Knott Asks Former U.S. Attorney: Could Cartels & Terrorists Use 'Legitimate Blockchain Constructs?'

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During a House Judiciary Committee hearing in July, Rep. Brad Knott (R-NC) asked former U.S. Attorney Ari Redbord about the possibility for cartels and terrorists to use "legitimate blockchain constructs."

Transcript

00:00I appreciate all of you and your testimony, and very, very interesting.

00:06I hope we can get to some deep substance on it today.

00:11I now recognize the gentleman from North Carolina, Mr. Knott, for five minutes.

00:15Thank you, Mr. Chairman.

00:16To the witnesses, thank you for coming to testify today.

00:19This is sort of a novel topic, but as each of you have stated clearly,

00:23this is a very important topic, and development around the blockchain technology, AI technology,

00:29it's something that is sort of a, it's only going to become more prevalent and more dominant

00:35in just about every area of our life, and that's true here in America.

00:39That's true overseas.

00:40I think it's going to be one of those paramount moments that it's going to be sort of formative.

00:45Where were you before?

00:47Where were you after?

00:48And to that end, as a former prosecutor myself, when I was prosecuting,

00:54I came on at the very end of the AI-free crime.

01:00And I started to see how blockchain and cryptocurrencies and artificial intelligence

01:03was infiltrating every area of the criminal world.

01:07And to that end, Mr. Redward, as the use of AI and blockchain technology does become more common,

01:14and it does become more integrated in every avenue,

01:17there's obviously access from domestic actors that are criminal and international actors.

01:24There's really no border that's recognized.

01:26How does that impact the criminal infrastructure, as it were,

01:30when you look at domestic versus international crime in that relationship?

01:34Thank you so much for the question.

01:36And yes, I feel like you would uniquely understand this as a former AUSA as well.

01:40You know, look, we both prosecuted cases in a world where there were, you know,

01:45networks of shell companies and hawalas and high-value art and real estate used to launder funds.

01:50But today, as criminal actors are looking to blockchains and cryptocurrencies,

01:55we can trace every transaction on an open public ledger, right?

01:59There's no more bulk cash smuggling.

02:01There's TRM to track and trace the flow of funds.

02:03So I think what we see right now is this really interesting convergence between AI crime,

02:08as we're going to discuss today, and crypto.

02:11And really, primarily, crypto is often the means of value transfer in these different crimes, right?

02:17You see these deepfake scams where they are scams trying to get cryptocurrency from, you know, investors or users.

02:24They are ransomware actors who are supercharging attacks where cryptocurrency is the payment.

02:29The significant difference now as we're investigating crimes as prosecutors and law enforcement

02:34is that we can trace and track every one of those payments on open public ledgers,

02:39which allow us to do financial crime investigation really better than we've ever done it before.

02:45Is there the ability, as you see it, to pinpoint with specificity criminal activity?

02:50And, I would say more importantly, going back to the trust that we need in law enforcement,

02:55pinpointing criminal actors because it's such a foggy space to many people.

02:59Can you pinpoint the actual criminal as opposed to just criminal activity?

03:04It's a great question, and absolutely in many circumstances.

03:08What we're doing, essentially, at TRM is we're taking that raw blockchain data, right,

03:12those alphanumeric addresses, those crypto wallets,

03:14and we're associating them with real-world entities.

03:17Oftentimes, it's terrorist financiers, ransomware actors, sanctions, for example.

03:23And that allows law enforcement to then take that data

03:26and track and trace the flow of funds to build out networks.

03:30Cartels are a great example of that today. I'm sorry.

03:32Is there a risk that cartels, terrorist states,

03:34could use legitimate constructs on the blockchain

03:36that are developed here in the United States for their own benefit,

03:40therefore taking advantage of a legitimate structure

03:43or a legitimate software that's developed here?

03:46Absolutely.

03:47And I think the real challenge for regulators and policymakers

03:50is how to ensure that lawful users have access to those types of tools

03:55and yet stop bad actors from using them.

03:58And to me, the answer is, and the U.S. Treasury Department over the last few years

04:01has done a pretty good job on this, target the bad actors,

04:04the North Korean cybercriminals, the ransomware actors, the scammers,

04:08as opposed to necessarily the lawful services that they're using.

04:12And is there a risk if we are too zealous in the prosecution?

04:15As a prosecutor, I'm all for strong law enforcement,

04:18but if we are too aggressive on the front end,

04:20as this technology is developing,

04:23could we stifle domestic innovation here at home

04:26if we are too aggressive in prosecuting?

04:28Absolutely.

04:29It is critical that we continue to focus on the bad actors in the space,

04:33which will allow the lawful ecosystem to grow,

04:36as opposed to the lawful services that are being used by bad actors.

04:40So absolutely.

04:41And really the key to all of this is to stop bad actors

04:44from leveraging the technology to allow this industry

04:46and this technology to grow.

04:49And then briefly, what can we do in Congress

04:51to ensure that law enforcement has the resources

04:53to target the bad actors with specificity?

04:56That's exactly right.

04:57I mean, today, what we really have across the U.S. government

05:00is a cadre of law enforcement agents

05:03that are really true experts, power users of blockchain intelligence tools.

05:06What we really need is that cadre to grow significantly.

05:10As bad actors are leveraging AI,

05:12as they're leveraging blockchain technology,

05:13every federal agent should have access to tools

05:17and the training necessary to sort of meet this new moment

05:20from a technology perspective.

05:21Sir, thank you.

05:23Other members, I ran out of time.

05:24Mr. Chairman, I yield back.

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