The Risks Related to Virtual Assets

The Risks Related to Virtual Assets – Transcript

Don Fort: [00:00:00] All right. Good afternoon, everybody. My name's Don Fort. I'm pleased to be moderating panels today on digital assets and be joined by a star-studded panel here this afternoon. Just want to start by giving a big thank you to AML RightSource for hosting us. As most of because you're tuning in here this afternoon or this morning, wherever you are they do a great job with this type of ed educational webinars.

I've been honored to join a few times before. I know my fellow panelists have as well, and just do a fantastic job of getting the word out in these webinars. So really honored and thank AML RightSource for having us. Really excited about the topic here today for a number of different reasons.

So we're. Really privileged to have what I would say, two crypto legends, not one crypto legend on the webinar, [00:01:00] but two. So we are very pleased to have Kirk Piper, the director of Cyber Crimes with IRS Criminal Investigation. Kirk is a longtime agent of IRSCI and has really been at the forefront of IRS CI's work in cyber crimes, really since the inception, almost a decade ago, or a little bit le over a decade.

So Kirk's out there, he is talking about what IRSCI does, but is also behind the scenes, making sure that all the agents have what they need and everything functions properly. And that's really why one of the reasons that leadership is one of the reasons why Ira CI has been so successful in this area.

So thanks and I'll let Kirk introduce himself in a minute. We also have Eric Red Board who is with TRM Labs and is the global head of Policy and Government Affairs. Most of you probably know Ari, you've probably seen him on all over the world on [00:02:00] LinkedIn. One of just an amazing contributor there.

And I know personally, I think probably a lot of people on this webinar appreciate the substantive updates Eric gives as well as a personal touch. And areas most of had a long and very successful career at the government, both as a an A USA and the Treasury Department. And is really just from the outside government perspective now at the forefront in this crypto space.

And, I know that TRM Labs does a lot of work with the agencies supporting the agencies. We're going to talk a little bit about those partnerships today, but couldn't be pleased and we're pleased to, to welcome Arian and Kirk to the webinar here today. My job's easy. I get to just toss out questions and help generate the discussion.

For those of you who don't know me. Don Ford. I'm the Chief Business Officer with IVX, which is another company that works with law enforcement agencies and tax authorities to make their job a little bit [00:03:00] easier. In my former life, I was with IRS criminal investigation, spent almost 30 years and retired as the chief of IRS criminal investigation in what seems like decades ago in 2020.

But it wasn't really that long ago. Again, looking forward to a great discussion. I always, I've moderated and spoken on a number of panels dealing with crypto digital assets, virtual assets. And by the way, since we only have an hour today, you'll probably hear each of us refer to those three terms.

But it's a rapidly changing space even in relatively stable times, it changes much more rapidly than I think traditional finance. But if you look at, I was thinking about it this morning, if you reflect back where we were six months ago. A year ago to where we are now, there's just so much has changed and we're going to talk a little bit about that.

Really excited to get Ari's perspective on, on some of those things. And I'd say we're [00:04:00] covering about a week's worth of material in an hour. So we tried to pick general topics that we thought would be germane to the audience that we have. I know we have a lot of bankers and financial and a ML professionals.

So really just hit on high level topics like some, what are some of the risks associated with the digital assets. Kirk's going to talk about some of the successes in the, on the enforcement side, some of the challenges and what lies ahead in the future. Talk a little bit about the collaboration with private industry that's so critical, not just in these digital asset cases, but government wide really, and the success.

Talk about some of the emerging trends that, that law enforcement is encountering in these digital asset cases. And then just kind of looking forward to the future and what we think the future holds in this particular space. I will say as moderator here, if you've got questions, please drop them in the in the [00:05:00] q and a section of the zoom.

I will be doing my, best to moderate those, and I'll see how we're doing on time and hopefully drop in some of those questions as we go. So Ari, why don't you just do a quick introduction of yourself. Then we'll do the same with Kirk and then we'll kick into some of the questions.

So Aria, I kick it over to you.

Ari Redbord: Absolutely. Thank you Don. Thank you for the introduction that was beyond I, I was waiting for you not to intro yourself because I was a little worried that wasn't happening. And like you talk about legends in our space and in law enforcement I remember you as chief of IRS criminal investigation very, well.

And it's really cool when I got the invite to join this group, I was like, absolutely. Tell me when and where. So thank you. The other thing I was struck by is the blue blazer move that we're all doing today. I feel like we look very similar, although the hair for both of you guys is just like too perfect for me to even think about being able to replicate.

As Don mentioned, I'm Harry Red Board. I'm the global head of [00:06:00] policy at TRM. Spent about 11 years as a federal prosecutor at the US Attorney's Office in dc part of the Department of Justice focused a lot of that time on the issues we're going to talk about today, national security and money laundering.

The intersection there, what I call threat finance. And that's really what we do today at TRM working closely with partners like Kirk at I-R-S-C-I, F-B-I-D-E, a secret service across the US and global law enforcement to stop bad actors from engaging with the crypto ecosystem. And we'll dig into it all that means and really looking forward to it.

Don Fort: Great. Thanks, Ari. Kirk. Kirk, can you introduce yourself?

Kirk Peifer: Yeah, thanks everybody. Definitely very excited to be here. Appreciate the invite from AML RightSource and Don and Ari and the whole team. Kirk Pfeiffer, director of Cyber Crimes for IRS Criminal Investigation Division. I've been an agent for about.

23 years in various capacities. Been with our [00:07:00] cyber crime section for almost eight years now. So it's definitely been a interesting experience. A lot has changed in eight years, I would say. It's almost like being in the crypto space is almost like dog years. So eight years is more like 56 years I think.

A lot of evolutions, a lot of changes, a lot of interesting advancements in technology and obviously all those things drive what criminals do and how they do it. So excited to talk about some of those things.

Don Fort: Great, thanks for that. Kirk why don't you kick us off, just talk about, again, you've got the benefit of Ben being there for so long and really seeing the apparatus grow within IRSCI and I think really law enforcement wide.

So can you give us an, a high level overview of what you're seeing in, in, in terms of the state of enforcement for IRSCI both from tax and illicit finance, money laundering areas?

Kirk Peifer: Yeah, absolutely. So really our job, in my [00:08:00] opinion, and I think a lot of folks agree with this, our job is to protect the integrity of the tax and financial system.

So that really puts us in the middle of some of the most complex, most significant financial crime investigations worked, at least in the US government if not globally. So we've been involved in anything from Liberty Reserve, which is going back 10 or 12 years, all the way up and through cases like Bitcoin, fog and some more recent decentralized finance investigations involving fraud and hacks and criminal conduct.

So in our world, we're really focused on digital payments and cryptocurrency facilitated crimes when it comes to cyber crime. So it means that we're organized a little bit differently. And our headquarters function, we support all field operations, so across 20 different field offices, and we have cyber crimes and cryptocurrency.

Crime personnel in all 20 field offices. We have two cyber crimes units and they predominantly work a lot of the most sophisticated cases you've probably read about. [00:09:00] Our job is to really support those folks, make sure they have everything they need from a training perspective, from a technology perspective, and make sure we obviously maintain relationships with folks like ARI and TRM and other companies.

So I think it's really challenging for us to ensure that we maintain a foothold on what's going on in the space from an emerging technology standpoint. As I mentioned earlier, technology advances so quickly that obviously impacts this space and our ability to investigate these crimes. So that, I would say that's probably one of our bigger challenges for sure.

As far as other things we're doing, we're obviously investing in our people a lot. because those are the folks that really make the investigations happen. It's a challenge as far as from a training perspective, as I mentioned earlier, to consistently do that. I think the cyber crime and crypto crime space [00:10:00] probably enhances that challenge more so than other areas.

So there's definitely a lot more involved than engagement with private sector folks and folks in academia to, to help stay at the cutting edge of what's going on. because as we all know folks that are maybe on the opposite end of the table, the A ML spectrum that are the ones we might be putting together, those BSA reports on are always reinventing the way that they're involved in committing these crimes.

So it's definitely a, cat and mouse game, if you will, in that regard.

Don Fort: Yeah, I think, and just to reinforce that point, I think it's a lot of the cases that IRSCI has been involved with for the last 11 years and. In a lot of ways punching way above the above your weight,

It's about 2000 agents versus some of the larger agencies and just really, I think, at the forefront of some of those so amazing work that's been done there. [00:11:00] Ari you've, seen obviously firsthand you were there, I think early on in the crypto digital asset cases as a prosecutor working with agents.

So you've seen it from that side. Now you've been on the outside trying to work shoulder to shoulder with the agents. Similar question. How do you see it? You're also actively involved in a lot of different working groups as well as working for the agencies. From a high level, particularly in the changes that we've seen for the last couple months, where do you see the current state of affairs in crypto?

Ari Redbord: Cool. Yeah, let me kind of take that in a couple parts. I think first let me just do really quickly explain how we maybe work with law enforcement agencies like I-R-S-C-I. So we're a data provider at TRM essentially, and what we're doing is we have threat hunters that are assigned to really every threat category.

So we have someone full-time assigned to ransomware actors, someone full-time assigned to child sexual abuse materials, terrorist financing. We have [00:12:00] Nick Carlson, former FBI, who leads our work on North Korea. And what they're doing is they're building attribution, they're building data, they're associating those alpha numeric crypto addresses with real world entities.

So we have someone communicating with a terrorist financier and we ultimately are able to attribute a cryptocurrency address. We then use AI and machine learning data science to build out a huge database of. Addresses that are associated with different threat categories. We're then providing that data to people like Kirk who then take that data and investigate fraud and financial crime within the crypto ecosystem.

So they take that address that we've associated with a terrorist financier. And they use our tool to track and trace the flow of funds ultimately to a cryptocurrency exchange where they're able to use their tools, right, legal process subpoenas and beyond to get information on who the individuals are [00:13:00] behind there.

And they're building these extraordinary cases. And Kirk will talk a bunch about those, but those are cases involving child exploitation. They're cases involving the largest hacks in history, We talk about the Bitfinex hack or this, the recent hack against the buy bit exchange by North Korea, and they're investigating these cases using that data and essentially then they're seizing back potentially billions of dollars of crypto assets.

I know we'll get into this in a bit, but this administration recently announced a strategic Bitcoin reserve, which already has been in large part funded by the work of IRSCI and other US federal law enforcement agencies that have seized back. Cryptocurrency that are the, illicit proceeds.

So that's like just one really tangible example. But what I think is so extraordinary is there is a cadre of investigators really globally in the, in IRSCI in particular has many of them [00:14:00] who are doing this work and seizing with, tools and limited resources, billions of dollars that will ultimately go to the strategic bitcoin reserve that will ultimately be returned to victims that will all ultimately be used to fund sort of law enforcement initiatives.

So I know we're going to build on hopefully I think I said a lot there, but we'll build on a lot of that. But I think it's just like understanding what we do from providing a tool set to what they're doing out there, investigating to ultimately seizing back funds, which is a huge priority of this administration right now.

Don Fort: Yeah, you talk about there's a lot of discussion, and this is a completely, what we're doing here today is a completely apolitical discussion, but you talk about it regardless of administration. You talk about the public talks about what's a return on investment, We're paying all this money for these investigators and agents look no further.

Like the, amount of money that IRSCI and the other agencies have been able to seize. I know at least for [00:15:00] IRSCI dwarfs their annual budget literally pays many times over for all the employees, all the equipment and everything. So it really is a that asset seizure part, that confiscation of the proceeds from the criminal is critical to these type of cases.

Ari Redbord: Don, one other thing real quick, and I think it is often lost on people that I talk to because it's complicated. But like you have IRSCI and obviously you have big IRS civil that a lot of people associate with he is a tax collector, That's, it's a tax authority.

It's one of the, it's the leading tax authority in the world, but within IRS is this relatively tiny compared to other law enforcement entities group of the best financial crime investigators in the world. And they got into crypto long before really anyone else did because they had that financial crime background.

And you can use tax as a hook in every single case. So [00:16:00] it's strange to a lot of people that you'd be talking about IRS involved in child exploitation cases, terrorist financing hacks, North Korea, but that's really what IRSCI has become because they partner with other law enforcement agencies, often as these best financial crime investigators in the world.

And tracing crypto has become in this new digital age, the way we investigate fraud and financial crime.

Don Fort: Yeah, and couldn't agree more. It's one of the most unique structures certainly in the US law enforcement apparatus to have this strong the strongest financial investigators within this massive civil organization.

Yeah, couldn't agree more. And Ari, the you hit on the strategic reserve a little bit. These are topics I know that are Kirk probably won't be able to comment on, but I know like in the, there's a couple that come to mind. You mentioned the reserve, which makes sense. And there's a lot of the CS funds [00:17:00] go into that.

But a lot of topics, just about much more of a crypto friendly administration. We we've got the issues with the 10 99 da, Initially, at least in the world of tax administrators and the parlance of the tax world information reporting, a 10 99 DA seems like it's going to lead to more compliance in the tax world.

That looks like it's going to be off the table now completely, but just again, the like, where we let off and where we are. Just months after this new administration, can you comment on some of those high level changes that we're seeing and may see down the road?

Ari Redbord: Yeah I think it's a really exciting moment for digital assets in the US and also frankly for compliance.

And I think it's mostly good. One thing we've seen this administration immediately come in and start to push towards legal clarity for digital assets. And for that, what that means for a lot of people is just some sort of market structure legislation that says, Hey, these are securities, [00:18:00] these are commodities, this is who's going to regulate.

And while that's why that is important for anti-money, the anti-money laundering world even in a world where every crypto business essentially in the US today is a money service business. Any centralized exchange broker custodian is because I think legal clarity will cause more and more businesses to build with compliance first in, in the US There are a lot of people on our call who are deep in this crypto compliance space.

There's going to be more businesses that are building that need compliance professionals that need to have policies and procedures that need to use tools like TRM that need to respond to law enforcement subpoena, So I think that what we're going to see with legal clarity from this administration and this sort of digital assets support of the digital assets ecosystem is in fact people building with compliance first in the us And that's what I'm excited about.

We have a crypto working group at the SEC. We have a crypto czar at the White House. We have a working group writ large across the inner agency [00:19:00] now, which treasury is a part of. So I think that like we're marching towards legal clarity with the executive order from the White House, with the SEC, with the CFTC getting together.

And we're going to continue to see that work. And then I think in parallel, we're going to continue to see the great work that Kirk and IRSCI have been doing, and across the interagency of going after, after actual bad actors in the space, The illicit underbelly of the overwhelmingly lawful crypto ecosystem.

Continue to go after dark net markets and scams, big butchering type activity. And we'll see that I think across the interagency, but obviously IRS is just IRSCI is so steeped in that, that we'll continue to see them really lead the way in many respects.

Don Fort: Yeah, that's great. And I think Kirk let's talk about some of those, some of the bad actors.

And I think when we talk about this particular crypto digital asset space, and people just assume that you hear the [00:20:00] word Bitcoin or crypto, if you're not educated in it all, you just assume it's you're involved in some criminal activity, I think that. A lot of that has changed and morphed in the type of cases that IRSCI has seen over the last decade.

But what are the ways that you're seeing right now that bad actors are using digital assets in crypto to perpetrate crimes, whether it's tax crimes or child exploitation or what have you.

Kirk Peifer: Yeah, Don, no, I think it's a great point. I think I was talking to some colleagues earlier today about just the evolution of crypto crime over the last 10 years,

And so I think six to seven years ago, probably 90 plus percent of our cases involved Bitcoin only. Even our most sophisticated cases in our cyber crimes units, folks were transacting in Bitcoin and we would see a whole lot of other cryptos involved in the investigation, which was really great for us.

because as we all know, as we sit here in 2025. Bitcoin is very traceable. [00:21:00] We weren't upset about that, but we knew at some point this was going to evolve and change, and folks were going to realize that there were certain techniques that didn't really provide them with the level of obfuscation and they really wanted.

Fast forward to 2025, I would say our most sophisticated cases, I can't think of any that really involved Bitcoin at all. So you're talking about folks that complete pivot, where now they're using some of the most obscure cryptocurrency blockchains that or more recent to the environment.

And they're pivoting from crypto to crypto. They're using bridges they're using mixers. And so the evolution of the technical proficiency of some of these criminal groups has really grown significantly. I was talking to some of our teams a few days ago and they were commenting that if you go back a few years, a lot of criminal organizations.

Were complaining about some of the volatility in the crypto space because they would [00:22:00] use that as a money laundering mechanism. And then they would quickly see that 30% of their value might disappear in the matter of a few weeks. And so we're seeing some folks, some of the more sophisticated actors actually pivot into the stable coin environment or, cryptos that are more connected to the, dollar or other currencies or stability reasons.

So like their sort of level of sophist sophistication is definitely enhancing, they're definitely being more cognizant about how they're operating and they're gravitating more towards I won't say traditional finance, but the traditional finance mindset where they want to get out of things that are more volatile, assets that are more volatile in the crypto space.

And they want to pivot into things that are less volatile. But we're talking about many layers removed from the initial illicit activity. So it just adds really to the sophistication. Of the money laundering process, which means that, again, I know we talk about this a [00:23:00] lot in a lot of the different discussions we have, it really emphasizes the need to really build a collaborative, very skilled team, which it with a diverse skillset because it, it really takes an entire team of folks to follow some of these really sophisticated actors.

So I really emphasize the ability to build your team, to do this sort of work, but also in the compliance space. You got to think about those things from a legal perspective, from an operational perspective, from a training perspective. Like how can you start building out your team to address some of these challenges that cryptocurrency, digital assets might present in the future in your line of work?

Don Fort: It's no, that's fascinating. I think there's also a fascinating point that you made there early on in your comments and it's. I would characterize it as bad actors, criminal organizations are business people also. And when you talk about Bitcoin not really being used anymore it's the double-edged sword,

[00:24:00] So I can remember when law enforcement agencies, prosecutors get up there and talk about taking down these organizations and we can track it, we can trace it, we're going to find you. The reality is we the three of us know that the bad guys are, watching these press releases. They are monitoring the press releases carefully.

They're looking at, they hear that. So there's a purpose of getting the message out there as you want to deter other people from engaging this type of activity. But the bad guys take that and they say, oh shoot, now we got to go, we got to find something else, So it pushes them into the shadows. But really fascinating point there, that, that exists not just in the crypto world, but.

In, in, all law enforcement work, not only in the US and around the world we forget sometimes that this, we don't, we may not like their business model, but they are business people too, and they're monitoring everything that law enforcement does.

Kirk Peifer: Yeah, no, that's a great point, Don, I'll let area jump in a minute, but like a great example is [00:25:00] the Bitcoin fog case, and Ari knows this case well.

It was a trendsetting case for blockchain analytics at large and how we can use that in investigations. But we've definitely seen a change in behavior, if you will, once this case has been publicized and folks understand that maybe mixers aren't as a great of a techniques as they thought they were.

And now obviously they're still being used significantly, but folks have be, become more cognizant that operate in the criminal organization space, the third party money owners the professional enablers that maybe that's not as good of a technique as they thought it was. And so they're definitely pivoting it to other techniques.

In my opinion, probably because of the sort of publication and the discussion around that, that case and that trial. But I'll let Ari jump in here and propose his thoughts on that.

Ari Redbord: Yeah, look, I think it's a cat and mouse game and it has been for a really long time. This is just a cat and mouse game, like on blockchains as opposed to in the physical world.

And I think that bad actors are [00:26:00] almost always early adopters of new technology. You think about AI today and we think about deep fakes and supercharging scams and this type of activity but you also see the incredible benefits for business and efficiency and government when it comes to ai.

Crypto is very much the same. You have this promise of cross-border value transfer at the speed of the internet. We can now move funds for remittances and humanitarian aid payments at like unprecedented speed and scale. But bad guys love that, They want to move more money cross border faster than ever before.

And that's this paradox. But I think to Kirk's point, law enforcement can now trace those funds in ways that we never could in the physical world. When I was a prosecutor, it was all about networks of shell companies and high value art and real estate, And there wasn't a TRM to trace those things.

And so I think we're able to investigate cases much better today. But cyber criminals are able to move money faster and just [00:27:00] continue to adapt. And you have this cat and mouse game that we always had in the physical world when it comes to mixers. Mixers are really interesting,

Kirk mentioned Bitcoin fog. There was another called Helix, which were almost like companion cases. Very similar facts. Both of those mixers advertised on dark net markets, basically saying, Hey, we can obfuscate your drug proceeds from law enforcement and you should use our service. There are other mixing services that are more decentralized tornado cash, where there's been a lot of discussion over the last couple of years.

But those are used also for law, for purposes, People in a, in an open financial system. People don't want everyone to see every transaction that they do, It's like showing the world your credit card statement. So I think the challenge for regulators and law enforcement is how do we enable lawful users the ability to transact in this sort of secure and private way while ensuring that North Korea doesn't launder billions of dollars through [00:28:00] one of these services.

And I think that the work that Kirk does and other law enforcement agencies is absolutely critical in rooting out the bad actors so the good actors can, transact in this new open financial system. And to put a point on it it's overwhelmingly listed. We put out a report. I don't know, a couple months ago that said illicit activity within the crypto ecosystem is about 0.4%.

Even if you double or triple that number, you're still under 1% of overall activity, but that 1% or less than 1% is really bad, You have North Korea stealing billions of dollars for weapons, proliferation and Americans and folks in the west losing billions for from scams and pig butchering activity.

So on the one hand it's like there's a pretty small amount of illicit activity. On the other hand we have to put every resource towards stopping it.

Don Fort: Rie that there was a question that, and I appreciate there's been a number of questions. We're not going to have time to get to all of them because we're barely scratching the surface here.

But, [00:29:00] Ari and really quickly, like your quickest def definition or description ever of what mixers are in case people don't know. And then I think you answered this, but like, why wouldn't you just not allow them? And you talked a little bit about there, there is some legitimate purpose for them, but if we saw those in traditional finance.

They probably would be not allowed, but just give us a quick overview on what, when you say mixer, what are we talking about?

Ari Redbord: Yeah, for sure. I'm just smiling because I'm looking at the questions for the first time and there's some really good ones and some really familiar names who are friends on here which is always good to see really, smart people who are leaders in our space.

Mixers are , what's interesting, especially with a group like this, I love talking to compliance professionals because I just feel everything in the off chain, a ML world has like a corollary on the on chain and on chain mixers or using patterns to obfuscate transactions is essentially structuring right in the, real [00:30:00] world.

It's moving amounts and trying to obfuscate them in various ways. So a mixing services like a cryptocurrency exchange. It lives on a number of different blockchains depending on the type of service, and you put in funds potentially Bitcoin that has been used or the proceeds of some type of crime, and it comes out as other people's funds obfuscated on the other side.

And it's an obfuscation technique, And there's some reasons you'd want to obfuscate transactions, You have, you're sending funds to a dissident in Ukraine, or you're sending funds to an informant in in Syria near the US government, or you are or you're a battered spouse trying to move funds to help yourself.

Where you're being tracked, You want to be able to obfuscate transactions. And that's why privacy technology is so important when you have a totally open financial system where every transaction is logged and immutable. So you [00:31:00] need these services, you need some sort of privacy enabling technology.

But at the same time, we have to stop bad actors from using them. And that's why at TRM we're we built a tool that allows law enforcement and national security agencies to trace through a lot of these obfuscation services. And that's why you see Kirk and IRSCI and other law enforcement agencies going after these types of services.

But I, to me, it's a really important balancing. And this is like the ultimate question of privacy and security. In the digital age. And it's philosophical, it's ethical it's also operational. So again, something we can spend hours and I spend much of my life thinking about, but it's how do we enable privacy and security at the same time.

And I think the technology has an answer to that here, which it might not in the physical world, which is which is very, cool. Yeah.

Don Fort: Kirk, so [00:32:00] let's talk about, is there another case recent specific case that you could talk about that's been successful? Maybe some of the techniques and challenges that you've faced in that case?

Kirk Peifer: Yeah, definitely. I think. Some of the investigations we're really looking at. Now, as far as the investigations that are really some of the most complex ones we're looking at, I think one specifically comes in mind, worked by our New York field office out of the east eastern District of New York. I think the indictment was just on sealed last month we could send out the link after this.

Everyone can go and read it if they'd like, if you really want to dive into it. Ari might disagree with me having been a former prosecutor, but you can go and read the whole indictment, which is an interesting thing. So it involves decentralized finance and smart contract exploits.

So the individual that's alleged to have committed this criminal activity essentially hack the smart contract and sold $65 million in crypto. So obviously no small dollar amount. [00:33:00] A very difficult and technical thing to do. So that sort of highlights in my mind where we're at in 2025,

Decentralized finance, smart contracts, hacking of certain technologies to steal. Really steal and divert funds from rightful owners to your own individual purposes. Rewinding back to the case we initially mentioned 20 minutes ago Liberty Reserve, which was probably one of the first large cryptocurrency facilitated crime cases worked by the US government, a very large scale investigation involving over I think $330 million in funds laundered for some of the public documents.

More of a straightforward case in that regard. But 10, 12 years later, we're looking at decentralized finance and smart contract hacks, theft of large amounts of money. So those [00:34:00] cases present very different challenges and I think that sort of pivot allows me to pivot back to my initial point about building your investigative team or building your compliance team to ensure that you have like very.

Diverse skill sets, folks that are engineers, computer scientists, or a lot of the folks that we look for. We have obviously special agents, we have analysts. We have a really, a diverse group of folks that are very working in a very collaborative fashion to really unwind some of these investigations.

So I think those present very unique challenges to try and safeguard the US financial system, as they already mentioned before. That's definitely one case that comes to mind. And hopefully we can send out the links. I think people will be,

Don Fort: yeah. Let me ask you a question that just popped into my mind, but it always comes up in these webinars and discussions with bankers, financial professionals.

You, you obviously at IRSC, I have the luxury of a budget [00:35:00] and be able to train your folks. And now you've got a huge cadre of. Of agents, analysts that can train and pass that knowledge onto others for let's say a compliance professional in a mid-sized bank. The, we always talk about you've got to educate yourself.

Everybody needs to know at least a little bit about it. Particularly if you're in the compliance world. Where does one go now to get some training? Like, how would you advise compliance professionals? And Ari I'll ask you the same thing, like what tools are out there? They don't have unlimited budgets, maybe they don't have an expert.

How do you start to educate yourself as a financial professional on crypto and digital assets?

Ari Redbord: Oh my God, I love this question so much. You got to listen to TRM talks. No, I definitely one way, but cross marketing. I love it. Exactly. You got to do it. You got to do it. It's interesting. I, think there's a lot of really good content out there.

TRM has a TRM [00:36:00] academy where we train thousands of folks at this point. Again putting out content. But what I always tell compliance professionals at financial institutions at crypto businesses is read, oh, what is a TRM talk? I'm going to put that in. You can just Google that. It's my podcast.

So, no, we have that. But what I always tell compliance professionals at financial institutions and crypto businesses is go to the primary sources. Fiend in particular is putting out enforcement actions. For better or worse, pretty regularly, certainly in the last few years against major cryptocurrency businesses.

And those are literally a blueprint on essentially what o what cent. And then OFAC does it as well, expects from a financial institution with cryptocurrency exposure of some kind, and they really lay it out. And oftentimes, I spent about two years at treasury, and what I saw was that like oftentimes SN will lead with an enforcement actions and then provide guidance off of those actions, [00:37:00] potentially even like a year or more later.

So if you're reading those enforcement actions as much as possible, it'll really tell you, I think, what is the expectation from compliance for these types of businesses and really useful information. There's a lot of cool content out there, but going to the primary source is I think a really smart way to get up to speed very quickly.

Don Fort: Yeah, agree with that. And again, I think the first step is just educating yourself on some of the basics. And I think it that our discussion today we're talking about that crypto's here today. Look, it's been over a decade and we're, I think we're gonna start to see it more and more, and you're going to start to see it in these transactions.

We'll get to that in a minute. The next topic I want to make sure that we hit on, because I know it's familiar with a lot of the audience we have here today, which is really talking about the public private partnership. And I know financial institutions have been doing this for decades now, like working with law enforcement agencies and working groups to understand [00:38:00] typologies and what they need to know to be able to file suspicious activity reports and stay up with traditional finance.

I think crypto in, in my mind, and I saw it firsthand is really another example of that. The collaboration that. Law enforcement and government uses they have amazingly smart personnel, but are also now increasingly relying on private industry to help. And this is not a, this is not a discussion about one company or another, because my belief, and I believe that, I believe it now, and I believe that when I was there, this is not a one size fits all solution.

There are many companies and academia and individuals out there that are helping law enforcement around the world solving these, heinous crimes. So Kirk, I just want to talk to you for a minute just about if you could address, like what does that mean in terms of the crypto space and how important is it, how are you collaborating [00:39:00] again not with specific companies, but with private industry in general to help you, as a force multiplier on these cases?

Kirk Peifer: Yeah, no, great question. I think when we talk about our team in our, in my headquarter section we. Our sort of motto is we connect people to people, to training and people to technology. And I think that's really the pillars of being able to, work in this space, in the law enforcement realm and really in the private sector compliance realm in a really adept fashion.

And, the ability to evolve as these crimes evolve. Because blockchain intelligence, companies like TRM, they're 24 7, 365, constantly thinking about blockchain, digital payments, crypto, digital assets where it's evolving to. And we don't always have the luxury of doing that. Obviously we have a lot of other things going on, but partnering with them and other folks in the space, I think it allows us to have really and candid and honest conversations about like where we think, where we see things going, what we're [00:40:00] seeing in the space, maybe real time collaboration on certain types of investigations where they might have expertise.

Their team that we need for a very specific area within an investigation. So all of that happens very collaboratively. Under that umbrella of public-private partnerships. And we bring a lot of folks into certain types of investigations from outside of the government with all the proper protocols and procedures and agreements in place to assist with some of these really highly technical investigations.

And I really can't stress the importance of that enough. I think it's just a different approach to investigations because of the highly technical nature of some of these cases, some of the personnel that you really need to be able to solve the cases, protect the integrity of the financial system.

Some of these cases have national security, implementation issues, So there's, so much going on. You definitely want to make sure that you have the right folks at the table with the right [00:41:00] expertise. And so we do rely on private sector partnerships and private sector input to get to that.

Ultimate end goal, which is being able to complete the investigation or at least come to a reasonable conclusion on what we need to do.

Don Fort: Yeah. And Rie, I want to get your perspective on that in a minute, but I think about it particularly for the three of us that are on this panel today. And I think many of the, folks that are on listening in, I think of the old school mentality as I'll call it.

And we can all appreciate that even 10 years ago, the mentality in the government and the law enforcement agencies was like, this is my case. These are my people. I'm going to hunker down. I'm going to learn how to do it. We don't need anybody else to help us. We're going to figure it out. Now the speed at which money moves as quickly as you can take your phone out and you can transfer money anywhere in the world.

The, you don't have the luxury of time anymore. Investigators. Analysts, you just don't have that luxury of time. And that collaboration is really what I've seen changed dramatically in the LA and I [00:42:00] think it continues to. Continues to evolve. But that willingness, like Kirk says about his team, is not just sworn law enforcement agents, it's analysts, it's people with private that work for private companies and academia.

Again, to stress his point, all done appropriately. So the sharing of information and the collaboration is within the legal bounds, but it is really incredible to see these really powerful teams. So Eric, you've been doing it for a while. Where, do you see that collaboration and the value that that, private industry brings to the table?

Ari Redbord: No I really, appreciate a question. One thing really quickly, just a clarification from a question that's in the chat that I think is a good question is the reporting requirement on the 10 99 is still very much in, still very much exists. So if you have crypto gains, you have to report those.

I'm not a lawyer. I'm not, I am a lawyer, not your lawyer. But talk to your accountant. But Yes, that's still in, in effect, I think what was referred to earlier is what people colloquial call the defi [00:43:00] broker rule, which came out right at the end of the last administration, which has essentially been repealed at this point, which means that defi services and again, like this is way longer conversation, will not have some of the reporting requirements that IRS had originally said as they navigated this again at the end of the previous administration.

On Don's question which, is an amusing one I think public private partnerships are absolutely critical here, and a lot of it is the nature of public blockchains, We in, it used to be that only law enforcement could have access to the type of data that really everyone in the world has today.

When you talk about public blockchains, Some of the best cryptocurrency investigators in the world are these, like Twitter, sleuths Zack, XBT, and some of these people who are literally out there with open source tools tracking and tracing the flow of funds and giving live updates on X.

That doesn't exist in the traditional [00:44:00] world. And that's why having these partnerships where law enforcement has the tools that they have the unique authorities to kick down doors and serve subpoenas and search warrants married with the tools that the private sector is building like blockchain intelligence is, really super necessary, particularly in.

This digital age. And it's been cool I talk a more and more these days about T three, which is a partnership between TRM Tron and Tether, where we investigate cases specifically in the stablecoin USDT on the Tron blockchain. I talk about chain abuse which is TRM has runs a website.

In collaboration with many industry players called Chain Abuse. You can go on it right now. It's just chain abuse.com. It's the large, largest reporting database of fraud and financial crime in the crypto ecosystem. It's basically a giant database of scam activity. But that could be leveraged,

That data is leveraged by IRSCI and other [00:45:00] law enforcement. So it's really, I we, have all paid a lot of lip service to PPPs over the years. I'm sure AML RightSource has done a million webinars on PPPs, and I have to admit, like I've, I have at times scoffed at them because it's like no one wants to share, no one wants to talk to each other.

But crypto actually takes away a lot of the bottlenecks when it comes to actually having some success in these types of partnerships. So I think it is really important. And I don't know. I, think certainly the relationship that, that we have with IRSCI is like a really great example.

You have folks working side by side on cases and it's really effective.

Don Fort: Yeah, I think I think crypto opened the door. What I would like to see personally, Don Fort's personal opinion is it should not be just applied to crypto. If you think about all these amazing partnerships and the force multiplier, it's provided.

It should be expanded out to other [00:46:00] types of investigations. The use and the value of not just private companies, but academia and these really smart people out there. Yeah. Super powerful. Completely agree with. So let's talk about in the realm of. Financial gatekeepers, the com, our compliance professionals, those that are the often unsung heroes behind the scenes, going through records and analyzing and filling out the forms that are so incredibly valuable to law enforcement, particularly an agency like IRSCI that only does financial cases we're talking about and that's particularly important and has been for decades in what we call traditional finance and what we're talking about today in crypto.

Sometimes that doesn't always hit traditional finance, It doesn't always hit a bank where you're going to see a transaction. Sometimes it doesn't. But I think that's a for the next topic, just want to get both of your perspective [00:47:00] on. What, advice are you giving?

Are you working with the finance and financial professionals out there in traditional finance? What they, what should they be looking out for? Can we talk about and I don't know, e either one of the you that wants to go first, but what's the PPP? What's the collaboration intersection with the financial pro professionals and the digital asset space?

Ari Redbord: Kirk, you want to go forward? I'm happy to,

Kirk Peifer: Yes, no, jump in.

Ari Redbord: Yeah. Look, I think it's very similar actually to the collaboration that we have with law enforcement. We work really closely with compliance teams. They use TRM as both an investigative tool, but really as a compliance solution,

Transaction monitoring, screening wallet addresses, ensuring that bad actors aren't engaging with their platforms. I'd say in my almost five years at TRM there's no group of people that I've grown to respect more than compliance professionals, because a lot of times they're the first line of defense [00:48:00] in crypto funds live and move on blockchains, but they have to be off ramped into traditional world to be used to essentially do bad things.

And those compliance professionals are the ones who are stopping that from happening, They're the ones who are blocking those funds, freezing those funds through you normally in very close collaboration with law enforcement. But these are the folks that are you talk about the buy bed hack.

We can work with law enforcement to trace and track the funds all we want, but the real key is stopping North Korea from being able to off ramp those funds through an exchange or financial institution in order to actually use them. And that is why it's really so important. So I think that, that partnership is critical and it really is a triangle,

It's a combination of blockchain intelligence tools being used by law enforcement and working really closely with the exchanges. One thing that's an aside is I've seen sort of compliance teams either at traditional financial [00:49:00] institutions that are engaging with crypto or crypto native firms are some of the best when it comes to quickly responding to law enforcement subpoena, working closely with law enforcement.

And I think that just it goes to show the fact that this is a specific group that really wants to collaborate really wants to work with law enforcement counterparts.

Don Fort: Yeah, I think and Kirk I'll, I see you getting ready to comment. So I'll just add, maybe you could talk about a little bit, and Ari mentioned this, On Ramps off Ramps, law enforcement has been talking about that for a long time,

The commonality is no matter what kind of bad guy you are or bad actor and what you're doing, you want to spend your ill-gotten gain somewhere, You want that Lamborghini or the house or something like that. But so just kick it back to you, Kirk, to comment on that.

Kirk Peifer: Yeah, no, Don, I appreciate it. To quote one of my favorite special agents, CI in Chicago there's really only three things you could do with money.

You could save it, you could spend it, or you could [00:50:00] hide it in your basement on a cart table like Jimmy Hoffa Jr. But at some point you're going to, you're going to want to spend the money. Even if you resist that urge and you keep it in cash or you keep it in some obscure crypto, at some point you're going to want to, you're going to want to spend the cash and that's really where we do rely on compliance partners and financial institutions. They do really an amazing job with implementing the Bank Secrecy Act and implementing all the anti-money laundering regulations. And so I would say just for all the folks out there, thank you. because we rely on that information.

There isn't an investigation that we work where we don't use Bank Secrecy Act information. I would say 100% of the cases we're involved in at some point in the investigation we're using Bank Secrecy Act investigation. I would say there's probably over 15% of our cases, without that information, we would've never started those cases.

So the work that's being done in the compliance realm at the financial institutions is just really so important to really give us the insights to say, Hey, this is something we really need to look into [00:51:00] more. And so the work you guys are doing is valued. We're looking at it. I won't say we physically touch every document because we no longer print them out and physically go through them.

But obviously we're analyzing all that information, using it to supplement cases, using it to start cases. And that's really no different in the crypto realm. As organizations. Government entities have done such a great job educating and socializing that, hey, if you see these things, you should really should be filing certain types of BSA forms because law enforcement needs that information.

We have been looking more and more at information that's coming through the normal BSA process that relates to cryptocurrency. So we're, integrating our investigative process for cryptocurrency facilitated crimes into just our normal financial investigative team process for BSA information.

So that is, that's obviously an evolution. We're looking at that information, [00:52:00] we're starting those cases that are very cryptocurrency focused from a lot of the information we are getting from financial institutions. So again, I just wanted to say thank you. Keep doing what you're doing. We're definitely looking at it and we're definitely using it to ferret out bad activity.

Don Fort: I think over the last 50 years that BSA has been in existence, I think it was two or three years ago, and you can Google this, the IRSC, I put out like a one pager on the use of BSA data and Kirk's It's a hundred percent of the time that this data is queried now because of the power of technology.

You don't have to look through all the documents. And the key point there that and Kirk made this is. Y it's not all for Naugh and you may not get a call ever from law enforcement that , that you're, the information that you provided was important, but because of the technology now, it could be an address, a witness name [00:53:00] crypto address some p some one little nugget of information that's in that SAR may be what assisted law enforcement in, in potentially saving somebody's life and solving one of these financial crimes.

And all of the law enforcement agencies are doing it. So remains critically important in the, crypto space as well. Google that Google CI's annual report, you'll see how important that is to their overall mission. We've got not a whole lot of time left. I want to get to a couple other topics.

Let's just talk about what are the next big challenges that you see. We've talked about. It's here to stay, obviously. The bad actors are always going to find a way to leverage it to their advantages. But what do you see coming down the pike in terms of challenges in this space and enforcement in the next few years?

Ari Redbord: Yeah I think really quickly, and I'll let Kirk jump [00:54:00] into this because I think this is very much in his lane. We're seeing cyber criminals become more and more sophisticated, and we have to ensure that law enforcement is up to meet the moment. I think this buy bit hack really was extraordinary, not just for the size of the funds that were hacked and stolen, 1.5 billion to, just to put a, like a sense of that, like in a TRM report, recently, we said that North Korea stole about 800 million last year.

They stole 1.5 billion about, I don't know, six Fridays ago. So in one day, It is. It is extraordinary. But what's really more amazing is how fast they've been able to move some of those funds. Within, I'd say 48 to 72 hours, they had converted all of that stolen e. To Bitcoin and are now continuing to launder those funds that, that ISPE, that, that is unprecedented in terms of the hacks that we've seen North Korea do in the past.

And that just that just puts a point on that we need to move faster, we need to [00:55:00] coordinate better. And to me what that really means is having the resourcing at the agencies like IRSCI and it's to have the tools, but really at the end of the day, it's to have the training and the personnel who are the sort of the experts out there out there.

And IRSCI has that group. And it's just getting them the tools and the training that they need and ensure that we continue to prioritize have, having law enforcement, professionals across the interagency who are able to do this stuff. Bad actors are, getting really good and we have to we have to meet them where they are.

Kirk Peifer: No, I think Gary's comments are spot on. I, again, like I think are one of our biggest challenges, if not our biggest challenge is just the pace at we at which technology moves. And as technology moves, there's an evolution in how crimes are committed. And I jokingly referenced every year is seven years.

So basically one year is a dog year, So [00:56:00] I think in our space, maybe a more accurate representation as most folks are looking at things on an annual basis, we're really looking at it on a quarterly basis because things are out evolving and moving so quickly. So keeping with, keeping pace with technology is definitely difficult in this space and in Aries.

Know common is spot on. Like the training that we deliver or try to deliver to our personnel that are working cryptocurrency facilitated and cyber crime investigations is really probably threefold or fourfold the average agent that are working traditional financial investigations at a field office.

So I will say that's definitely our number one challenge. But to one of Don's questions earlier, I would say over the last few years we are at a, at an increasing rate seeing crypto involved in just traditional investment fraud schemes or traditional financial crime cases where somebody might make fraudulent representations steal money, financial [00:57:00] crime occurs and they'll buy they'll buy digital assets or they'll hold digital assets.

And so there's some digital asset component, if you will, in that investigations, which means that financial investigator needs to be able to. Investigate the source of those funds. So there's some, however small component in an ever-growing group of investigations that we work where there's a digital asset component.

So we're seeing that more and more, which means really the baseline or every investigator and analyst is, being raised They have to have a, more thorough understanding on how digital assets work and just what the ecosystem looks like because we're, when they're conducting an investigation, they're most likely going to run into some component that relates to digital assets.

So that's just where we're at. But the technology is definitely a big challenge. I think most folks in law enforcement would probably say something very similar.

Don Fort: [00:58:00] Yeah, that's great. Great point. So Aria, I have one the kind of final quick question for you and then I'll let each of you just give a quick parting comment.

But I think the. We talked about PPP, the partnerships, and I agree with you completely, like everybody was talking about that years ago. Now I think it's ai, everybody's talking about ai, So what is, when we talk about AI in the realm of being used by bad actors in, terms of cryptocurrency and digital asset fraud.

How are bad actors using ai?

Ari Redbord: Sorry. Yeah. They're leveraging it at scale. They really are. And the extraordinary thing, and we put out a report recently on AI enabled crime, and I know I mentioned T RM talks. I did one recently with an expert from uc, Berkeley named Hani Fareed, and I interviewed Hani.

And the crazy part is he came on to start the podcast or the as me looking just like I am right [00:59:00] now, speaking. And what it, was it was funny and it was cool to see, but it's also harrowing, Because that could be a world leader who's coming out and saying, we have just sent a nuclear missile, or we have now we have declared war on X country.

And so cyber criminals are essentially taking the human bottleneck out of crime and are able to leverage AI agents for this type of activity. And I think that, again I know I keep coming back to this, but I think we have technology that can meet them in many respects where they are. And every time I'm talking to financial crime professionals at banks, at crypto businesses, it's like, how are you leveraging AI today in your workflows,

To identify deep fakes to identify scam activity. because they're a lot better than they used to be, It used to be like, oh, there's broken English in this phishing email, delete report block, whatever. Now it's perfect. Not only is it perfect, it's your CEO [01:00:00] on there, on a zoom telling you what to do,

So we're entering an age where reality is going to be very distorted and we're going to have to be very intentional about how we look at these things. But I think, again, it could be another webinar, but my take would be like compliance professionals. AI is going to be a critical part of your workflow over the course of just the next couple of months or several months.

Don Fort: Thanks Eric. Kirk closing comments from you and then we'll close it out.

Kirk Peifer: Yeah, no, I appreciate being here. I think AI, in the whole scheme of technology, I think it's obviously something we're looking at as, being able to leverage in the law enforcement realm. I think everybody, as technology advances in AI and is one of those advancements, we really have to think about how we can leverage those things and get in front of them and use them to confront exactly what Ari talked about.

because the bad actors are definitely using it. So we have to meet them where they are in that regard. I would just say stay diligent, continue to identify what you believe is suspicious activity, continue to report it. We're looking at [01:01:00] it and we're happy to have it. And we'll try and improve on that feedback loop.

I know that's been a topic of conversation for a long time, and I think discussions like this sort of help evolve what that feedback looks, that feedback loop looks like going forward. And hopefully it continues to improve and there's more sort of seamless discussions between financial institution professionals and law enforcement and government at a, as a whole.

Don Fort: Thanks. And, again, I want to thank you both for your time. Great discussion as expected. We our, primary challenge was time. We crammed a lot of material into, an hour for the attendees. I appreciate everybody attending today. A lot of great questions. Unfortunately, we weren't able to get to many of them, but appreciate everybody joining and again, appreciate AML RightSource for hosting this webinar.

Ari Redbord: Thank you so much and thank you, Don. You're awesome today.

Don Fort: Thanks guys.

Ari Redbord: Bye guys. [01:02:00] Yeah.