Detecting and Investigating Crypto Fraud and Financial Crime – Ari Redbord [Episode #26]

Podcast Intro 00:00:00 Hello. Welcome to P.I.T. Exchange, a podcast by Currency Research. Join us as we discuss the latest in payments, innovation and technology with the industry’s most innovative thought leaders. Today’s payments are changing and moving around the world faster than ever before. In P.I.T. Exchange gives you the knowledge and insights to keep up. Sit back and relax as we join Currency Research, exchanging ideas with today’s special guest.

Shaun Ferrari 00:00:33 Hey everybody, thanks for joining the next episode of the P.I.T. Exchange where we talk about the latest in payments, innovation and technology. It’s starting to be a fall here in D.C. it’s a little cooler, a little a little calmer. We hope everybody’s had a good couple weeks and all your kiddos are back off at school. Enjoyed the summer, but we’re thrilled to be back talking with you about the latest here. So I’m Shaun with Currency Research, and we are thrilled to be welcoming Ari with us today from TRM Labs. He’s the global head of policy and government affairs there. Ari, thanks for joining the P.I.T. Exchange.

Ari Redbord 00:01:07 Shaun, thanks so much for having me. I feel like we should be in a cool coffee shop in Cambridge. Isn’t that where we sort of, I, I it is being in this, like, implausibly cool place with you. I don’t know, a year or so ago having some really cool conversations. So it’s great to be on the podcast.

Shaun Ferrari 00:01:23 No, thanks. Yeah, exactly. It was with my, my little rotation over to the Digital Dollar Project when we first met. And, Yeah, I mean, I normally hang out in Cambridge and cool places. That’s where, you know, it’s a really cool place. Yeah, exactly. But anyway, thanks. No, thanks for, thanks for joining. You know, I, I find one of the, the most fascinating things about following you. And if folks don’t follow you, they should on, on LinkedIn, not only is there great content, but you are everywhere in the world. I think it’s where in the world is Ari. Right. That’s the that’s one of your monikers out there.

Ari Redbord 00:01:51 Yeah yeah. Look I mean it’s it’s it’s it started because it’s like fun to sort of you know engage with folks around the travels, but like really the nature of cryptocurrency, right? This sort of idea of cross-border value transfer at the speed of the internet is so global. So regulators and law enforcement and others are working on this issue, really in every country in the world today and it requires a fair amount of travel for engagement. So it’s, it’s it’s really fun. But, you know, as you know, being in a space that moves or the speed of the internet, you do feel like you have to be everywhere and running all the time, which, which I am.

Shaun Ferrari 00:02:35 Yeah. No, for sure. I’m just just curious, how much of your time do you do you spend on the road? Because it’s amazing. I mean, again, watching the LinkedIn stuff, you’re everywhere, but at the same time you have, like, a bunch of, like, stuff you, you do and and are around, like, with your family all over the place too. It’s I don’t know how you do it all, but yeah, I know it’s right there.

Ari Redbord 00:02:49 It’s a great question. The answer is the answer is a lot but like anything else I want to ask me recently sort of how how I do it and particularly with, with family and travel and, so much of it is if you love what you do, it doesn’t always feel sort of like a job per say. And I’ve tried to really, over the years, bring my family in to sort of the work I get to do at TRM and my TRM team in into my family. And if I can sort of combine those lives as opposed to separate them, that’s sort of been successful for me. But I would say the answer is, probably more than my wife would like. but but, you know, enough to be impactful and then get out and go home, is sort of my general strategy.

Shaun Ferrari 00:03:36 Awesome. No, thanks for that. I know myself, you know, traveling around to all the events that that we do. It gets to be a lot. But you’re right. When you when you love what you do and you’re out there, it it doesn’t feel like, it doesn’t really feel like a job, right? It feels like it’s fun and part of it. So anyway, so speaking of jobs, we could talk about this all day, but maybe tell us a little bit about, for our listeners, TRM labs. What what it is you do, your role that that sort of thing.

Ari Redbord 00:03:39 Yeah. Love it. Absolutely. So we’re a blockchain intelligence company. And that means we provide a software solution to law enforcement across the globe. Every three letter law enforcement agency in the U.S., and so many globally and they’re using our tool to track and trace the flow of funds and cryptocurrency. So if you are the victim of a ransomware attack, we are tracing the payment. If there’s a hack on a crypto exchange or a DeFi protocol or a bridge, law enforcement is using our tool to track and trace those funds, hopefully to seize them back.

Ari Redbord 00:04:36 If you are a victim of scam or tracing, the scam proceeds. We also work with regulators globally to understand what are the risks within their regulated ecosystem. So if you’re a regulator and you want to provide a license to a vast or a virtual asset service provider, we’re helping you understand the risks associated with this and then helping with ongoing supervision. And finally, we’re a compliance solution. So we work with every major crypto business. You know, many more and more financial institutions that are engaging with digital assets today, essentially AML, for crypto. So it’s cool. It’s, you know, it’s it’s a mission to build a safer financial system. And really, the mission I spent, you know, essentially my entire life, about 11 years at the Department of Justice, two years at the U.S. Treasury Department. And then I kind of get to keep that going, but, like, at a really cool startup and it’s been, been a four year adventure so far at TRM.

Shaun Ferrari 00:05:33 Awesome. And there’s there’s so much happening in that space. We, we did our our Global Payment Summit and one of our Central Bank Payments Conferences a few weeks ago in Kuala Lumpur, and fraud and cyber risk. not necessarily. Those weren’t necessarily focused on the crypto, linked to fraud, but more on the the real time payment channels and, and more of the traditional trad fi type channels and how you monitor fraud in that space. But it’s such a huge problem with, with so many new solutions coming out to, to fight it.

Ari Redbord 00:06:04 It, look it’s an issue on so many levels, you know, like I approach it typically from a national security perspective. Right? I was a national security prosecutor for many years, and then it was at Treasury. It’s kind of how I think about the issue. But but what I tell builders is like, hey, look, you might not care about North Korea or terror financing or some of these other issues that I, that I kind of care deeply about. But I know you care about the ecosystem, and whatever you’re building out there is, is, you know, people aren’t going to engage with if they feel like their funds can get stolen by cyber criminals or ransomware actors or scammers.

Ari Redbord 00:06:33 So I think it’s a combination of like, really, really important to, to mitigate the risk of fraud and financial crime from a, from a regulatory, from a law enforcement, from a national security perspective, but also from a building perspective. We really want to make sure we’re keeping bad actors off of these platforms so they can grow the overwhelming majority of folks who are using in your world, sort of, you know, new payments technology or crypto are lawful users. And I think the challenge is, how do we allow lawful For users to transact in a secure and private way, but stop bad guys from. From taking advantage of new technology. And I literally spent, as you said, 24 seven trying to think about how we can enable that.

Shaun Ferrari 00:07:19 Yeah, I know for sure. And so maybe one of the one of the tools that’s I don’t know how emerging it is or if it’s I guess depending how you look at it, it’s been around for a while or just being used differently now. But if we look at AI and artificial intelligence, and are you seeing that as a, as a powerful tool? I guess it cuts both ways. There’s a the, the benefit side. so I’ll first ask around that is there are you finding ways that you can use AI to help identify the financial crime and fight the fraud that’s out there?

Ari Redbord 00:07:47 Yeah. No, it’s so first. Absolutely. And then we can get to kind of the the other side of the coin, so to speak. But but what’s one thing that’s really what’s really interesting I always laugh about this, you know, six, eight months a year ago when OpenAI and ChatGPT and sort of like this proliferation of AI and the conversation started. I get asked all the time is like, hey, are you going to do a trade talks on AI? Or, you know, is is is TRM going to start using AI? And I like I literally that’s why I don’t have any hair. I pulled my hair out over the last year with that question, because there has never been a time in TRMs, life where we didn’t use AI.

Ari Redbord 00:08:23 We call it machine learning, data science, but essentially the way our secret sauce, the way we build our tool is we take cryptocurrency addresses, right. The raw blockchain data that alphanumeric address and we layer it with threat intelligence. So we have a team of threat hunters out there. We have someone focused full time on North Korea, on terrorist financing, on Russia, on, ransomware, on sanctions. And those people are attributing cryptocurrency addresses. You know, we see, Hamas, on a password protected telegram channel raising funds in cryptocurrency. We label that address terror financing. But then this is where AI and data science and machine learning come in. Because we take that information, that data, and we extrapolate. We want to know, hey, what are all the addresses that that address has transacted with where the flow is coming in and coming out and really building out networks, understanding patterns of behavior that’s indicative of money laundering. So, as we’ve been building in TRM, I think something we thought of really about since day one was how to use data science. Our data science team is our biggest team at TRM and really always has been, has been. And it’s really because we’ve leaned into using, data science in order to build a better compliance solution.

Shaun Ferrari 00:09:36 Fantastic. And I think that’s true. I mean, when we’ve when we’ve talked to some some other large payment processors and that sort of thing on using AI, it’s a similar thing of like, okay, yeah, we’re calling it AI now. And yes, we can do many things, but we’ve kind of been doing this for a long time. it’s. But but, you know, so I guess, you know, one of the things building off of what you just said, that, you know, we always hear and there’s always this thought out there that, well, we use crypto, bitcoin, whatever we’re using, because it’s anonymous and no one can ever track this and no one can ever figure out what we’re doing. How? Talk to me a little about that statement. Right. Because kind of it’s it’s a little bit at odds of the ability to do just what you said kind of track.

Ari Redbord 00:10:34 Yeah. And this, this is the other place I spent a lot of my time mostly with policymakers and other folks because the reality is crypto is is not anonymous. And most crypto transactions occur on blockchains, public blockchains, which are open ledgers where every transaction is, is logged and immutable, meaning it’s there forever. My my friend and colleague, Christian Chesky, former IRS agent, calls it, you know, a a forever crime scene right? Because you can go back and you can investigate cases. You know, that happened years ago. The Bitfinex case is a great example of that. That was Chris’s case when he was at IRSCI. And he talks about, look, you know, you have better he had better technology years after the hack and then was able to go back and look at transactions. You can’t do that. in the real world with wire transfers or, or bulk cash smuggling or networks of holes and shell companies. So, you know, at TRM, we have essentially built a tool that helps law enforcement track and trace cryptocurrencies.

Ari Redbord 00:11:40 Now, look, I mean, the nature of crypto, as I said in the beginning, this idea of cross-border value transfer at the speed of the internet means that bad guys can now move larger amounts of funds faster, but we can also trace them in ways we never could before. So I think that’s the paradox, and that’s kind of where the rubber meets the road. but the reality is like, you know, look, every week at TRM, we share you know, a law enforcement case in which law enforcement used TRM to track and trace funds, either sees them back or make an arrest or have another good result. And I think the reality is you’re seeing more and more of that. and, and hopefully, you know, I’ll get less questions from policymakers about like that, that sort of anonymity question and more around like, hey, what are other things we can be doing to mitigate some of these risks?

Shaun Ferrari 00:12:33 Yeah, no. For sure. I think, I forget who who said this. Somebody somebody famous. But it was essentially if if, you know, you were designing cash these days, regulators would never design it the way it is. It’s too oh too anonymous, like.

Ari Redbord 00:12:48 Oh, yeah, I mean, absolutely, absolutely. Even when you talk about sort of like, you know, privacy around crypto, you’re never getting to this kind of concept of bulk cash smuggling or ways you can move cash. yeah. It’s, it’s a much better anti-money laundering, solution than, than cash.

Shaun Ferarri 00:13:08 For sure. So on the, I guess on the risk side, you know, we talked about how how AI and current technologies can really help identify and fight cybercrime, fraud, money laundering, that sort of stuff. The bad guys obviously have access to these advanced tools as well. What are you what are you kind of seeing in in that side? How afraid should we be? Of what? Of what? I mean, the other side.

Ari Redbord 00:13:34 It’s it’s crazy out there. I mean, like, you know, someone, you know, I think Gary Gensler called crypto the Wild West a few years ago, but, I mean, that’s it’s nothing compared to what I see on Twitter with deep fakes and, you know, all kinds of interesting sort of AI generated, you know, propaganda. So my friend and former Treasury colleague Todd Conklin, who’s now the chief AI officer at the U.S. Treasury Department, he and some colleagues wrote a paper three, four months ago on AI enabled cyber and fraud risk for financial institutions. And it really, really good read. We did a TRM talks when they released the paper. Todd came on to talk about it. But like I think it’s a great example of the ways that financial institutions are trying to understand AI and, and, and the potential fraud and cyber risks around it. I think the biggest ones in the, in the, in the report, and I definitely agree with are targeted attacks. Right. You know, the reality is that over the last decade or more, phishing attacks, even the most sophisticated one from, from North Korea and other, you know, cyber actors, you know, had misspellings, broken English. you know, a quick review would lead a lot of people to just ignore it or kick it to their spam or whatever.

Ari Redbord 00:14:57 In the age of AI, cyber criminals speak perfect English. In fact, they can create a video from your CEO telling you to do, you know, X or Y. And I think that’s really the, the problem. They could, you know, they could, spoof voices. so I think that’s the that’s the real wrinkle here is that cybercriminals are going to become much more sophisticated with these tools. And, and we have to be ready.

Shaun Ferrari 00:15:25 Yeah. No, for sure. I think there is. There is that I know in talking in a, on a supervision and regulation lens, we were thinking that, you know, the, the central banks and the regulators might have to start interrogating, using their AI to other AI chatbots even just from a, from a ethical lending standpoint or a soup and rig standpoint, it’s going to be like AI against AI, trying to figure out what it’s doing, but it could be a similar scenario.

Ari Redbord 00:16:03 Yeah. In this case, I think it’s like anything else, right? Like, you know, criminals are often the early adopters of like, really good tech. And I think we saw that in the kind of end, end to end encrypted messaging space, Obviously we’ve seen all the drama around Telegram lately, but the reality is that WhatsApp, telegram, signal, these are all used today by, you know, PTAs and basketball teams, you know, kids, basketball teams. I might we use WhatsApp on for my kids basketball team. You know, a decade ago it was basically used by terrorists and and prosecutors and agents. Right. so I think we’re seeing the same today with AI to some extent. Although what’s really exciting to me is when you do talk about openAI and a lot of these other applications, like it’s, it’s it’s a real wow when it comes to sort of productivity, you know, at the consumer angle. so I like, like most technology, I’m really excited about it. and I think that the, the positives far outweigh the negatives. But again, it’s this idea of how do we allow lawful users to transact in a safe way and keep keep criminals off of these platforms? And that and that’s sort of the my feeling around crypto as well.

Shaun Ferrari 00:17:08 Yeah, exactly. And so you deal a lot of time with obviously your job. regulators, looking at the space, do you feel like, how’s it going there? Are they keeping up, or are they, behind the curve or where do you think the the regulatory focus needs to be or how’s it going in this space?

Ari Redbord 00:17:25 Yeah. Look, I think that I spend a lot less time to be fair on sort of AI regulation and much more time sort of on the crypto side, I will say that again, like kind of harkening to the Treasury report, one thing they did that was really smart, in my opinion, is they went to financial institutions and did surveys and interviews and really said like, hey, we want to understand from that compliance professional, like, what are the gaps? What do you see as the pain points? And really try to start to understand that. And there’s a there’s a great survey in the report. So I think A: that’s really smart to go to practitioners and I vote like maybe it’s self-serving because I was in the government for so long. But I believe like, you know, career civil servants are for the most part, subject matter experts in these technologies. And I know that is not a popular view of the of the sort of crypto industry sometimes. But when I look at FinCEN, which is the FIU, the financial intelligence unit for the United States, or OFAC, which is the sanctions regulator or Treasury’s policy shop or the national cryptocurrency enforcement team at DOJ. these are true subject matter experts who have spent as much time as any of us on industry, on trying to understand this technology, and they are really, really good at it. I think that is dramatically different when you’re talking about political appointees, when you’re talking about policymakers on Capitol Hill, but the practitioners, the day to day civil servants who are doing a lot of this work are really, really experts. They may disagree, you know, at times with where the industry wants to go because they are regulators at the end of the day, but they do have the expertise.

Ari Redbord 00:18:54 And I think that’s true of AI. And I think it’s definitely true, in the crypto space, for sure. That actually just put a point on your, on your question. I think it’s hard. You know, I think that like, it’s hard to see I think part of it is like for technology and innovation to really develop. You want to see where it’s going, right where it’s headed. Nothing. It’s not it’s not, it’s always moving. And I think that that’s it’s very hard to regulate, something that’s constantly changing, constantly evolving. And that’s why it feels like regulators are sort of always a step behind. And I think that’s that’s probably right.

Shaun Ferrari 00:19:30 Yeah. Yeah. But as you say, it’s not that it’s a losing battle. I don’t think it is. But there’s that something has to be developed to then be regulated. Right. So there’s always that kind of like we’re trying to catch up where the industry is going or feels like we’re trying to catch up. It’s hard to regulate something that is somewhat undefined. So I do think there’s this catch 22 there. and I know we’re running low on time. Maybe just just one other one other question. I mean, you mentioned kind of, the reach out the regulators had done, to the industry to get, you know, surveys and that sort of stuff about what’s happening and, and that that’s not that great industry engagement. in, in your, your journey out with the industry. I know it’s sometimes hard to get competitors to to talk together and work together, but I, I do think the fraud space, and cyber crime space is one of those areas that at least my impression is we’re starting to see the big players kind of work together a little bit. I don’t know if that’s your impression or not.

Ari Redbord 00:20:30 But yeah, I did. I did a, I did a Terem Talks, a couple, couple months ago with, with Noah Perlman, who’s the chief compliance officer for Binance. And he had this great line about how, like, compliance is not a competitive space because really, you’re only as strong as your weakest link and people are wanting to work together. They are wanting to is like no one wants. It doesn’t matter who you are in the space, no one wants a breach. No one wants because it’s going to affect the entire market. It’s going to protecting, the entire space. I also think in my world, a lot of us are former law enforcement and, you know, the mission to build a safer financial system is like a real thing. It’s something we really care about. We dedicated our have dedicated our careers to it. So I think you have that kind of aspect too. So the combination I think of like, we’re all in this together and then the mission is very defined and very compelling. so I think a lot of folks, it’s, it’s easy to align to and and. Yeah, and I see, I see it happening all the time. Not only do I see it across industry, we’re going to have a big announcement over the next, hopefully a few days or week, and I can come back to you on this, on sort of a private private partnership. but we’re also seeing a ton of, like, super legit and useful public private partnerships where you see governments working with industry. There’s one called Ivan, of which TRM is a member, where we work with pretty much every federal law enforcement agency and a number of different, analytics providers, exchanges on, ransomware, data sharing, ransomware data. So I think it’s a very effective, partnerships are hugely effective. And, and really, really important.

Shaun Ferrari 00:22:11 Awesome. Well, Ari, thanks so much for taking some time and being with us. Do you have any any other thoughts you want to want to leave the audience with before we kind of…

Ari Redbord 00:22:19 No, I just I want to do this in Cambridge at the coffee place next time. And not that not virtually, but no. Shaun, seriously, I love the work that you do and have for a long time and really honored to be on the podcast.

Shaun Ferrari 00:22:30 Awesome. Well thanks, Ari. Thanks for joining us. thanks, everybody for listening, we hope you enjoyed the discussion and that you listen to a future episode of of The P.I.T. Exchange, where we’ll have another special guest on next time we come to you and, please like, subscribe, download, do whatever it is, wherever it is you, you do it with your podcasts. We appreciate it and look forward to chatting with everybody or seeing you around the world soon.

Podcast Outro 00:22:54 Thank you for listening to The P.I.T. Exchange, a podcast by Currency Research. Check out our upcoming events and publications at currencyresearch.com, and join us for our next episode to hear what’s trending in payments, innovation and technology.