a month in burner phones. Why?

Who are you giving them to? Yeah. Guy would have a Lexus bill in his account. You know, he's got his car payment, but he's spending, you know, $800 a month in a rental. Why do you have a rental? The only purpose is for a rental is if your car is in the shop or if you're traveling. So why do you have a car rental? Why are you paying for it all month long?

Well, it's real simple. And if you weren't a police officer, you wouldn't know this. I would never think. I go to run your plate. It comes back to Jordan. I know if you have active outstanding warrants for your arrest. I know if your license is suspended. I know if you're a guy driving the car and you put the car in your wife's name or your mom's name or your baby mom's name or whatever, right?

And if I stop you and there's a whole bunch of drugs in the car and it's your car, guess what? asset forfeiture. It's my car now. Right. If you're suspended, that's probable cost for a stop. So there's so many reasons why you'd want to drive a rental car, and you would know that if you came from a law enforcement background. So these guys just rent cars for a month

so that they comes back as hurts rental car. They push their drugs there. Yeah. They drive, you know, they have their club car, which is their nice car, right, with the big rims and all that. And then you have your trafficking car, which is going to be a rental, and it's brand new. So, you know, there's going to be no equipment problems that's probable cause. It's a

basic looking car. It looks like everybody else's car, you know, and it doesn't draw a lot of suspicion. Great. So every time I fly to L.A. and rent a car, I'm going to be checking it for bags of cocaine and heroin in the glove box in between the seats. Well, you know, we just look for patterns. So these same people, you know, they're having transactions, you know, private browsing, you know, they're buying things that are encrypted. I mean, there's patterns of people hiding in plain sight. And that could be drugs, could be related to, you know, human trafficking. It could be, you know, somebody that's a foreign intelligence operative, depending on, you know, where you're at. But so, you know, I worked as an investigator, a series of different roles in

different banks. And, you know, this is the sexy stuff. We're talking about the cases that went well, where we found big things. But the fact of the matter is, Jordan, most of the cases did not go well. You know, we have these systems in these banks, transaction monitoring systems. You know, imagine you're a global bank. You've got 100 million customers. And you have laws in the United States that make, you know, banks responsible for ensuring that their customers aren't laundering money. It's called the Bank Secrecy Act. And then we had, you know, the USA Patriot Act after 9-11. Hey, you've got to make sure, you know, terrorists aren't doing, you know, business to the bank.

And there's all these requirements on these banks. And it's impossible for them to manually look at all their customers to see what their customers are up to. Sure. So they've spent a lot of money on what's called transaction monitoring systems. And they're systems that have these various red flagging detection scenarios. And they look for certain types of behavior. Okay, anytime you deposit more than $10,000 in cash, or a report. report, what's called a currency transaction report, is sent to the government. So people would,

you know, transact just under that $10,000. That's called structuring. So that's one of the typologies from an anti-money laundering perspective that we would detect. But only a, I mean, I knew that when I was 12 because a bank teller told me this, I think, once. So if I knew that when I was 12, somebody whose job it is to launder money is figured, has figured out, all right, I'm going to deposit $9,900 and do we have five different banks each day. Right. And this is like, And, you know, we detect that. So this is like money laundering 101. Yeah.

And what I started to realize, you know, as a young investigator, was that the vast majority of the alerts that came out of these transaction monitoring computer systems. So an alert is automated. So the computer says, okay, this rule, this detection scenario was violated, triggers an alert. Then a human being that's an investigator reviews that alert. And they say, okay, I think, you know, this is suspicious. I'm going to escalate it to a full case-level investigation.

And if it is deemed suspicious, it, culminates in a suspicious activity report filing to the U.S. Treasury Department, the financial crimes enforcement network known as FinCEN. And then when FinCEN gets it, they say, you know, okay, if this is suspicious, what federal statute do we think was violated? Is it drugs? They'll send it to the DEA. It's a human trafficking.

It goes to HSI, whatever, right? The vast, vast, vast, vast, vast, vast majority of those computer generated alerts are not suspicious. I mean, like, 98% of them are not suspicious. So it's all noise. It's noise. It's nonsense. So, you know, all these alerts, and I go and do all these investigations, you know, the preliminary level alert investigations is an hourpiece.

And, oh, that's not money laundering. That's not fraud. That's not money laundering. So, you know, you get the cool cases where, you know, you get a big bust and, you know, find something. But the vast majority of the cases are not that. And they're obscured, the ones that are obscured by the rest of the hay in the haystack. Exactly. So I started to realize that maybe my role shouldn't be as an investigator.

Maybe my role should be to design those detection scenarios because something's wrong. We shouldn't be having 98 out of 100 alerts or nothing. Something's wrong here. So, you know, I worked a series of roles designing detection scenarios and figuring out what the underlying issue was. And then linked up with my boss now named Deb Geister. She was kind of a maverick in this industry, one of the first female Bank Secrecy Act officers. And if you don't know what that is, it's basically the chief intelligence officer of a bank, you know, of a major bank. You know, she worked at Lexus Nexus for 10 years, ran their global product line.

You know, she's a superstar. She brought me in when I was working detection. And, you know, I worked some engagements for her company. You know, it was a smaller company. And then that company got bought by a big, big company called Matrix IFS. And that's where I'm at now. But at Matrix IFS, we have done business with more than half of the 50 largest banks in the world. We've implemented these so-called transaction monitoring systems over 500.

times, casinos, money service businesses, retail banks, correspondent banks, currency exchanges. So it's been a pretty unique adventure because I've had the opportunity to work with many of the largest banks in the world and really kind of own their data and own their transactions and be able to have access to intelligence that even the U.S. government doesn't have. I mean, the banks are not owned by the government. They're owned by the banks. And the government doesn't own their data. They only see whatever the banks report to the government.

Meanwhile, we have access to all of it. So I'm able to see trends that are happening basically all across the world, across different banks. I'm the director of anti-money laundering counter-threat finance advisory up there. So I oversee our special investigations unit, which is the guys we were talking about before, the people that are actually doing the case investigations, and the transaction monitoring detection unit. So we're the ones that are actually designing these transaction monitoring scenarios. A lot of people might be thinking,

This is interesting, but why is this related to us? You know, I don't really see, I'm not in a criminal organization. Sure, some places launder money. It's just this thing that happens. But what we talked about prior to the show was that pretty much anything we see in the news is somehow tied in to money laundering. This is like the oxygen for all of this global stuff that is making the world a less safe place and more dangerous place to live. So turn on CNN. turn on Fox News, turn on MSNBC, turn on Al Jazeera, turn on BBC.

What are they talking about? What are the things in the news right now, Jordan? Russia. What about Russia? Election hacking, Putin's stranglehold on the Russian economy, corruption, gun violence, North Korea, Iran, the opium crisis, human trafficking, which is one you said before. I'm starting to run out of horrible maladies. Jordan, everything that you just mentioned, these are polarizing issues, right?

We have people that, you know, this is very important to the American people, every issue that you just referenced. And every one of the things that you just referenced is able to continue to happen because of money laundering. Take your pick. You want to talk about Russian, what do you want to start? Sure, let's do it. Yeah, let's just get into it. So, Russian election interference. I saw recently you had a gentleman by the name of Bill Browder on the show.

Pretty interesting guy. Bill was this big time, you know, hedge fund manager and was there in Russia. during the fall of Soviet Union and the rise of privatization and the voucher system. Bill was there. He experienced this. But look, at the end of the Cold War, you know, nobody had any money. Everybody was broke. The only people that had money in the Soviet Union were the crime bosses.

And before the collapse, they cleaned out of the rubble. They were buying dollars in euros. They were already out. They had no more rubble. Everything was clean. So then, you know, the Soviet Union collapses. And the new Russia, you know, during privatization, basically what they That means is all of these government entities were now becoming private companies, and the people of Russia had the opportunity to buy up these companies through a voucher system.

So I think there was like 300 million vouchers given out. But the crime lords, the mafia leaders that had already cleaned out of the rubble that now had dollars and euros, guess what they were doing with those dollars and euros? They were buying up these vouchers. They were buying up former KGB intelligence officers, you know, special forces, spets gnats guys. they're buying up cops, and they're going to all these auctions where these companies are being sold, and they got armed guards cordoned off the area, and they're buying up all these companies. So imagine this. You know, here we're in the United States.

Imagine, you know, Apple, Tesla, Google, Microsoft, all these big companies. Imagine if they were owned by the five Italian mafia families of yesteryear. That is Russia now. So all of these former crime bosses, these mobsters, they're the oligarchs of Russia. are the worst of the worst people on the planet. And this is all Putin's inner circle. And now they own the telecom company, the oil company, the aluminum company, the gas company, the electric company. Yeah. So there's, you know, two big angles here, you know, in Russia, industries. You have metals and you have energy. I'm coming back to this Russian election

interference thing. Have you ever heard of a guy named Oleg Deripaska? Sure. Yeah. I have it. But many people haven't told us about it. So Deripaska was a former nuclear physicist. Pretty smart guy. Yeah. He's now a billionaire some background on Deriposkin. 2008, he tried to come to the United States, but the Department of State refused his travel visa on grounds of his affiliation with a major Russian mafia family. I can't even say it. I think it's Ismail of Skaya Brotherhood.

It's a major crime family. Ismail of Skaya Brotherhood? Right. And, you know, they said, look, this is a monster. He's not coming to the United States. And his background in a nutshell is in the 90s. You know, you had, after the collapse of the Soviet Union, you had what was called the aluminum wars. And Deripaska was the head of a company called Russell.

And all of a sudden, after the collapse of the Soviet Union, everybody was trying to take over this industry. Aluminum. Right. So like 92% of the world's supply of aluminum or something like that is in Russian, almost the full world supply of nickel. So two precious metals. So Deripaska, there's some stories, I don't know if they're true or not, but there's stories about Deripa. Posca, you know, with armed guards, locking down in his factory as people were trying to kill him. I've heard stories of him skiing down a mountain will be shot at by RPGs.

Who knows if it's true now? And this is a nuclear physicist. That one sounds a little bit. But the point, but, you know, it could be all nonsense. But the point is, there was dozens of major metals barrens. And now there's one. They're all dead. Deripaska runs aluminum.

Wow. And Deripaska then went and bought the auto industry in Russia. So Magna International, Goss. So interesting story. I don't know. You're familiar with the Chrysler Group, Dodge Chrysler Jeep. Yeah, I grew up in Troy, Michigan, so there's... I'm a Mopart guy.

You know, I drive big V8, you know, chargers and challengers. So Chrysler... Of course you do. Right. Chrysler was owned by Daimler Ben, so Mercedes. And Mercedes was not doing well with Chrysler. So in 2007, they put them up for sale. And a company called Cerberus ended up buying them.

And then they didn't do very well either. so they sold their interest to Fiat and now, you know, the rest is history. So it's Fiat Chrysler Automobiles now, FCA. But what a lot of people don't know is that in 2007 before Cerberus bought Chrysler, the top bidder in Chrysler was Magna International. Now, Magna International was a Russian auto manufacturer. And controlling interest of Magna International was Deripaska. So in a nutshell, in 2007, the Russian Mafia and intelligence services almost bought

one of the American big three. That's really scary because we need them to manufacture things that we need for conflicts. Right. Not just your fancy sports cars. Right. And Deripaska, you know, he's so full of it, man. He goes out and talks about KreeShaw. It's a Russian word for extortion money to, you know, to protect clients.

It literally means roof in Russian. You're paying to protect your roof. So Deripaska said, you know, during these aluminum wars, no, I wasn't, you know, crime lord. I wasn't, you know, in the mafia. You know, I paid all these, you know, KGB guys. cops and special forces guys to protect me. You know, I had to pay extortion money. You know, hush money, whatever. I had to pay extortion money. They were criminals. I was a good guy. I was just a businessman. Right. And it's a businessman. Right. So all of a sudden, you know,

different bankers in different countries end up murdered. You know, systemic government corruption, both within and outside of Russia that has ties to Deripaska. Weapons trafficking, human trafficking, money laundering all has ties to Deripaska. This is a James Bond villain. Yeah. This guy is not just bad. This guy is like evil bad. And why does this matter? because Paul Manafort worked for the guy. He's been tied to him since 2000, even tried to get him a U.S. visa. Now, listen, I am not trying to make a political claim here. I supported President Bush.

I supported President Obama. I support President Trump. My job as a soldier as a cop. I support the commander chief. So I am not trying to make a political angle here. What I'm saying is this connection is that this guy, Paul Manafort, this guy, worked for Oleg Deripaska, who is one of the most evil people alive. So Russian election interference.

And now the Mueller investigation is looking at Manafort for potential money laundering. All of this Russia stuff to me sounds a lot. And I'm not trying to trivialize it, but I'm going to anyway. It sounds like the Kevin Bacon game. It's like you ask enough questions and you end up with Russia. Ah, six layers of bacon. Yeah. Six layers of Putin.

I played it. So six layers of bacon. It's where you name an actor and then you've got to be able to tie him to Kevin Bacon in six movies. Right. Yeah. Yeah. But this is like six layers of. It is exactly.

like that. It is exactly like that. That is such a good reference. Russia is the absolute centerpiece of this whole game. If we were playing six layers of Putin, it would be less than six layers, almost always. Russia is the hydra with all of the dirty tentacles that extend all over the world. They're the absolute centerpiece of money laundering globally. And Russian privatization, the end of the Cold War, was absolutely instrumental to the development of the global underground black market. Jordan, have you ever seen what kind of weapon a terrorist uses? You know, Al-Qaeda, Taliban.

What type of weapon do they carry? The cliche is always an AK-47. Okay. Whenever I go abroad. So what about Latin America? You know, what about the cartels? What kind of weapons do they carry? I think it's probably the same thing.

AK-47s, you know, if there's some war in East Africa or the sub-Sahara, what kind of weapons do they carry? Yeah, that's the AK-47 is famous around the world. Where does the AK-47 come from? It comes from Russia. Okay. As far as I know. It comes from Russia.

Do you ever wonder why every bad guy in Earth, every terrorist, every warlord, every drug trafficker seems to have an AK-47? Why don't they carry a different rifle? There's lots of other weapons platforms. Why do they have rifles? I just, I assume they were cheap and that you could fix it with a pencil like most Russian machines. Negative. Negative. So at the end of the Cold War, you had guys like Deripaska.

He had these oligarchs that were crime lords. And they were the only people they had money. And they used to grease these old intel officers, these KGB types for the things they couldn't get in this. impoverished communist Soviet Union, whether it was champagne, prostitutes, caviar, you name it. So they had these well-developed relationships that extended past the fall of the wall.

And now you have basically a Soviet Union that's economically collapsed after Afghanistan. And what do they have a lot of? Weapons. You got it, buddy. They have weapons. So think about that time frame. You know, late 80s, early 90s. You have in East Africa, you have civil wars

in Ethiopia and Somalia. Russia supplied both sides of both conflicts with arms. That always makes me, my head spin. That created the rise of the privateer warlord in East Africa. Did you ever hear about a famous drug trafficker in Colombia named Pablo Escobar? Of course, yeah. Leader of the Medellin cartel.

He died in 1993. Escobar had a monopoly on the cocaine business globally. But when he died, the Cali cartel rose up. You had the rise of the Mexican cartels. Think about Joachim El Chapo, Guzman, the Sinaloa cartel. And there's all these different groups that want a piece of that pie now. And guess what they needed? Weapons.

Guess what they had? Cocaine. So now these same East African warlords that got weapons from the Russians now are trading those weapons to Latin American cartels in exchange for cocaine. Guess what happened from 1992 to 1996, the Afghan Civil War. The Taliban took Kanahar, Haraj, Lalabad, Kabul. they needed weapons. Guess what they had? Heroin. Oh, man. 90-some percent of the world's supply of opium is canalyzed in Afghanistan between Afghanistan and Pakistan.

And they had heroin galore. So now these East African warlords that are getting weapons from the Russians, now they've got heroin from Afghanistan. They've got cocaine from Latin America. You didn't really hear about human trafficking a whole lot 20 years ago, did you? Well, I didn't. I wasn't paying attention. But people weren't really talking about it then, were they? Probably not. Now you got weapons, you got drugs. Well, might want to have people, too, right? So organ trafficking, sex trafficking, you name it.

So this was, you know, the fall of the Soviet Union and Russian weapons proliferation, small arms weapons proliferation, was really the thing that started the modern global underground black market. I mean, you look at Ronald Reagan and Margaret Thatcher's, you know, Reaganomics, you know, globalization, this, this prediction of global economic integration, I don't even think that they could have predicted the effects this would have on illicit markets and the direct effect of Russia collapsing as the Soviet Union that it would have on the world today with respect to black markets. And all of this is tied to money laundering. And it's the money trail that is relevant to everything. All right.

So we've got our Russian election interference. What about arms trafficking? I mean, we mentioned the AK-47, but we also know that most weapons used in crimes are handguns. Right. So, you know, globally, you know, over the last 30 years, this proliferation of the AK-47 has really been symbolic of the global black market and how it developed. But you're right. In the United States, the vast majority of violence of shootings of murders are done by pistols. Actually, I have some stats in front of me.

In 2016, the FBI reported 15,070 murders in the United States. Now, 11,004 of those were committed with firearms, and less than 2% of those murders were done with a rifle. So that means that you are 50 to 100 times more likely to be murdered, sexually assaulted, robbed, or attacked by a suspect with a pistol than you are with a rifle. I think what a lot of the American people don't realize is that the vast, vast, vast majority of the Pistols that are used in these incidents are illegal weapons, possessed illegally by felons. So these are people that they can't go to the gun shop and buy a pistol. They're not going to the gun show and buying it. These are people that are buying these guns on the black market.

And, you know, we reverse engineer this, and we know the cash intensive nature of that business, it's going to require money laundering. So basically, in a nutshell, you want to talk about, you know, gun violence in our streets in the United States. And it's a polarizing issue. a lot of young people are concerned about, and rightfully so. But if you want to limit the impact of gun violence in America today, you have to target the money laundering. You have to target the weapons traffickers.

And I think what's interesting about the weapons traffickers is in large. They use the dark web and cryptocurrencies. Really? Okay. This is going to be interesting because I love cryptocurrency and blockchain technology, but, you know, I don't use it to buy drugs or guns, as far as you know. As far as I know, right? I mean, I do too. You know, I'm an investor. I invest in cryptocurrency. And I think that

blockchain presents a lot of unique opportunities. I think the technologies are great. I mean, you know, there's different crypto coins that, you know, they have purpose. They're not, you know, like they speed up, you know, a transaction faster than wire transfers or, you know, they're used for, you know, medical billing or some specific purpose. So, you know, I'm not opposed to cryptocurrency, but there is no question that it is absolutely being exploited by the most dangerous, scary people on earth. Well, that's a little, yeah, that's definitely scary. So we've got, okay, Russian election interference, gun violence, drug smuggling, other types of things tied to money laundering. North Korea, Syria, Venezuela, I mean, Venezuela made their own cryptocurrency as well.

Yes, they did. Yes, they did. These are tied to crime syndicates, terrorist groups, and things like that as well. So, you know, it's 2018. You know, we talked about the hybrid nature of the threat. Russia is instrumental to be in the centerpiece of that. We basically have a new access powers. Russia is tied to Iran and their proxy force Hezbollah.

Turkey, despite being Sunni, is also tied to Iran. There's connections to North Korea, to Syria and Bashar al-Assad's forces, to Venezuela, and various terrorist groups and crime syndicates. Anybody that you think is a bad guy, they are absolutely tied to Russia in some sort of way. And it all started with these black markets that we had referenced. But with respect to the cryptocurrency thing, it's really interesting because unlike other types of money laundering that are done more by transnational criminal syndicates,

crypto cleansing, which is the art of laundering money through cryptocurrency, is primarily done by sanctioned countries. So if you look at Iran, North Korea, you know, North Korea is making money pushing methamphetamine and weapons. You know, they're making money through fraud also in the crypto exchanges. They're actually hacking cryptocurrency exchanges and stealing money from people. That's a big part of their MO. Iran, they make money in a very different way.

They work through their proxy Hezbollah, which is from Lebanon, which is by and large, probably the world's largest drug trafficker. They move heroin that comes from Afghanistan. that they, you know, take through West Africa to Latin America, and then they take cocaine from Latin America, and they move it to West Africa. And that supplies the U.S. and European and Australian markets. So they're major drug smugglers.

And with Iran and Hezbollah, they're also the world's largest counterfeit goods trafficker. They have the most sophisticated trade-based money laundering program ever that we've ever seen. You know, they've been sanctioned since 79, and they've had some time to perfect their craft. But what we're seeing at the national level with North Korea and Iran, obviously they make money through illicit means. But they've been largely shut off from international markets. I mean, they're sanctioned. And it's really important that they're sanctioned. I mean, if you think about this, I think the average American does not want to get into a nuclear war with Iran or North Korea.

It's pretty scary, isn't it? Yeah, of course. And I think that what we have to understand is that the sanctions are really important because if the sanctions can be detrimental to Iran, or North Korea's, you know, economy, then it makes it less likely that they'll continue to build their nuclear programs. And if they do build their nuclear programs, even if they don't do anything with it and bomb anybody, it's going to cause other countries to create nuclear programs. We're going to have proliferation to threat groups. So it has to stop. And sanctions are really important in stopping these nuclear rogue regimes because if they're effective, they're

going to halt their operations. But the problem is they're not effective because of sanctions. evasion. So we have these countries, North Korea and Iran, that are cleaning their state currency through intermediaries, both at the state level and crime groups internationally, and they're moving their money into cryptocurrency exchanges. So, you know, we've seen some real concerning patterns. We've seen a tremendous amount of money that we suspect is coming out of Iran, going through Turkey, going into basic cryptocurrency exchanges. So to understand a basic cryptocurrency exchange is an exchange that accepts fiat currency. Fiat currency is like currency that you know, dollars, euros, whatever, right? So they'll put fiat currency into a

basic crypto exchange and they'll buy what's called a primary coin. So a primary coin is like your Bitcoin, your Ethereum, your light coin. And then they'll take that primary coin that has a digital e-walled address. So there's an address that says, okay, you know, this is this wallet where you're storing this Bitcoin, right? Sure. And they will put their stake in Bitcoin through what's called a mixer. Tumblr, yeah. Right, a tumbler or a mixer. And what it does is it obfuscates the ledger.

It basically breaks the blockchain audit trail. So it's designed to provide anonymity. They then will transfer those funds that are still Bitcoin, but on a different wallet address, to what's called an advanced crypto exchange. Now, what separates an advanced crypto exchange from a basic crypto exchange is that an advanced crypto exchange does not accept fiat currency. They don't have dollars. They don't have euros, nothing like that, right?

and then when the Bitcoin arrives in an e-wallet and an advanced crypto exchange, the threat actor will then exchange it for what's called a privacy coin. Now, the privacy coins have unique technologies built into the blockchain that obfuscates and breaks the audit trail. And now you have truly anonymous funds. And then they move them wherever they want. And the scariest thing that we're seeing, or that we're concerned about, rather, is then taking those privacy coins and putting them on what's called a hardware e-wallet. So imagine basically a flash drive with 50 grand on it. Imagine if the Sinaloa cartel didn't have to do bulk cash smuggling.

Imagine if there wasn't dudes with rucksacks on their back full of cash. Imagine if they could put all that money on a flash drive. Imagine if they didn't even need the flash drive. Imagine if they could print out a QR code on a piece of paper and have 10 different accounts, hundreds of thousands or millions of dollars on little pieces of paper that they print out and they put in their wallet. Now you find a guy that has dual citizenship,

and he just flies there and hands it to him in person. And now the cartels don't have to worry about anybody skimming off the top because they don't know the code, the passphrase to even access that account. So you hand somebody to the QR code, and then only the person sending the money and receiving the money know the passphrase. Right.

So in crypto speak, essentially you get somebody to take a bunch of money, drop it off at an exchange by some Bitcoin. They then send that via Tumblr to these smaller exchanges by Manero or another privacy coin, which can be transferred using QR or those types of codes. And then you have, instead of truckloads of $100 bills that need to be stashed and stored and hidden and brought to different stores and somehow made legitimate like the nail salon or the car wash and bring bed, you have a sheet of paper with a QR code on it that somebody's got in a wallet.

And that just happens to be just as good as the real thing. If you're still doing bulk cash smuggling, you're a Neanderthal. Yeah. There's ways to target this. There's ways to handle this. And the U.S. regulatory agencies, global regulatory agencies, are still trying to get a grip on this. They're trying to figure out what to do. The basic crypto exchanges, because they trade against fiat currency, they are regulated. So if you, you know, accept the U.S. dollar, just like any correspondent bank that maybe doesn't have a retail bank in presence in the U.S. but, you know, trades and exchanges against the U.S. dollar, they're going to have to comply with U.S. laws. But these advanced exchanges, they don't accept. accept any real money. Everything's, you know, digital currency. So it's, you know, it's questionable from a legal standpoint, you know, what means do we have to actually regulate these entities, especially when they're not in the United States. Yeah, I was going to say, I'm on Chinese exchanges because they have different types of coins. Right, right. So, you know, this is, this is one of the major threats. And no one is doing this better than North Korea and Iran right now.

They are cleaning money through crypto cleansing. And their ability to do so means that it takes the teeth out of Western sanctions. And if our sanctions don't have teeth, it means that we're more likely to go to war. We're going to continue to have these escalations. Because sanctions are diplomatic weapons. Correct. They're diplomatic weapons that prevent us from going to in a nuclear war with these rogue nuclear regimes led by crazy people. If you want to stop Iran and North Korea, you have to halt the money trail. That's really scary. So all of these money laundering things that we normally might ignore because we think, well, I'm not a drug dealer, it doesn't affect me, or it's just a way for people to avoid taxes. Actually, all of this goes back to Russia, Iran,

North Korea. It all goes back to drugs, human trafficking, weapons smuggling, and even nuclear weapons. So this all affects us whether or not we care about it, whether or not we're aware of it. And that's one of the reasons I wanted to have you here today because I think a lot of us think, oh, money laundering. That's kind of interesting. We don't think this is something that affects our lives every day as this is like almost gravity as far as crime right it's there all the time it's ubiquitous there's not a whole lot that we can do to stop it because we're swimming upstream and you have to fight this quiet sometimes quiet war against the money trail the oxygen for all of these crimes and international destabilizing forces absolutely absolutely you know money laundering is that

tangible manifestation of all of the most evil things that happen in the world, all of the most scary things that happen. And my dad was in the car business growing up. He was a very successful businessman. And he had a pretty simple leadership philosophy. He always said, when you're a leader, when you're a boss, you don't ever mess with people's time with their family, and you don't ever mess with their money. And you're definitely messing with people's money. And not only am I messing with people's money, but it's not my employees. It's some of the most dangerous people in the world. So does that not worry you a little bit? I mean, are you worried about this personally? I don't know that I'm worried per se, but I'm aware of the fact that I'm out and about talking about different

organizations, political administrations, cartels, and they are aware of who I am. But you have this police background, so a part of you is kind of not going to just count out of that. I mean, that's not how you roll. No, I would be the wrong guy to, to break into my house. It would be the wrong Yeah, sure. Yeah, sure, of course. But I don't know if the fear element, but there's certainly a situational awareness element that when your sole purpose in life is to disrupt the business activities of really, really bad people that they're going to get upset.

And we're doing this on a global scale with many of the world's largest banks. And we are trying to bring light to the groups that are successful in different banks across the world cleaning their money. We're trying to bring to light in an unclassified environment to the extent that, you know, is acceptable and appropriate. We're trying to bring to light the trade craft and the tactics and the procedures that they use to clean their money. And when you shut down those operations, people are going to get upset. Do you worry about exposure like this, making it worse? I mean, you're fighting this quiet war in your office and outside your office. Do you ever think, maybe I shouldn't have gone on the

Jordan Harbiger show and talked about it. how Iran and Hezbollah and Lebanon and North Korea and Russia are doing all its stuff. I think the opposite. I think, you know, you have to make a decision how you're going to live your life, the risks you're going to take. And for me, I'm not in this business to make money. I'm not in this business to, you know, have notoriety. I'm not in this business to, you know, travel. I mean, all of those things are nice. But at the end of the day, at the end of the day, the thing that matters to me most is this country. We live in the greatest country on earth. You know, I'm blessed to be an American, I'm blessed to have freedom. You know, I'm blessed to have the opportunity to serve.

If you really want to go after the people that are putting young girls into sex slavery and people that are selling the stuff that's getting shot into the veins of people that are dying in front of their kids in front of me, you know, heroin, if you really want to go after the guns that are killing these kids in the streets, if you really want to go after the terrorists, you have to fall the money. And I think for me, knowing that I'm on the radar of these groups just inspires me even more to go after them. Because it shows that what you're doing is working. Otherwise, they wouldn't care about what you're doing at all.

No, we're in a powerful country. You know, we're the most powerful country in the world. I have no reason to fear them, but they should fear us. I like that. I like that a lot. It's a positive message coming out of this because otherwise we don't know. I mean, you see both sides of this battle, right? As a police officer in the streets, because nobody can really argue and say, well, you know,

he's an anti-money laundering guy when you're a hammer, all the problems look like a nail, that kind of thing. Or maybe I butchered that. But you know what I'm saying, right? It's, it has to do with the idea that you see the person ODing because they shot fentanyl and then there's kids screaming in the corner. But you also see the money trail that came from the supplier of that and how they're cleaning their money and how it's getting from one point to another. Right. I mean, with socioeconomic conditions, whether it was in Russia after the, you know, fall of the Soviet Union or whether it's in, you know, Cleveland or Flint, Michigan, or or Mobile, Alabama, or wherever now, you know, socioeconomic harsh conditions cause people to try to

escape. You know, it's a, it's a means for drugs. It's a means for prostitution. You know, it's a means for all of these bad things to come in the community that rips families apart. And I'm not upset with the people that have tried to kill me. I'm not upset with the people that have fled from me. I'm not upset with the people that have fought me to, you know, try to be free because, you know, they're involved in drug trafficking or this or that.

You know, the low-level guy is also just trying to survive. And he came up in those socioeconomic conditions and really never had a role model to show him anything different. What I want is the guy that's profiting off of him. What I want is the guy that's profiting off of that girl that came in as a runaway at 13 years old and is now, you know, high on cocaine and PCP and is pretty much lost from humanity and 10 years of prostitution and doesn't even have a license or social security card or personal identifying documents. And there's this trafficker, this handler that is getting her tax return

every year. I want that guy. You and I talked about this a little bit pre-show. Some of this, even the street crime stuff really gets to be complex. You're looking at these prostitution indicators and it's like a guy with 10 mobile phones and he's got rental furniture and rental properties and motel bills and fuel bills and he's got three different cars. You as an investigator, how do you learn to think like the people that you're pursuing? Because there's got to be some aha moments here, but to think, okay, I'm looking for a guy buying 10 burner phones. It seems maybe a little bit like, okay, that's an easy one. I get that one.

But I wouldn't think, hmm, rental furniture, that's strange. Xbox and food bills and this tax return, the way the cash works with that, going into the account and busting the whole thing out right away. How do you learn to think like the people that you're pursuing? So that's a great question. This is the big problem in the industry right now. You know, I mentioned that, you know, 96% of the system generated alerts are deemed false positives and are close without issue. 98% never make it to a regulatory filing, a SAR report.

So out of 100 alerts generated from the system on average, industry-wide across the globe, 98 out of 100 alerts never become a government investigation. only two out of 100 do. And the problem is that banks, their detection logic in these transaction monitoring, red flag detection scenarios, it's based on really broad, overarching, you know, basic transactional action-based concepts. You know, you deposited a lot of cash in your account. You wired money to a high-risk country.

You know, you structured under $10,000. I mean, these are so basic. If we come back to understanding who is actually laundering money, If it's really transnational criminal organizations and corrupt governments and sanctioned countries and major terrorist groups, are we dealing with dumb people? Absolutely not. We're dealing with major transnational threat organizations that have resources. And the fact that they have money means that they have resources and they need to clean it. So they're going to put their best and brightest people, people that have accounting backgrounds, people that have law backgrounds, people that have backgrounds, people that have backgrounds like me.

They're going to put their very best people on this to launder money. And they're not going to make amateuristic mistakes that get captured in these basic detection scenarios. So during my career, I started to look at these detection scenarios. They said they're all based on really broad, simplistic actions. I mean, it's like taking a hammer to something that requires, you know, finesse. And it's just blunt. So we started saying, okay, you know, you mentioned the human trafficking thing, Jordan. We need to do that.

We need to look for the source elicit behavior. Instead of just saying, I think this person might be laundering money, what illicit behavior do I think this individual was involved in that was the source of those illicit funds? So, for an example, you know, you mentioned rental furniture. I think it's a good one. We, Deb Geister, who I mentioned before and I have been working on human trafficking detection scenarios for a long time. I mean, you know, we're in a time where there's finally, finally some real focus in the world on human trafficking. I mean, it is, you know, we're in the time of hashtag Me Too and hashtag end trafficking. We have an increased awareness of gender equality and sexual harassment and assault.

But if we want to talk about protecting our mothers, our sisters, our daughters in this world, the most severe human rights violation I can possibly think of is human sex trafficking, modern slavery. The things that happen globally to these girls, I don't even want to say on air. I mean, it's just terrible. And it's a society, all of us, especially men, have a responsibility of targeting this. So, you know, Deb Geister and I, we started building detection rules in major banks. And the first rule that we ever built targeting human trafficking was more at the tactical level and it was on prepaid cards. And we were looking for like prostitution level, street level, prostitution.

You know, there's different types of human trafficking. You have, you know, import smuggling and the Mexican border is subvert immigration law. You have export trafficking for the purpose of selling people, you know, globally over the Great Lakes into Canada. You have, you know, your Asian massage parlors. You have your social media and dating site, you know, in Craigslist type, forced prostitution. And then you have, you know, as we talked about, your street level prostitutes. But we did a prostitution management human trafficking rule for a major bank. And in the first 90 days, we had 750 alerts.

612 of those 750 alerts went to full file, meaning they were suspicious activity reports igniting 612 investigations. So that's like seven real cases every day? It's like 80 some percent of the alerts became federal investigations. Wow. And so that means these things were going on for years before they got picked up by your new filter. Right. But I mean, you know, we talked about the.

source illicit behavior. So if I want to target, you know, specifically, you know, prostitutes in Cleveland or Detroit, you know, on the street corner, you know, it's tax season, you know, right now it's tax season. So maybe I'm going to look for, you know, prepaid products, credit products, you know, checking accounts. I'm going to look for who my victim might be. Maybe, you know, in most cases, unfortunately, you know, African American or Hispanic females, you know, certain age range in a certain zip codes. I'm going to look at where they're at. And I'm going to say, okay, you know, I have these young women here that are basically high risk in this location. And then I'm going to look at Surf.

It's an acronym SIRF, Stolen Income Tax Return Fraud. I'm going to look for a tax return hitting the account, followed by rapid cash bust out. Why? Because when you get your tax return and you go and you withdraw funds at ATM and you do, you know, cash over at Walmart and you load prepaid cards and you go, you know, do money orders. You're paying a tremendous amount of fees on that. No one would do that in their own account. Right.

So the first thing that I see when somebody busts out in cash on a tax return is, oh, that's fraud, which means that the person listed on that account is not the person that's in control of the account. So if I know I have a young woman in the inner city that is tied to an account and there's fraud and she's not the one doing it, then I'm going to say, well, what else are you buying? Okay. How about lingerie purchases? How about hair and nail purchases, you know, hair and nail salons? How about secondhand clothing stores?

How about motels? Look, you know, a grown woman can go buy all these things, you know. Sure. And it's a free country. Buy whatever you want. You know, all of these things individually are not a problem. It's when they come close. Go buy lingerie, go get your hair done, whatever.

That's not a problem. Sure. It's when all of these things come together. And then we have, you know, bulk electricity bill purchases, bulk water bill purchases, rental furniture, bulk grocery store purchases, things indicative of a lot of people living in one house or one of place. or one apartment. Things like what we talked about,

the bulk burner phones. Why do you think somebody would spend $350 at Boost Mobile or Metro PCS? Do you think it's because they wanted more minutes on one phone? No. It's because they want multiple phones. Why?

Well, if I'm moving girls between different area codes and I'm putting them on dating websites and I'm putting them on Craigslist and I'm selling them online, I'm going to want them to have an area code on a burner phone in that specific place that I'm putting them. I also want to trade them out constantly because I don't want them, you know, contacting anybody.

I want to trade their phones out, their numbers, because I'm paranoid. That's why it's a burner phone, right? Well, and if you move a girl from San Francisco to L.A., you don't want San Francisco Johns calling her while she's in L.A., so you've got to switch the number. You're switching it constantly, right? But, you know, there's more to it. It's a little weird that I knew that I've been. There's more to it.

You know, people say, what about Red Box? I said, well, it's if they're moving. That's down south. But, you know, we're looking for purchases indicative of the trafficker of the trafficker trying to prevent mutiny in their ranks. So alcohol purchases video games. You got to think about it. You know, this type of typology in terms of what we're looking at for the victims,

when they are off duty and they are not out selling themselves, we want them playing video games, we want them doing drugs and alcohol. We want anything that's going to keep them from thinking about their circumstances. We don't want mutiny in the ranks. We don't want them flipping on us. This is what the traffickers are thinking. Huh. So if you take the totality of these circumstances and paint a story of what this person's life is like,

and you stop looking at this like an accountant, like just a spreadsheet with numbers, but you try to paint a picture of the living circumstances of that person. That's how you reverse engineering. That's how you understand if I was the trafficker, I would do this. And then we build detection scenarios for that. And honestly, this is a basic old example. The stuff we have now is way more sophisticated. Sure.

Sure. Yeah, we won't ask you to get into that. Last but not least, what is the one or two things? about your job that keep you up at night. I mean, you've seen terrible things happening. You're working to stop some of this. Is there something where you just think, man, I don't know, we're swimming upstream on this one, and I don't know how we're going to tackle it?

Yeah, I mean, I would say, you know, the terrorist attacks in 9-11, you know, inspired most of us, most of us that are, you know, cop, soldiers, protectors today, you know, were inspired by 9-11. And 9-11 really was the result of a failure of intelligence sharing between, different agencies that, you know, had various pieces of the pie, pieces of information about what would ultimately occur. And I think we're at a similar crossroads today, both in the government and in the private sector. I mean, intelligence as an industry is so siloed, and particularly in the anti-money laundering and counter-threat finance world. It's so siloed that, you know, our risk

elements, you know, how we analyze risk for individual entity customers, you know, our anti-money programs, our fraud programs, our sanctions programs, both public and private sector, they're separate. You know, cyber programs looking at the dark web. All of these things need to be aggregated. We need to have an all-source fusion intelligence approach, like what I used as an Army intelligence officer. We need to take that concept and apply it to the banking world because at the end

of the day, the banks, because we live in a free country and the government doesn't own the banks, the private sector owns the banks, you know, the banks on the banks, that means that the government doesn't own that data. And if the banks don't report it to the government, then it's not going to be investigated unless, you know, the banks get in trouble and they find it on the back end. So, you know, we're in a situation here in 2018 where these banks are being fined hundreds of millions or billions of dollars for aiding, abetting, and helping to facilitate human sex trafficking, drug trafficking, terrorism, organized sanctions evasion, and they are getting crushed.

But they have no idea what's going on. They have no idea how to interdict this threat. And I think that there's two things that need to happen. And I blame the government just as much as I do the banks. I blame the regulatory agencies for not providing clarity about targeting these source illicit behaviors. So what do I lose sleep about at night? The fact that the system doesn't work, that there's no interoperability, that there's

no intelligence sharing, both within the context of even a bank itself, their different programs aren't talking to one another. And the different banks aren't really talking to one another. And the government and the banks aren't really talking to one another. It's this lack of information sharing and the siloing of data that is causing us to miss the big picture threats. And again, you know, as we talked about, those big picture threats could manifest into Iran and North Korea, clean enough money that they don't feel the deterrence requirement to stop their nuclear programs. It could lead us to war. Josh, thank you so much for your time and for coming out here to discuss this with us.

normally we do a lot of here's some practical exercises and I love the idea of the mindset of an investigator how you think but this is such an interesting topic that I'm glad that we got a chance to sort of take a break from our normal fare and dive into this. It was a pleasure to be here Jordan. Thanks for having me. All right. I know that we normally, we dive into these practical items, but I thought, you know, educating on this topic was important because it's fascinating, first of all, and it has to do with China and Russia and the United States and international relations, financial relations, cryptocurrency.

I mean, there's a lot here that just being aware of it. And this isn't, these aren't conspiracy theories. This is a law enforcement professional and a consultant who tracks this stuff. This is not just like, speculatively, this is what happens. And here's this book I'm trying to sell based on me watching YouTube videos. This is a guy who's investigating this stuff for banks, investigating this stuff with the government and law enforcement and has all the insight. scoop. So that to me was fascinating. And I just, I just want to get it out there and into your brain.

See, I love these times when we can have a show where we can like peek behind the curtain on things that most people have heard about on TV shows. But, you know, it's so far removed from our day-to-day lives. We don't always think it's real. And then when you hear the scope and breadth of how real it actually is, it's kind of like, whoa, there really is some like James Bond villains out there. Yeah. And the fact is, I think I was talking with him after we had, gone to lunch. And he'd said, you know, the real key about this topic that I thought was fascinating originally when he started to get to work in it was this affects everyone because it affects your bank. It affects the people that you see working in certain places that are here illegally

or that are doing illegal things. And I don't mean illegal immigrants. I mean people who've been trafficked. I mean victims, not criminals. There's people that you interact with on a day-to-day basis that are involved in this in some way willingly or not. And it's just everywhere. And it has to, you know, from the Taliban to freaking Moscow to China to financial professionals in the United States to drug gangs. I mean, is there all interconnected. And that surprised me. Even down to the level of your local rub and tug.

Yeah. Exactly. I had not thought of that. See, look, it's everywhere. It's affecting my life. It trickles down everywhere. Yep. Trickle.

Oh, man. I don't want to make the joke. that's obvious in that one. The trickle-down job. All right. So anyway, big thanks to Joshua Fruth and to Matrix IFS, who kind of just gave him to us for the day.

That was nice of them. He's a financial crime warrior. I guess that's what they do down there at Matrix IFS. And Joshua is the director of the anti-money laundering advisory services there at Matrix. And they help banks get those systems installed. They help banks get those detection systems going. And they design this stuff.

That's what Josh and his, colleagues, bosses and subordinates and pals over there at Matrix, dude, they come up, Jason, some of the stuff that we couldn't have on here was like how they design these detection systems. And he really has to get into the mind of the criminal. And we kind of got to this towards the end of the show, but thinking like, oh, rental furniture, groups of mobile phones and boxes of disposable this and that. And they, he has really gone down the rabbit hole at Matrix with his colleagues. there on, okay, what exactly are these people doing and how they're behaving? And their

detection systems are the bomb. So, yeah, I don't know if anyone out there listening needs financial crime detection services, but Matrix is the place to get that because they're clearly obsessed with this stuff in the way that actually gets results, which I thought was pretty cool. So again, great big thank you to Josh and to Matrix IFS. Links of them will be in the show notes for this episode, which can be found at Jordan Harbinger.com slash podcast. I'd love it If you tweet at me your number one takeaway here from Joshua Fruth, I'm at Jordan Harbinger on both Twitter and Instagram. This episode was produced and edited by Jason DePhilippo,

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