Seize and Desist podcast

S&D E4 - The truth about illicit activity and analytics in crypto (pt. 2 of 2)

Author
Lo Furneaux
Marketing - Associate

“The fact that criminals now, a decade and a half into this ecosystem existing, can still successfully launder on a public ledger is kind of horrifying”

In this sequel episode of "Seize & Desist," Aidan Larkin is back with cybersecurity expert Carole House to continue their discussion on the challenges and potential solutions surrounding illicit finance in the crypto sector. 

They delve into the decentralized nature of crypto, address the persistent underestimation of cyber threats posed by state-sponsored actors such as North Korea and examine the challenges inherent in our existing countermeasures against the sophisticated use of cryptocurrency in ransomware-as-a-service models.

They also touch on the centralized nature of stablecoins, the importance of responsible innovation and the need for the crypto industry to step up when it comes to compliance. 

‍


Timestamps

02:00 | Carole’s major role in public sector policy in crypto and background 

13:00 | Blockchain analytics firms only capture a floor of illicit activity, not the ceiling

20:00 | The effectiveness of regulations in combating crypto-related crimes 

26:00 | The ongoing debate of surveillance tools and a decentralised crypto society 

31:00 | Lack of regulation and industry responsibility internationally 

35:00 | Info sharing and other lessons from cybersecurity 

‍

Resources Mentioned

‍

About our Guest‍

Carole House is a cybersecurity and risk management specialist with a background in U.S. military intelligence.

Throughout her decorated career, she has held several senior positions in the government, including Senior Cyber and Emerging Tech Policy Officer at the US Treasury; Head of Virtual Assets at FinCen and Director of Cybersecurity and Secure Digital Innovation at the White House. In these roles, she spearheaded initiatives to strengthen digital infrastructure and counter cyber-enabled national security threats.

Carole currently serves as the Executive in Residence at Terranet Ventures, where she advises start-ups and non-profits on strategies to protect against emerging cyber threats.

‍

Disclaimer

Our podcasts are for informational purposes only. They are not intended to provide legal, tax, financial, and/or investment advice. Listeners must consult their own advisors before making decisions on the topics discussed.

Asset Reality has no responsibility or liability for any decision made or any other acts or omissions in connection with your use of this material.

The views expressed by guests are their own and their appearance on the program does not imply an endorsement of them or any entity they represent. Views and opinions expressed by Asset Reality employees are those of the employees and do not necessarily reflect the views of the company. 

Asset Reality does not guarantee or warrant the accuracy, completeness, timeliness, suitability or validity of the information in any particular podcast and will not be responsible for any claim attributable to errors, omissions, or other inaccuracies of any part of such material. 

Unless stated otherwise, reference to any specific product or entity does not constitute an endorsement or recommendation by Asset Reality.

‍

Transcription

Speaker: Carole House

Industry likes to say things like, well, I shouldn't have to send information like the travel rule to a jurisdiction that doesn't have a privacy framework, and we're just creating a honeypot of information for cyber criminals. And I'm like, okay. So just to be clear, you're willing to send money to a jurisdiction that you're not willing to send information to. And, also, I should trust you to safeguard and custody financial assets, but not safeguard and custody the sensitive information that you need to collect in order to understand whether ISIS or Iran or North Korea is on the other side of that transaction. 

Speaker: Aidan Larkin

Today, we're back with Carole House, who needs no introduction. But just in case you've forgotten, Carole held two of the most senior cybersecurity positions in the world, as the virtual asset lead at FinCEN and then also as the director of cybersecurity at the White House. So Carole and I have been speaking about her move into this world of crypto assets after an impressive career in the military and army intelligence and then how the illicit finance hearings just a few weeks ago kicked off the debate again around on chain and off chain activity and the use of digital assets in the illicit ecosystem. Now we're getting stuck back in to see what Carole's North Star is. What would she like to see changed in the sector? A bit more about state sponsored hacking and obviously the upcoming US election and what that means for digital assets and asset recovery. Our podcasts are for informational purposes only. They are not intended to provide legal, tax, financial, and or investment advice. Listeners must consult their own advisors before making decisions on the topics discussed. 

‍

Speaker: Aidan Larkin

Thank you very much for taking the time to join us. Let's dive in. So that's fascinating to me because this is the bit that often does and I think this is why people do get confused and rightly so. Because if you think for the last, you know, one hundred years, there's been the people and the big bankers and there's been the corporate sort of fat cats. And it's been quite clear, you know, where the battle lines. Just like in the UK, it's like the Tories and you've got sort of either you've got either sort of party and you've got no labor for the working man and all. I even though most people will agree that, you know, the two of them are very blurred at the moment. But this is the bit that always gets me about crypto is because and, again, for those that don't maybe don't understand is that it is so decentralized. It is mob rule and not in a but not necessarily in a bad way. What I mean by that is that there aren't clearly defined categories. So on one side, you've got someone who is demanding their privacy, and they want to be able to do things in this because they can't trust the banks. And this is exactly as you talked about the sort of the sort of genesis of Bitcoin, was the current system requires trust. We're gonna build something that's trustless. And for it to be trustless, it's gotta be transparent. But I want a transparent system that gives me all my privacy that the government can't see, but I want all the protections afforded to me in a rapid way that if I lose my assets through financial crime, I want you to be able to get it back. But we can't get it back because we've got too much privacy. And it's you gotta pick a lane, and I think that and I know that one of the early topics that we bonded over was being sort of realistic about things. And when you've had the type of career you've had, when in my RC Cola version career where I've done sort of little things like but even being involved in child exploitation or online sort of protection programs where I'm doing this like the Al Capone tax investigations into these, you know, just horrible, you know, terrorism cases, sort of pedophilia cases, all of these things that we're using sort of digital assets or just regular money laundering. You do come away with a skewed perspective in that I'll sign up every day, all day long to give my identity away if it means that on an Internet point of view that we have better protections. I completely get why the sort of privacy nuts, and I say that as a term endearment. I understand why you don't wanna give away too much because we've seen it no mishandled, and we've seen multibillion dollar companies abuse it. So it's not that I'm sort of saying that I'm advocating let's all give away all of our information. But I think being the realist in the room is kind of like a, no. You can't run a dark web marketplace that enables all of this and they're not expected to be treated like against the conventional measure. So just because it's dark web and your name is Ross Ulbricht doesn't mean you won't be treated like Escobar if it's a case of if you're running a transnational narcotics and infrastructure. But I also get why the creator of an I always hear the same argument. It's like, no. The creator of email, you know, doesn't get locked up for all the bad bad emails sent. It's software. And it's like, if you deploy some open source stuff, throw it out there and say have at it. But if you're at the wheel, then that's a very, very different story. And if you're the gatekeeper to these emails and you're maintaining these servers and you're getting paid off the back of them, and and I think that that sort of segues us sort of quite nicely into the fact that we're never gonna solve all of this. There's always gonna be all of these. And I think right now, it's kind of like some people want cars. Some people want cars with no speed limit. Other people want no seat belts and airbags. And until you've actually had someone that's been hurt in a car crash or killed in a car crash, then all of a sudden your opinions will change very, very quickly. And I'm seeing the same in the crypto sector where people who've lost all of their assets and crypto scams then sort of are speaking to us saying, why can't the government do more? Why can't I get my stuff back? You know? Well, the very thing that you lobbied for is the reason why it's more difficult to get it back. And there's this disjoint, but on that sort of scary elephant in the room, I know you have a lot of incredibly sort of detailed perspective. Like, the layperson the amount of people I still see rolling their eyes when people talk about North Korea and state sponsored, and it's all a big exaggeration. This is the government would make us think all of this because they wanna just tighten controls. Can you share with us just sort of briefly the just give us your perspective on the fact that this is not a small issue. This is a very, very real and for those people that just sort of the keyboard warriors that are like, the government are just saying North Korea every time, like, and any of the state sponsored sort of things. Give us a bit of your perspective into how that affects our day to day lives or could affect our day to day lives of a close role. 

‍

Speaker: Carole House

Absolutely. And I don't view your career at all as the RC Cola for example, but I do like it.

‍

Speaker: Aidan Larkin

We're gonna stick with that. I like the RC Cola. 

‍

Speaker: Carole House

But given Coca Cola was founded in my hometown of Columbus, Georgia, actually. 

‍

Speaker: Aidan Larkin

There you go. 

‍

Speaker: Carole House

Yeah. So you're very on point for me. I appreciate that I've been in a lot of discussions with a lot of DeFi, degens. To be clear, I am not calling them degenerates. This is a term that they, like…

‍

Speaker: Aidan Larkin

And while we're on the disclaimer train, like, add to our blockchain technology, I I think some of these things will be life changing, and they are the best tools in the world. I see them as the solution to the asset recovery problem globally, but I'm not gonna drink the Kool Aid from the people that they want supercars with no seat belts, and it's just it's not realistic. There has to be I don't wanna use Gensler, by the way. I'm not quoting him. I think I said seat belts were heated. There has to just be controls in place, but and you can tell us what happens when states are allowed to do what they want without controls. 

‍

Speaker: Carole House

And Michael Hsu likes to use the brakes, analogy, so I get it. There's a lot of those, and I agree that some of this is caused because these are people that come from an engineering and tech background, so they want to impose an Internet regulatory schema and expectation of privacy onto value transfer. And value transfer is just always going to be different from information transfer. Like, we demand a different level of privacy and discoverability. There's this term that Vitalik Buterin adopted called credible neutrality, sort of adapted from net neutrality concept. And while I understand the idea of being neutral to make sure that you're not favoring, like, one particular transaction over another to allow for front running or things to ensure that you don't have that kind of bias built into the operations of your system, credible neutrality is not a credible position when you're talking about illicit finance. It's just not. Like, two hundred jurisdictions that are members of the FATF have agreed that neutrality is not the appropriate position in illicit finance, and that is not going to work in this space. On the state actor issue, I've been in discussions where I've been asked, like, how bad is it really if North Korea proliferate? And, like, why are we doing all of this just to prevent five dollars from getting to ISIS? And it was extremely helpful to me to see that, like, in their in their mind, they're seeing talking points by people that have mentioned that, like, as low as five dollar donation to terrorist groups are being made, and part of those metrics highlighting why, like, low value transactions can still be extremely important in certain illicit activity and group. And I was like, the scale of the problem is not five dollars going to ISIS. And North Korea, the White House highlighted last year that over half of its proliferation regime is being funded through crypto heists and cybercrime. Like, that is a huge metric, and there's a reason why North Korea and Lazarus Group shifted from mostly targeting Swift and banks because crypto, DeFi was easier to hack, and it's easier to wander through. Like, both of those things make it attractive. If it was just easy to hack and penetrate but hard to wander through, it wouldn't be an attractive mechanism, which is why setting up this incident response capability for sharing illicit finance is so critical. For other state sponsored stuff, like ransomware it's tough to discuss how much of it is state sponsored versus state enabled. Like, most ransomware criminals are Russian, but they're not necessarily Russian state actors. Just Russia has created this environment that just enables criminal activity. As long as those cybercriminals do not target Russians, then, I mean, there's instances of, like, a lot of this the ransomware malware will actually have, like, hard coded into it saying, like, if the operating system, you know, is in the Russian language, do not encrypt. It's just sort of this detente and this complicit environment that they have created and fomented. And there are other state actors and cybercrime groups that have been associated with ransomware, whether in China, Iran, like all the big four are associated with this. Like, these are not victimless crimes. Like, the scale of this is huge and massive. Ransomware rose to the level of national security threat, not because BEC isn't critically important. Like, I love business human compromise fraud as such an important crime that is devastating to businesses and people because it's an authorized transaction. So normally, insurance, like FDIC insurance, doesn't end up covering it, and the bank doesn't cover those losses as part of their fraud losses in most cases. So people and businesses are devastated by BEC. BEC isn't taking down pipelines. Ransomware is a disruptive cybercrime. It means that, like, it stops operations. So that aside from just ransomware being despicable, the fact that it is disruptive is why it creates the sense of urgency to extort this payment. Like, because they're targeting critical infrastructure, infrastructure that provide critical services. 

‍

Speaker: Aidan Larkin

Hospitals. 

‍

Speaker: Carole House

Exactly. Like, they're targeting hospitals. They're targeting educational institutions. They're targeting pipelines. Like, it's wild how much of a threat and how devastating this crime is, and that cryptocurrency has absolutely enabled the rise of sophisticated ransomware as a service economies. Like, the idea that you have as a service, like, instead of software as a service or infrastructure as a service, you have ransomware as a service. 

‍

Speaker: Aidan Larkin

We're almost getting numb to it. It should seem absurd. Like, it should and I think that that's where crypto sort of polarizes people because I guarantee some people still sit back and go, I don't get it. And most people don't get investment banking and most people couldn't the man on the street couldn't describe what happens behind the scenes at a bank bank and, like, no inter banking, just activity. Normal people don't get that, but they don't have to because there's a big regulatory wrapper around the outside. And they say, well, you don't have to know how your airbag deploys. It just does. You don't need an engineering degree. And it's because of those and I think that's one of the advices we give to people is that if you're gonna participate in the sector, whether it's building a business, investigating it, being involved, you have to accept that it is that sort of the Wild West cliche, which I do think is relevant. It's it's Wild West because there is opportunities for development and growth in sort of new and exciting markets. But it's also if you fall over and break your leg, I've said it a couple of times, it's the Daniel Day Lewis, there will be blood. It's like, no. Grab a saw and sort of drag yourself back home. That's it. There's no keyhole sort of surgery. Or the Gold House is a good example. It's only because it's so like, we saw the OECD precious metals know the amount of human trafficking and theft, you know, related to precious metals and what can the industry do to better track so that you don't have unmarked gold bars going around the world. And the difference is the reason that doesn't reach the same level of urgency is it's just not scalable. And I think that that's the bit that people sort of often don't conceive or understand. Like, to ship twenty tons of gold leaves a big footprint, moves slowly, whereas you can do 1000 x more transactional volumes in a day with a laptop. Like, I was even looking at the recent article. Is it BlackSprint? I always get the name pronounced wrong. The dark net market that it's just now been openly advertised in in Moscow. And it could be that, you know, the billboards were hacked. But, again, there definitely is that appetite. I don't think that people realize that, you know, some of the West is just seen as fair game. And we talk about no pig butchering. We talk about these scams and the good work that's being done there and the sort of fusion centers and these centers of excellence sort of across the US with trying to make it easier for government agencies to be able to access the tools and support and training but again what worries is me is that people still don’t get the scale and as you pointed out at the very beginning of this, if we have some the sector saying, “it’s actually not so bad”. At the same time, there's other parts of the sector going, “oh my god. It's insanely on fire”. It almost becomes like party politics and quite partisan again. It's like, pick a side. It's like, well, why can't I not just stay in the middle and stay? I think we were gonna say, well, it's like the uncomfortable middle and all of that and the sort of the take take the moderate view of, yes, it could be good, but right now there's some horror stories and can, like, we reach a consensus of some common sense as opposed to wildly it reminds me of like Brexit in the UK. You know, picking a side, going, what if both sides are wrong? What if there's actually a third solution that no one's considering right now? What do you think is the future direction of travel for this with your magic wand? How do you think this starts to resolve itself or is it going to take would I be the doom monger? Is it gonna take some horror stories and some major sort of terrorist atrocities funded by crypto that actually will really, really focus the mind and get the attention it deserves. 

‍

Speaker: Carole House

Right. Because, of course, I I feel that a lot of those horror stories have already happened, and they're just not reaching. And it's funny, like, I've often characterized it to colleagues as, like, forcing people to put these into a sentence and being like, okay well, when I would propose certain things in some forums that would often earn me a label of being a fascist or pro censorship on, like, Reddit forums, which would make me sad because I was saying, like, censorship of North Korea. Like, give me a break. But okay. Proposing, like, what if you guys just stopped validating these transfers? And in my view, there's obligations beyond just the application layer for things like sanctions, but that's, I know, a whole fun separate issue of compliance. But ultimately, like, I wonder if, like, trying to put things into sentence to say, like, okay. So you're okay with, like, child and sexual abuse material. Just just checking. Like, you don't wanna censor the people in the darknet market marketplaces that are, like, administering this stuff. You're cool with that because you want all these other good guys to be able to conduct activity with no costs or consequences or inefficiencies. And this is where, like, this ecosystem, basically, whenever I'm in discussions, I feel like they want me to justify, like, the existence of the Bank Secrecy Act in the US, which is our anti money laundering framework, or basically justify the existence of things like FATF. And even though I'm okay with sitting in the room and doing my best to, like, try to convey to them the scale of these national security threats, I won't lie. I'm also frustrated that I'm, like, having to be in a position where, like, I'm having to justify all of foreign relations and foreign policy and like why have…

‍

Speaker: Aidan Larkin

You’re like the Greta Thunberg of environmentalists going “it’s a problem” and “no, it’s not. Shut up”. 

‍

Speaker: Carole House

But, like, they don't understand why North Korea is a problem. And, honestly, the potential of nuclear proliferation isn't the thing that normally strike a chord with them. It's normally the human rights violations and abuses that the regime is absolutely, absolutely guilty of. That normally strikes a stronger chord with them, which is interesting given that a lot of them like to purport that, like, the reason for wanting the anonymous free flow of money is for human rights purposes and and and then not understanding why, like, I would be more okay with Tor and the darknet, like, existing and being okay because it does allow for things like political dissidents in, you know, certain jurisdictions to be able to get access to information. Like, there's a reason why we don't outlaw the dark web in the US. 

‍

Speaker: Aidan Larkin

It's like yeah, like you said, it's like you know donations to people as well and sort of in regimes where other people would otherwise have their lives threatened if they were just doing it through SWIFT or Western Union. Yeah. We're definitely aligned there. What do you think in terms of let's imagine you're at the illicit sort of hearings, the finance hearings, and you've got the floor to yourself now. Like, what is the advice to practitioners? Like, the people that are in this space right now. Because I'm often concerned that we keep sort of saying the same thing and it's like, no. You educate yourself, get awareness. Is there more that people can do or is it simply that it's just such a big issue, we just need to keep debating and discussing and talking about it more? What would your advice be to people? 

‍

Speaker: Carole House

For the government authorities, understanding the education piece is important, but to the point of where they should then feel empowered, to call out entities in industry that are not being responsive or receptive to, like, understanding that compliance is absolutely possible. I'm the chair of the tech advisory committee to the CFTC, and we just did a huge report on DeFi. And in it, we highlighted the fact that most DeFi is actually still quite centralized along many dimensions. We also highlighted that there are a lot of different dimensions and aspects of DeFi and why it's not a one size fits all to regulate it. But we also mapped out the DeFi tech act and highlighted examples, illustrative examples of, like, technical compliance features that are possible at every single layer. Understanding that when people say that, oh, it's impossible for me to know who's on the other side of the Internet, that they're wrong and that that is not a truthful statement. So getting educated to be able to call out the nonsense that's being thrown at them is helpful, but also drive meaningful operational change and partnerships. Find the good actors and basically tell them, like, okay, here's the place that we're going to do this operational info sharing, foment the kind of either nonprofits or partnerships that need to be created and really stoke industry to step up. 

‍

Speaker: Aidan Larkin

They're gonna build the tools that they are going to build. It's the DeFi industry have the best people to actually tackle illicit finance that’s, you know, misusing their sector. You need that expertise to, you know, work with government and build the tool. 

‍

Speaker: Carole House

Exactly. Like, in the traditional space, like, I think the US, we say that we have, like, four hundred thousand financial institutions. It's because, like, the regulatory perimeter is critically important. Industry plays a huge role in that regulatory perimeter. Industry is the only way that we can scale AML frameworks, whether it's in TradFi or in crypto. And in crypto, industry is especially well placed to do it because this information, it's all digitized. These players know each other. There's like, because of the public records, the public ledger, and transparent nature of this activity, the regtech firms can see where these flows are going. There's no reason why there isn't an instant alert across all hypothetically responsible actors to know when illicit proceeds have gotten to them and that they can't get that indicator the same way that cyber indicators get shared and then know to, like, stop those funds, or to otherwise mark them for for at least further investigation. The fact that partnership has not existed, I know that there are some efforts currently that are trying to launch like a crypto ISAAC. Like, I'm not known for patience, but I'm not satisfied with the timeliness that it's taken for these kinds of efforts to exist. Government was telling this to industry for at least five years and for much longer than that in some agencies. Like, there's really no excuse at this point. And then I really get frustrated when industry likes to say things like, well, I shouldn't have to send information like the travel rule to a jurisdiction that doesn't have a privacy framework, and we're just creating a honeypot of information for cyber criminals. And I'm like, okay. So just to be clear, you're willing to send money to a jurisdiction that you're not willing to send information to. And, also, I should trust you to safeguard in custody financial assets, but not safeguard in custody the sensitive information that you need to collect in order to understand whether ISIS or Iran or North Korea is on the other side of that transaction. Okay. Do you see how these arguments do not compute? When institutions are doing business with other exchanges that are written about publicly to be noncompliant, are known by the RegTech companies to be noncompliant, like, we need to hold accountable and bring more enforcement against these guys. And I'm not saying that we need to bring down exchanges. Like, enforcement should be early and often. It's supposed to be sector shaping, not sector breaking. It's a mixture of sustained pressure campaigns of civil and criminal enforcement actions prioritized in the right way against the most egregious violators. That's what's needed. That's what I hope that the practitioners will consider taking, telling industry that it is time for them to step up to drive these partnerships now. It was this yesterday. Like, this should have happened years ago. Government needs to be a part of promoting the development of that RegTech and supporting research and development and the kinds of building blocks that can help to combat illicit finance in this space, like digital identity and other things that we can get into some other time.

‍

Speaker: Aidan Larkin

Yeah, that’ll be for the next episode. I fully know that this would be one of those episodes that we could do this for about two or three hours. I mean, we haven't even got another coffee or a tea or a beer yet. The last bit, because I'm conscious we've taken up a lot of your time, and thank you again so much for joining us. There's a bunch of stuff I wanna cover off that we'll not we'll not get time. But I think that we've talked a little bit about the sort of what we think the the sort of the solution is and how the industry is sort of the only way that we sort of solve this at scale. I mean, what do you think in terms of the around the sort of the enforcement sector? We're trying to move the needle on the one percent from an asset recovery. And we've talked a little bit about, you know, that this sort of epidemic of pig butchering because it's capturing the public imagination, because of the very real, you know, human stories. It is the voters that are being affected by this, and this is driving. Do you think with the latest sort of presidential election sort of that's gonna be at risk that will be heating up, how much of a role do you think that sort of, you know, crypto, America first, getting assets back, this global battle that we're gonna be seeing, how much do you think that'll play a part? And will there be big reversals that you would predict or things that might surprise people that weren't on the cards if a certain person takes over? 

‍

Speaker: Carole House

That's a great question. Super, yeah. Sorry. It's a great question. 

‍

Speaker: Aidan Larkin

This proves this is all unscripted by the way that no one sees we're gonna ask because I wasn't even planning on asking them. No, but I suppose not to put you on the spot, but what is the potential sort of direction of travel for it? Because the US plays such a big part in sort of, you know, the global standard setting and the global reaction to things. 

‍

Speaker: Carole House

Yeah. And it's a totally fair question, and this has come up in a lot of fora with including recently when I was at Japan for the fintech festival. There was a lot of speculation about what people think. So what a Trump term two or a Biden term two looks like. I will say that former president Trump was not known for being pro crypto when he was in office. He and secretary Mnuchin were were not known for being pro… 

‍

Speaker: Aidan Larkin

But then he had those sweet NFTs that he brought out. 

‍

Speaker: Carole House

Yeah. Exactly. And so my understanding is that he has been shifting his views on this space. And, honestly, other huge proponents of his, whether house republicans as well as, like, Vivek Ramaswamy who was a presidential candidate on the republican side for a while here, have been very pro crypto. And for the first time ever, central bank digital currencies have become a presidential, like, race talking point. It's not a key one, but a lot of people have stated, like, they're anti CBDC on the Republican side. So it's interesting given the way that Republicans are feeling about cryptocurrency, which so far the legislation that they've been pushing more pro crypto on the Republican side, more like highlighting that, yes, the illicit finance issues and risks have been overblown. Some republicans looking at, okay, actually, like, it is an issue, but we think that the public nature is a really good risk mitigating factor, and here's the steps that are needed. So I think it's possible under a Republican administration. I hope that under a Republican administration that they will support law enforcement tools and capabilities to be able to enforce stuff in crypto given that they stated that the public nature is so important that then that should mean and hopefully lend itself to supporting going after illicit actors and proceeds. I don't know because Republicans also don't tend to support increases in government resourcing and funding. Of course, that tends to come from the house and not from the president. Yeah. On the Democrat side, I think that absolutely there's a huge focus on combating the illicit activity in crypto. Some voices to the point of vilifying all crypto because of the amount of illicit activity in it but absolutely like on the Democrat side you’ve seen a desire of increasing resources and increasing authorities to be able to go after this space. So I think that it probably takes a little bit of a different flavor on both sides. I don't think that either side will say illicit crypto is bad. And, I mean, under president Trump was when we did pass the FADA standards. 

‍

Speaker: Aidan Larkin

Well, you see, that’s my personal take on. My personal take is a lot of it's gonna be driven by the dates of people's mutual evaluation from an FATF point of view. The crypto one's a funny one because when we say crypto, I mean, we're talking about an entire sector. Look, it's like saying the Internet. And no one's saying that they don't want good crypto. No one's saying they don't want good infrastructure and all the things that it can bring in digital identity. I completely agree with you. I think that's the long term sort of direction of travel. The only way we can sort of do this, you know, sort of safely as well and also satisfy the KYC and ML controls. But it's almost like I also think the ROI on crypto activity is so high that any government, like, at a mayor level, at a state and federal level, people are sitting on gold that they don't know about or oil that they haven't drilled for. For. Like, the UK has had its first billion pound seizure. I mean, there's never been a billion pound seizure in any other asset category. And now it's like it's just a single case involving crypto. So I think we're gonna see that natural this virtuous cycle of lots of money going back into the pot, more trading, more cases detected, more ROI. And then, actually, if the sector jumps on that, as you said, and the industry takes control of that and actually drives the bus a little bit, then it's almost, you know, cleaning up its own mess as it goes and sort of self policing. And I think I've heard of a lot of that at the various events around the world. It's always been the sensible heads in the sector going, if we don't like what everyone's saying about us, can we just change the narrative, and can we go and do this ourselves? And it's against that my last my second last question, my last question is gonna be about just recommendations for other things that listeners should. Other podcasts, other books, other other good sources that you that you regularly apart from this podcast, of course. Are there anything else that's out there? But the one bit that we've just we've summarized this whole your perspective on this sector, and there's so much that we can unpack in further sort of chats. You know, something like Bitcoin, people can wrap their heads around it, you know, with the inherent sort of value and an intrinsic value in the sense of the cost of production and electricity. And it's, no, it's propped up by its market, and it's just that's the way it is. Now why does a Hermes backup of value? It's not worth thirty thousand dollars. It's probably worth two or three is the actual production cost, but it has a market value. So I accept that Bitcoin has a market value and I accept that there's no one at the wheel. That actually gives me the trust. But when I look at the stable coins, they're backed or pegged. They're private companies, like registered in an offshore jurisdiction usually with people at the wheel that if this all spectacularly went wrong and everyone was criminally charged, something could collapse with literally they could have a major effect on a world economy. Why do you think they're not being, like, examined, like, a much faster and much quicker than they are currently? 

‍

Speaker: Carole House

So I agree. Like, there's nothing that inevitably makes them need to remain pegged to the dollar. Like, they could change that. They could also collapse just like we've seen other stablecoins do that. And you're right. With central administrators come, like, specific entities and people that especially can be guilty of certain like, you get different challenges with centralized specific actors versus many decentralized ones. But for this, it is a major issue and a big question about why they're not being examined, or enforced sufficiently. Like, I me not knowing exactly what the government's doing internally, we're certainly not seeing publicly evidence of goodness being driven across many of these stablecoins. There are reports in some cases of, like, freezing certain assets and things, which just demonstrates the benefit of having a central administrator when you know that assets are illicit. But, ultimately, like, there's still a lot of expressed concerns by many in industry about some of these that have massive failings. And this is why we need to put in place the frameworks early, because if you bring them later, new frameworks and examinations can end up causing a massive market shift and collapse of something that probably should that shouldn't have been allowed to grow that much in that way. 

‍

Speaker: Aidan Larkin

And it is that responsible innovation. I sound like a naysayer, but, look, I'm all for it. I'm just a realist. I accept that where there will be an element of money laundering within real estate. There will be within art. There will be within stable coins. There will be within, you know, decentralized sort of crypto there there will always be crime in every it doesn't matter what it is. Magic beans, there will always be some sort of attempt of an exploitation by illicit actors. That is just the world we operate in. And I think what's been wonderful about this chat is that you haven't sort of put me off in the sense of I'm maintaining my healthy realism. I'm not gonna call it skepticism or optimism. I'm gonna call it realism because the fact is when it goes wrong, when people say to me, oh, it couldn't fail and these things couldn't collapse and it's like, look at the HSBC charges, you know, Sinaloa Cartel. Like, the most biggest regulated infrastructures will still be abused when people want to so I would much rather slightly over regulate and make people pay a higher entry price into trades and transactions and then still have a safer space. And I think that that balance, I'm sure I'm sure that debate's gonna rage on. And I think also to sort of finish that point, I'm also very keen to say that we are in the first decade of this. Like, I think we are all holding the sector to a very high account because of the potential for going. If I build a two hundred miles an hour supercar, people are expecting me to sort of know make sure I do it responsibly. But also us being realistic about the fact that probably took banking a century to get into a decent position. And even then, only years ago, Danske Bank, we're still seeing major money laundering cases emerging from the most sophisticated and mature compliant frameworks. So, again, that's why I'm a realist. Carole, as a closing thought, is there any sources or resources, podcasts? What do you recommend people go and sort of check out if they want more information on your world of sort of digital assets and that ecosystem and where to get some some sensible advice or things they should check out? 

‍

Speaker: Carole House

Absolutely. My two favorite books are investigating cryptocurrencies by Nick Furneaux, like I mentioned, but also The Currency Cold War written by David Birch. So investigating cryptocurrencies is much more practical from an understanding what the heck is blockchain, like, what is crypto, what is the information that's visible, how would I conduct an investigation and trace financial flows. That is a very practical book. To understand the more strategic implications of, like, the future of money and why this matters. I don't agree necessarily with everything that David says, but I agree with most of it, and I find him deeply hilarious. But it is a fantastic book that walks through the evolution of digital money and, like, what the potential future could be of different forms of digital money. I really, really love that book. He's a guy who got into the space from digital identity. A lot of people are getting into identity from crypto, but I love identity people that are getting into crypto because they bring a lot of expertise and understanding. Like, in one of his books, I think, was called Identity is the New Money. That was before he wrote The Currency Cold War. Like, he's been a digital identity expert for many, many years, and I love that he's playing in the crypto and CBDC space. On a podcast, I loved the Lazarus Heist. It is fantastic. It's just a fantastic podcast to listen to understand North Korean cybercrime and money laundering and their use and reliance on cryptocurrency. For other podcasts that are more industry driven, if you wanna hear and understand what people in the industry will say and perceive and push, I like to listen to some of the views that are a little but and a lot bit counter to my own. I think that Unchained by Laura Shin is one that I definitely listened to. 

‍

Speaker: Aidan Larkin

I think I actually picked up a second copy of her book at the Links event that you spoke at. That's where I met Laura the first time. 

‍

Speaker: Carole House

Yeah. And I do really enjoy her book, The Cryptopians, I think. Yeah. Yeah. Love that. 

‍

Speaker: Aidan Larkin

I'm looking at it on my shelf right now.

‍

Speaker: Carole House

And then Bankless, the podcast. I do listen to that. The views on Bankless do tend to be they're a lot more from, like, the DeFi advocates, definitely DeFi advocacy community. But it's very helpful to know and understand what it is that they're prioritizing, what their messaging is. Yeah. It does. So I'd say that those are some of the ones that I listen to regularly for crypto specific purposes. And then, of course, Asset Reality's new podcast. 

‍

Speaker: Aidan Larkin

You're too kind. You're too kind. Listen, I think that this is gonna be we're gonna be sitting here in a couple of years going, Carole, fifteenth time on the show. This is what we're doing. And, yeah, I have a funny feeling we'll be unpacking things a lot over the next couple of years. And also with the sneak preview that part two of Mr. Ferneaux's book will be coming out next year. There's no such thing as cryptocurrency crime. I am honored enough to have got a small section in the book sort of talking about seized assets. So it'd be interesting to get your take on that, when that comes out. Still the only book in the world on the topic as Nick regularly reminded me. Carole, thank you so much for taking your time today. I think you're just back from Tokyo as well. So, yeah, you've been hopping around the world. I look forward to seeing you at Consensus. I think that'll be the next time I'll see you in person. So, thank you so much. Go back to the home of Coca Cola, and look forward to speaking to you again very, very soon on future shows. Cheers, Carole. 

‍

Speaker: Carole House

Wonderful. Thank you so much. Cheers. 

‍

Speaker: Aidan Larkin

Join us next time as we continue this thread of absolute icons in our space. If you don't know who Erin West is and you don't follow her on LinkedIn and you work in the asset recovery, financial crime, ransomware, sort of just that overall sort of sector. This is an incredibly exciting episode for me just because I followed Erin for so long now and the work she's done around, raising awareness of pig butchery, raising awareness of how victims are being just left to suffer incredible initiative Operation Shamrock. So we'll be diving into that next time and speaking not want to miss. I'm Aidan Larkin and it's been a pleasure having you listen to Seize and Assist. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. Views and opinions expressed by Asset Reality employees are those of the employees and do not necessarily reflect the views of the company.

Want to learn more?

GET STARTED