My name is Gurvais Grigg, and I recently joined Chainalysis as Global Public Sector CTO after 23 years at the Federal Bureau of Investigation (FBI), most recently as Assistant Director of the FBI Laboratory. In my new role, I’ll lead the development of government-focused innovations to make Chainalysis the best financial investigation solution for the 21st century.
After spending my entire career with the United States’ flagship law enforcement and national security organization, why did I choose now to move to a seven-year-old tech startup? I believe that cryptocurrency is one of the most important technological developments of our time. Barely a decade after its invention, cryptocurrency has attracted institutional investors seeking to hedge against macroeconomic trends, helped people in financially unstable regions preserve their savings, and driven innovation in financial services. One can only imagine what the next ten years have in store.
However, the emergence of cryptocurrency also has huge implications for law enforcement, national security, and geopolitical stability. Chainalysis has a deep understanding of the global cryptocurrency environment. We are already leading the way in equipping governments around the world to investigate cryptocurrency-related crime and enact sensible regulations. I believe with my extensive experience in national security and law enforcement, I can help Chainalysis continue on this trajectory and ensure the safety of the cryptocurrency ecosystem for the benefit of citizens, governments, and businesses everywhere.
Below, I’ll expand on cryptocurrency’s importance and why it’s so crucial for the public sector to have access to the data, tools, and services it needs to stay ahead of the threats and combat threat actors.
The United States’ rivals know cryptocurrency is changing the world’s financial system
Since the end of the Cold War, the United States and its allies have enjoyed relatively stable leadership in setting global norms around security and trade. However, we now find ourselves facing renewed competition from would-be rival states. Experts in the national security community refer to this as the great power competition, generally referring to China and Russia.
The financial system is a key part of any competition among world powers. As historian Niall Ferguson argues in his book The Ascent of Money, a country’s financial power usually translates to geopolitical power. The 15th century Italian city states became European power centers after creating modern banking. Since the end of World War II, the United States has drawn immense soft power from the dollar’s status as the world’s reserve currency. The countries who drive the financial system tend to set the pace of world affairs. Could cryptocurrency be the next paradigm shifter? The emergence of a completely new asset class in modern banking is both rare and disruptive. While I don’t currently see it as a threat to the U.S. dollar, cryptocurrency is clearly on a strong growth trajectory both as a new asset class and as a means of executing transactions. As cryptocurrency takes on a more prominent role in the world’s financial system and larger segments of the population and business join the blockchain, the countries leading the way in cryptocurrency will gain greater power and influence. Now is the time for the public sector to act.
Few countries have embraced cryptocurrency more than China. While the Chinese government has enacted some anti-crypto policies, such as a ban on exchanging the yuan for cryptocurrency, the country generates more cryptocurrency transaction volume than any other country, and China-based miners control the majority of Bitcoin’s global hashrate. This opens up potential concerns for the exertion of undue influence on the network. As Chainalysis covered in its 2020 Geography of Cryptocurrency Report, Chinese merchants are already using cryptocurrency to do business in emerging market economies like Africa and Latin America. These actions, if done improperly, could facilitate the violation of international trade law and may help China advance its goals of increased global influence as outlined in programs like the Belt and Road Initiative. It’s also possible that OFAC-designated individuals and groups in China could try to use cryptocurrency to circumvent sanctions against them.
Russia has also embraced cryptocurrency while its government has simultaneously passed laws against it, and appears to have incorporated the technology into its efforts to attempt to destabilize the United States. Ransomware attackers based in Russia, and in many cases thought to be supported by the Russian government, have strategically directed attacks at U.S. government agencies and critical infrastructure providers, such as hospitals and telcos. As with China, there’s also the risk of sanction circumvention facilitated by cryptocurrency.
We’ve also seen cybercriminals associated with the North Korean government steal over $1 billion worth of cryptocurrency in exchange hacks over the last few years. The takeaway is clear: Despite the immense good it’s done and the fact that less than 1% of all cryptocurrency transactions were associated with illicit activity, cryptocurrency can be abused by authoritarian and rogue states to hurt and diminish the United States’ geopolitical position.
Law enforcement must understand cryptocurrency to fight organized crime
Transnational organized crime syndicates have always been early adopters of any new technology, which can make their operations more profitable and avoid government detection. For instance, in the last two decades, we’ve seen Mexican drug cartels use everything from drones to electric submarines to move drugs and cash across the U.S. border. Drug cartels were early adopters in the use of cell phones to communicate and coordinate their operations. This presents significant challenges for governments to adapt and train investigators and analysts.
Now, cryptocurrency is the next big innovation these groups are taking advantage of to carry out illicit transactions and launder money. Darknet markets are of course the most popularly reported example of this. Just as Amazon disrupted retail shopping, so too did the Silk Road for drug transactions.
But it doesn’t stop there. Cryptocurrency’s utility for organized crime groups goes far beyond darknet markets, especially when it comes to money laundering. For example, Chainalysis’ most recent Crypto Crime Report details one case in which a cocaine smuggling ring operating in the United Kingdom and Australia used cryptocurrency to set up a complex system for cross-border payments and money laundering, moving millions of dollars between dealers and suppliers around the world. Other outlets have reported similar examples of crime syndicates using cryptocurrency to launder funds from drug sales and human trafficking.
None of this comes as a surprise to anybody in law enforcement who’s investigated transnational organized crime. Innovation is second nature to these groups — they are constantly looking for any edge they can get to stay ahead of their competition and the law. While traditional fiat remains their currency of choice, we need to be prepared for their usage of cryptocurrency to grow. Governments around the world must stay ahead of the threat and acquire the data and tools they need to conduct effective investigations. As we say in the industry, things move at the “speed of crypto” and so too must be our response.
Ensuring a positive future for cryptocurrency
I’ve focused on the threats introduced by cryptocurrency here, but let me be clear: I work at Chainalysis because I think cryptocurrency has the potential to greatly improve access and the reliability our financial system for the benefit of billions, and I don’t want the opportunity to go to waste. Criminals and authoritarian states cannot be allowed to define or pervert the public perception or confidence in this new asset class and way of transacting. Having worked complex financial crime and terrorist financing investigations for many years, we used to say “if you follow the money, you will find the ones responsible.” This has never been truer than with cryptocurrency.
Agencies need the data, tools, and understanding of cryptocurrency to effectively “follow the money” to weed out the illicit actors. The best way for me to help us achieve this goal is to empower governments with what they need. I look forward to working with my new colleagues and our public sector customers around the world to make this happen.