Sarah Oh Lam (00:00):
Hello and welcome back to Two Think Minimum. Today is Monday, November 7th, 2022. I’m Sarah Oh Lam, Senior Fellow at the Technology Policy Institute, and I’m joined by Scott Wallsten, TPI President and Senior Fellow. Today we’re delighted to have as our guest Sujit Raman. Sujit is General Counsel at TRM Labs, a leading blockchain and Web3 analytics company that helps organizations detect, assess, and investigate crypto related fraud and financial crime. Previously, he was a partner at the international law firm, Sidley Austin, where he focused his practice on cybersecurity and data privacy issues, internal investigations, and white-collar criminal defense. Earlier in his career, Mr. Raman served as an Associate Deputy Attorney General in the US Department of Justice, and he also helped oversee the DOJs cyber related policy development. He represented the Department on Cyber Matters before the National Security Council at the White House, and he co-led the US delegation to the G6 Interior Ministers Conference in Munich. In addition, he oversaw the creation of the Department’s cryptocurrency enforcement framework, which remains federal law enforcement strategy blueprint for investigating crypto related crime. And prior to DOJs senior staff, he served for eight years as a federal prosecutor. He has litigated several leading electronic evidence and digital privacy cases in the US Court of Appeals. He’s also a Marshall Scholar. Thanks, Sujit for coming on. Like I was saying earlier, it’s great to have somebody in crypto policy who has such deep DC experience.
Sujit Raman (01:35):
Well, thanks very much, Sarah. It’s great to be here. And you know, it’s such an interesting time in crypto in, sort of, the future of the international financial system. I’m just very grateful to be at a company like TRM that’s in the middle of all of it, and also be talking to, to folks like you who obviously think about these issues a lot and have a lot to add to the conversation.
Sarah Oh Lam (01:53):
Great. So could you tell us a little bit more? You were at our TPI Aspen forum this summer on our Web3 panel, and we were talking about, you know, is crypto in a hype cycle or not? Is it crypto winter? Could you tell us more about TRM Lab’s business, how it’s doing? Is it winter or are you actually seeing an uptick in governmental and institutional demand for crypto software?
Sujit Raman (02:15):
Yeah, it’s a great question. I mean, you know, we’re absolutely in a crypto winter in the sense of, just looking at, you know, prices, right? But from a building perspective, from the perspective of a startup that’s at the very active stages of building out the infrastructure of what Web3 might look like or what the metaverse might look like or what crypto in general looks like. These are very early days, and frankly it’s very exciting days. You know, we are seeing continued interest and investment in the, sort of, layer one, sort of blockchain protocols as a company. You know, we have been very lucky in that investors have been very interested in the work that we’re doing. We’ll have an announcement shortly about some additional fundraising that we’ve done as a company. So I think for particular companies, in particular parts of the crypto sort of ecosystem, this is a very important time and it really is a time of growth.
Sujit Raman (03:12):
You know, we are seeing a lot of sort of projects that are getting closer scrutiny, greater support, but I think we’re also seeing some of the more, you know, maybe the more fanciful projects falling a little bit by the wayside. So I think, you know, as we saw in the last crypto winter a couple years ago, that’s when a lot of companies, for example, like Coinbase, really made the infrastructure investments that made them such powerful entrance into the public markets. I would not be surprised to see a similar kind of building development right now.
Sarah Oh Lam (03:42):
So a little bit more, where do you see the future of crypto and Web3? So Fidelity and JP Morgan recently opened up like crypto desks and DeFi products in response to, I guess investor demand. And that’s like major, I think, for institutional interests, but then there’s also a drop in transaction volumes at Coinbase and Robinhood. Do you see any kind of big shifts? There’s also more news even this morning, a little tiff between the Binance and Sam Bankman of FTX. So who do you see as big players? What, what’s the future of all this?
Sujit Raman (04:15):
Well, you know, you made a really interesting point at the very beginning there, Sarah, just about how institutional, sort of, traditional financial institutions are increasingly dipping their toe and not just dipping their toe, actually, you know, putting substantial amounts of money into the crypto sort of infrastructure, right? You know, as a company, TRM, our investors are quite diverse, but we have significant and well-known financial institutions that support us. So I think what we’re seeing is financial institutions, sort of traditional financial institutions recognizing that in many ways this really is the future of money, the future of, you know, transferring funds between people across borders at the speed of the internet. And I think they want to be part of that. They want to help shape that. So how long will that take? That is very much an open question, and there are, you know, background regulatory questions.
Sujit Raman (05:10):
There, there are questions like, you know, what happened? What‘s currently happening in the Ukraine. There’s a lot of geopolitical impacts in all of this that are hard to predict in many ways. But I am a firm believer that this is a part of the economy that’s going to continue to grow. And it’s just because of the obvious reasons, right? I mean, when you think about internet-based money, that seems like the most obvious concept, right? As we have increasing amounts of, you know, smartphones and people’s hands, we have, again, greater grow out of the, of the internet and just general dissatisfaction with intermediaries and the sort of fees and the extra costs that are associated, the friction that does not have to be there when you have an internet of money. But there’s a whole regulatory framework. You, you’re concerned about illicit actors. So there’s a lot that still needs to be worked out. But again, I am very confident that this is an area that will continue to grow.
Scott Wallsten (06:03):
So I’m going to play the straight man here. Not knowing as much as either of you, I want to ask a question that, you know, people have been asking since, you know, we started talking about it, which is, what problem is this solving? I have no trouble spending money on the internet. I could probably use some more transactions cost to spend less. Obviously not, but, you know, what is the problem that’s to be solved and why is this the answer?
Sujit Raman (06:26):
So one, it’s a great question, Scott. I think one sort of immediate response that I often have when people ask me that question is, you know, if you have, let’s say, family members who live in other parts of the world, think about how much time and expense it takes, let’s say to send a wire transfer to Australia or to India or to Indonesia, you know, you could initiate that wire on a Thursday and 4, 5, 6, 7 days later, the money still hasn’t arrived in the other part of the world. And when it finally does get over there, you know, significant fees, significant percentages have been taken off the top.
Scott Wallsten (07:00):
I mean, haven’t companies already solved that? I mean, there’s a company called Wise, for example, that works in 170 countries and they transfer the money almost immediately with very low fees, right?
Sujit Raman (07:12):
Some do. But I guess the point is it also assumes a level of penetration of sort of access to bank accounts and other kinds of technologies other kinds of ability to, to access money that is not always necessarily the case in every part of the world. And so that is at least one of the use cases that we’ve been seeing is the sort of more efficient, more frictionless transfer of value across borders. But again, with that comes concerns about, you know, KYC (know your customer), about anti-money laundering, making sure that you know, illicit actors including terrorists aren’t in the middle of all of that. Because the more that you move away from the traditional international, you know, banking system, the more potential concerns there are that you’re, you’re dealing with illicit actors. That’s not to say that the traditional system has solved all these problems, right?
Sujit Raman (08:05):
And there are plenty of issues with the way that the current system is set up, where there is, you know, plenty of money laundering, plenty of terrorist financing, et cetera. But one very legitimate concern in this new world of the internet-based money is that we don’t know exactly who’s behind what. The other thing I would say, and this is not an area that I’m personally, directly involved in, but you talk about DeFi, you talk about, decentralized finance and the ability to pool capital in a way that really hasn’t been done before and deploy it for new and exciting projects. And the way of, potentially, again, using code as a means of intermediating transactions and sort of automating a lot of what otherwise just takes a lot of people, a lot of lawyers, a lot of, you know, sort of people in the middle.
Sujit Raman (08:52):
It’s in many ways inefficient. It creates opportunities for corruption, for extracting value in ways that are not actually helpful to consumers. So I think that’s what the, the ultimate vision is. The other vision is also of data, right? Having people allow themselves to control data rather than having impersonal third parties controlling their sensitive data for them. And you know, we’re awash in data in many ways, and people’s identities are just sort of out there. I think one promise of it’s not just crypto, but really of distributed ledger technology generally is on the one hand, keeping data out of any one person’s hands, right? Any one intermediary, any one company. While at the same time being able to let people sort of use that data as they as they wish. That’s the, that’s the vision. Obviously. We have a long way to go to get there.
Sarah Oh Lam (09:46):
On that note, I mean, do you have a point of view from like, business associations class? Like the DAO, the Decentralized Autonomous Organization, doesn’t really have shareholders or management, it’s a protocol. So in our traditional financial system, you have like fiduciary duties, the managers have to deal with the money properly, but DAOs, it’s a protocol. So you see that coming up against like the tornado cash instance where, you know, can you sanction a whole protocol? There’s no like entity on top of that protocol. Yes, there are like gateways and on-ramps, but, you know, is the DAO something that the law can’t touch?
Sujit Raman (10:27):
So look, this is one of the really interesting questions, right? The state of Wyoming has tried to sort of create the DAO or the DAO entity so that you can sort of register yourself as a DAO, get at least some of the benefits of that decentralized governance, while also getting some of the benefits of being an LLC, which is ultimately why, you know, many people try to create LLCs just to limit potential liability. And, you know, it’s, I mean, just a little bit of a digress here, but you know, it’s so interesting to see that Wyoming is where some of these corporate law innovations are taking place. The LLC was created in Wyoming in the late 1970s, sort of a reaction to the, the oil crises of the 1970s. And so, you know, it’s just very interesting to see how you do need to be a little bit innovative when it comes to corporate structures to help create sort of business governance principles that can, that can sort of build you into the future.
Sujit Raman (11:19):
You know, DAOs, again, as a concept, are fascinating because of that flat structure. It’s very much kind of consistent with this idea of decentralization, of letting sort of people make decisions for themselves rather than having them imposed on them. And yet, I mean, Sarah made a very good point from a practical point of view, if you’re an entity, you need somebody to help guide you, right? You need someone in charge, you need someone to help sort of make the decisions. And you know, so far Dallas have tried to have a situation where they have majority votes, but even that sometimes is sort of subject to manipulation. So it, it’s I guess a little bit of a long answer. My view is, it’s fascinating to see these new forms of organization, whether it’s personal organization, corporate organization, in order to deploy capital or to collect capital and build them towards new projects, right?
Sujit Raman (12:09):
So, I mean, to the extent that, again, the LLC is actually not that old an institution, what 30, 40 years old created in Wyoming didn’t really exist before that. And look where we are today in terms of how, you know, that principle of corporation law has created all sorts of, you know, positive impacts in the world. I am actually very curious and excited to see where, where DAOs go, but I would be the, the first to admit, you know, with you that we haven’t quite seen that that form of organization sort of get it completely right yet.
Sarah Oh Lam (12:39):
I mean, I guess you could think the foundation, there is a foundation and a plot of money or, and then it gets to money or the profit motive. Like, then you get into securities law, is the DAO issuing a security in order to fund itself? And then you go into SEC land, which is my next question for you. Do you have a point of view about jurisdiction, you know, the SEC, CFTC or leave it to the states? Or is it just this complex that, yeah, financial regulation is complex. You have banks, you have the White House, you know, comptroller, you have the Federal Reserve, you have sec, you have CFTC. So is that just a natural outs spring of financial networks? We’re going to have everybody involved in crypto, just like in money?
Sujit Raman (13:24):
Well, look, I mean, to the extent that what we’re talking about right now has the transformative potential to completely reshape the, the American economy, it’s not the global economy, right? It’s not surprising to me that different sets of regulators have different sets of concerns. And you know, if you look at President Biden’s executive order on digital assets issued a few months ago, and now we’re starting to see some of those reports come in you know, there are so many parts of the federal government that are touched by digital assets one way or the other. I mean, you mentioned, I mean, many of them, SEC, CFTC, the OCC, you know, I’m an alum of the Justice Department, which also has a very strong interest here. You’ve got treasury in all of its various components, whether it’s IRS, whether it’s FiNS, whether it’s OFAC.
Sujit Raman (14:11):
And then as you mentioned, the state regulators have also been actually quite active. New York DFS is very active in this space. We’ve seen some state securities regulators getting very, very interested. You’ve got the CFPB, you know, coming in with sort of the consumer protection angle. So it, it’s not surprising to me that different regulators who have, you know, strong mandates, strong congressional authorization to do what they’re doing to be interested. The question, you know, that when people ask me sort of SEC versus CFTC, and I think this might have come up in our discussion and Aspen over the summer, Sarah, you might recall, you know, my own view is I’m personally just, I’m a little bit agnostic. And maybe that derives from my, my background as a criminal prosecutor, because DOJ in some sense sits above or separate from all of this, right?
Sujit Raman (14:56):
If there’s a violation of criminal law, the Justice Department has basically exclusive jurisdiction and actually works with each of the, the component agencies that you talked about to build, to build cases. My own view, and this maybe again, comes from my, my background as a national security official, I just worry that, you know, in the United States, we spend so much time talking about the different, you know, regulatory agencies and where their interests overlap or what their jurisdiction is, that we lose sight of the fact that a lot of the innovation in this space is happening, or at least being driven out of the United States. You know, the longer we take to come up with a clear regulatory framework for everything that we’ve been talking about, the more incentive there is for the truly innovative people in this area to, to leave the United States or go elsewhere.
Sujit Raman (15:47):
And we’ve already seen that. In fact, many prominent Americans have set up shop outside the United States because of their concern about, kind of, the lack of clarity or regulation by enforcement or, you know, just not having a very clear set of principles of how to build their, build their businesses in this area. And the reason why that matters is that, you know, when it comes to distributed ledger technology, when it comes to crypto or other you know, adjacent concepts, we want to make sure that the world that we’re building is infused with American values or western values or rule of law values, you know, whatever you want to, however you want to characterize it. And, you know, there are other parts of the world that have spent a lot of time thinking about these technologies have used them as organs of state power are sort of using, again, DLT, Distributed Ledger Technology, if not crypto necessarily, but the concept of central bank’s digital currencies to essentially export their own values or their own approach to the world.
Sujit Raman (16:48):
And again, the danger is the longer we take here in the United States to try to figure these issues out, we’re almost seeding leadership on a lot of these issues to other parts of the world that may not share our values, may not share our values when it comes to content, you know, being content neutral or free speech, or the free flow of ideas or the free flow of money. And I think we could all of a sudden find ourselves, you know, 15, 20 years from now in a very unpleasant place because we fail to grasp leadership on these issues today. So again, that’s not to say that these very important questions about regulatory authority, regulatory jurisdiction shouldn’t be discussed. They need to be discussed. They need to, you know, they need to be addressed correctly. But the longer it takes for us, I guess the point I’m trying to make is we run the risk of falling behind other nations. And in the very same way that the United States was a leader in building the internet, you know, in the 1990s, for all of its flaws, at the end of the day, the internet is a kind of, you know, American-led technology. It’s infused with American values. The danger is if we don’t assert a similar kind of leadership when it comes to Web3, or when it comes to, you know, the, the sort of payment issues that we’re talking about today, we could be at a, at a significant disadvantage.
Sarah Oh Lam (18:05):
So I guess with that, you know, innovation moves faster than regulators. Arguably, could you say though that the US is doing pretty well? I mean USDC, Circle’s stable coin has made transparent, their, their balance sheet, they hold a lot of treasuries backing their stablecoin. I don’t know if other countries are stable coins that have that much transparency. Like, so I think part of the concern for regulators is stability, financial stability, protecting consumers. So you have all these like scams, Celsius and Voyager, that are insolvent. You know, there’s questions about if FTX is balance sheet is solid, but then you have these like these brighter spots like the stablecoin that is voluntarily solid or you know, saying that they hold treasuries to back their coin. I guess that’s the balance between regulators demanding it and then companies voluntarily doing it. Would you say other countries have stablecoins that are as stable as our- as USDC?
Sujit Raman (19:08):
I would not. And it’s a great example. And, and look, you know, I think stablecoins are one area where the United States not only is a leader but can continue to be a leader, right? I can certainly see a world in which stablecoin adoption goes into parts of the world where the US sort of financial system has not even really penetrated. And so, to get to the, the point that I was making earlier about sort of establishing an international global financial system that’s infused with sort of our values rather than competing values, this is one way in which digital assets or crypto can actually, you know, expand the reach of US values, right? Increase adoption of stablecoins in parts of the world that are actually not traditionally part of the US financial system. And then allowing the market to expand, right? Allowing the market to meet those needs.
Sujit Raman (20:01):
That’s a fundamentally American way of expanding prosperity, of expanding our, our, our values. And so, I mean, to your point, Sarah, I, I could see that area being one area in which we as, as a country do sort of expand appropriately our, our economic influence. The, the danger is that there are, as I mentioned, other parts of the world that are sort of less focused on stable coins but have been quite aggressive in advancing a CBDC, a Central Bank Digital Currency, and using that as a means of trying to gain leverage over other nations. The ECNY is a, is the Chinese central sort of digital currency, you know, hasn’t yet had a huge impact outside of China’s borders, but that is certainly part of the Chinese government’s plan, right? And they’ve already done a lot of domestic work on their central bank digital currency.
Sujit Raman (20:52):
That’s very concerning. I mean, it is absolutely an instrument of state control. Increasingly, you have to use, you know, the ECNY to do any kind of local transaction. The government is essentially watching what you’re buying, where you’re buying it, how you’re buying it, in what quantities, at what time of day. And it gets inserted into the Chinese citizen social credit score. And I mean, that has not only its own kind of Orwellian, you know, concerns, but it has very practical impacts as well because, you know, once the government has total insight into what a person is doing at all times, what they’re buying, there’s just no zone of privacy. There’s no kind of personal sense of ownership. Everything becomes an instrument of the state. And again, once it’s inserted into your, your social credit score, the state can make all sorts of decisions on your behalf or cut you off from certain services or certain ability to, to, to do certain things.
Sujit Raman (21:49):
And that vision is, you know, the plan is to export that vision outside of, of China’s borders into the, the developing world where, you know, increasingly China sees distributed ledger technology as part of the Belt and Road initiative, as they’re building infrastructure in parts of the world that are outside of China. You link it to the central currency and all of a sudden now Beijing has insight into financial flows and financial activity that’s happening outside of its borders. And again, because of the, you know, lack of restraint when it comes to censorship or other kinds of more sort of aggressive action, all of a sudden now, you know, the unit of currency has become part of the ability to control. So that’s, you know, as, as an American citizen and as somebody who was involved in US national security issues when I served in the government, that’s what actually drew me to this industry. Is the ability to help build something that is infused with sort of free ideals, right? With liberty rather than this potential for great sort of totalitarian activity.
Scott Wallsten (22:55):
So when it’s a distributed ledger, and so the person controls their own information, doesn’t this mean that the person has to keep their password and we hear all these stories of somebody who bought Bitcoin early on and then remember they had it and can’t find the password. So they’re lost. And if there’s a, a system that helps them remember the password, doesn’t that then destroy the whole point of the person controlling it?
Sujit Raman (23:14):
Yeah, it’s a good question, Scott. And I, I will, I will admit that there are technological answers to your question that are satisfying. And I wish I knew it off the top of my head exactly what they are, but that’s actually where we’re seeing a lot of the innovation. It’s a digital identity using blockchains to store personal information so that only you can access it, zero knowledge proofs, you know, using mathematics and cryptography to truly make it sort of that on-off switch where only you have access to it, but not one of those situations where you’ve got to remember, you know, 48 different passwords to, to do what you have to do. So it’s a little bit, again, analogizing back to the internet, you know, now we have a situation where you can sort of pretty easily log into your, whatever it is, your personal email account.
Sujit Raman (23:56):
But if you go back to the, you know, back in the nineties, maybe at the very early days, you’d have to sort of go through Unix, you know, and sort of type everything in and remember all the code. That is where a lot of the innovation is happening now, is making those user interfaces for, you know, remembering the information you need to need you need to remember, but not so that it’s this very burdensome kind of thing. So yeah, just biometrics or, or something that doesn’t change. And there are a lot of companies that are working on, on exactly the issue that you just described. I, I wish I had the technical background to, to explain it, but, but that’s certainly where a lot of the innovation is. That’s okay. I don’t have the technical background to understand X, so, we’re good.
Sarah Oh Lam (24:33):
Well, talking about technology, I thought maybe we could talk more about your TRM Labs software. So the premises I, I think is monitoring the public blockchains for where money’s going and moving in order to identify fraud or illicit payments or, so isn’t there a tension there between transparency, like the blockchains are really transparent and privacy.
Sujit Raman (24:57):
So let, let me answer your question, Sarah, but if, if you don’t mind, I’ll just back up a little bit and say just a little bit about sort of what we do and sort of how that helps inform my answer to your question. So TRM is a blockchain intelligence company, as you described it. You know, we have great insight into data, you know, trillions and trillions of transactions that are taking place on the blockchain every single day. And so, you know, we have visibility, and this is all sort of public information about where money flows are happening across 25 different blockchains. So, you know, most folks are familiar with the Bitcoin network, that’s the most sort of well known, prominent crypto network, but Bitcoin was, you know, is, is quite, is quite old, you know, when it comes to crypto. And since that time there have been numerous other blockchains that have developed and, and you know, you folks have probably heard of Solana or Ethereum obviously, and many, many, many others.
Sujit Raman (25:51):
And so we have unique visibility into about 25, 26 different blockchains and are able to see transfer of funds across those blockchains. The reason why that matters is, as you mentioned, you know, if there are fraud cases where people are moving, you know criminals are moving funds across different blockchains in an effort to launder funds or to hide. There are also of course, you know, legitimate uses of moving across different blockchains for privacy reasons. And maybe this is the, the direct answer to your question, Sarah. You know, you’re absolutely right that at least permissionless blockchains, public blockchains are basically transparent. You can, you don’t even need TRM, you know, tools for that. You can use a blockchain sort of explorer and see where different funds move across different blockchains and that is publicly available, that is fully transparent. But you know, there are ways to protect your privacy in this world of transparent blockchains.
Sujit Raman (26:46):
You know, number one is the blockchain itself. You know, we as a company don’t store any personal information. Everything that we are looking at is public blockchain data. So unlike a bank which needs your name and your, you know, driver’s license number and your address and your phone number and this and that, none of that is stored in our tool because all that we care about is the public blockchain, you know, Bitcoin address or Solana address or whatever it is. And so, you can start to see why in some ways the blockchain can be transformative when it comes to privacy issues. And when you combine that with a little bit of what, what Scott and I were talking about earlier about sort of turning on and off data that’s necessary for particular uses, you can start to see why the blockchain is actually transformative when it comes to privacy issues.
Sujit Raman (27:33):
You know, rather than the example that people often use is, you know, if you want to get into a bar, you have to show that you’re 21 years old and now that involves showing up, you know, they look at your face, you’ve got your driver’s license, which of course has all this other personal information on it before somebody will let you in. I can imagine a world in which, you know, through the use of, again, cryptography or zero knowledge proofs or other types of mathematical concepts, you’re able to sort of demonstrate that you are over 21 years old simply by showing up and presenting a particular form of ID or information that is stored on a blockchain. And that doesn’t require the other person to see exactly what your birth date is or exactly where you live or who you are. It’s just enough to confirm that you are who you are and that you meet that yes or no binary question of, am I older than 21 years old on this particular day?
Sujit Raman (28:23):
That’s the world in which towards which we are moving. And so, think about how almost liberating that concept is for privacy issues. You don’t have all these vast amounts of personal data being stored just inert on, on databases and not just one database. Think about how many databases out there in the world have your personal information on it, whether it’s your bank, whether it’s your credit card, whether it’s, you know, every, you know, shopping website, grocery website, you know, whatever it is. Think about all the different places where huge amounts of personal data are just sitting there stored, maybe encrypted, but they’re just sitting there, their honey pots, they’re waiting to be hacked. The blockchain provides the, at least the vision of getting rid of that entire sort of model that we’ve, we’ve sort of fallen into as a society, as a global society. So that’s one way in which blockchains can actually be very privacy protective.
Sarah Oh Lam (29:15):
But aside from yeah, the technology enabling to separate all that other demographic data from the transaction, I mean, like Scott said earlier, won’t companies want to combine their transaction data with, you know, their profiles of consumers? It’s hard to understand why the technology would change business behavior. I mean, unless the consumer wants to block a company from knowing more about them or, so I think the question always boils back to use case. So yeah, just because it’s possible doesn’t mean that it’s actually going to be useful or profitable. And then I guess going more towards the cybercrime angle, what do you see your clients like wanting to know about? Like are they just monitoring flows or what are their concerns?
Sujit Raman (30:05):
Yeah, well let me, let me answer your, your last question first. So, you know, we have sort of three basic verticals when it comes to, to customers, governments, and we’ll talk about them in a second. Financial institutions, and we can talk about them in a second. And then crypto native institutions is sort of a third large bucket for us. So starting with a third category, you know, for crypto native institutions, I’m talking about cryptocurrency exchanges or other, you know, sort of crypto basic units of the crypto ecosystem. They’re interested in our product primarily for risk compliance, right? If you’re a cryptocurrency exchange, you want to make sure that the people on your exchange are not terrorists, they’re not child pornographers, they’re not scammers. And so, you’re always monitoring different addresses out there to see if they’re associated with illicit actors. So, you know, for, for cryptocurrency exchanges or for other crypto native institutions, that’s a very kind of obvious use case for, for TRM, for government institutions, for government customers, it’s often the tracing capabilities, right?
Sujit Raman (31:11):
So if you’re an FBI agent or if you’re an IRS agent and you are investigating crime, it’s a scam, or there’s a money laundering case that you’re working on, you would use our tool to essentially log your work and see how funds are flowing from point A to point B. And again, it’s not just A to B, it’s also, you know, one, two, and three, right? Because you’re going across different blockchains, there are mixers, the funds get sort of mixed up and spat out. You’ve got to trace all of that if you’re trying to solve a crime or if you’re trying to keep tabs on illicit actors like ransomware groups or terrorist organizations. And so that’s how you would use TRM in that context for tracing and for advancing your investigations. And finally, the third major category are financial institutions. And so often how they use our product is for sort of assessing the risk associated with particular wallets.
Sujit Raman (32:03):
So if you’re a large bank, you want to make sure that you’re not doing business with sanctioned entities. And so, a company like TRM, you know, we keep very close sort of monitoring on OFAC list or other sanctions lists that are associated with illicit actors. And so, if you are a financial institution, you can use our tool to ensure that you are, you know, you’re not interacting with sanctioned parties or other illicit actors, or at least you can rank the risk of dealing with certain kinds of crypto wallets. And then there’s also transaction monitoring, right? So the wallet screening happens before you send funds. The monitoring happens over time so that once you’re actually in a particular ecosystem or a particular environment, you, you know, you want to make sure that money isn’t coming in from let’s say, you know, the North Korean sanctioned Lazarus group or some other illicit organization.
Sujit Raman (32:53):
So a lot of it is sort of that compliance monitoring. But because of that unique insight we have into blockchain data, you know, we see what’s happening on the ground. The blockchain is real, it’s immediate, right? So you see when funds are moving from Russian parties trying to raise funds for the war in Ukraine, or you see funds immediately moving into wallets open by the Ukrainian government trying to raise funds to wage the, the war against Russia. If a child sexual exploitation group is trying to raise money or, you know, exchange money for videos, you’ll see that happening in real time. And from a, you know, former law enforcement point of view, I find that, again, transformative. I mean, typically when you’re running investigations, you’re subpoenaing a bank or you’re subpoenaing some other third party, it takes several weeks for the, you know, materials to come in. This is real time transfer and sort of monitoring of fund transfers, which means that you can identify that illicit activity much more quickly than under the traditional system. We can, we can talk more about that as we go forward, but again, I think from a, a law enforcement or a regulatory point of view, that’s also another transformative aspect of, of the technology we’re talking about.
Sarah Oh Lam (34:06):
I mean, I think that kind of depth of information is important for the crypto conversation because maybe, I don’t know, it seems like a lot of crypto enthusiasts think that, oh, you know, the money flows won’t be watched or, but they are, I mean the financial criminal investigators, they, they follow, you know, every transfer of over $10,000, the banks have to report it to the treasury department. So there’s a lot of monitoring that happens that people don’t know about and they think that’s a vestige of the traditional system, but it’s going to come to crypto too, I presume.
Sujit Raman (34:41):
That’s absolutely right. And if anything, I think crypto can lead the way because, I mean, you mentioned the reports that bank officers have to file for, you know, suspicious activity, right? They call them SARs, Suspicious Activity Reports for anything above $10,000. You know, in theory it’s a perfect system. But the reality is, you know, these SARS pile up, there’s huge backlogs, there’s a lot of paperwork that’s filed, and one of the consistent criticisms is that, you know, it creates a lot of compliance obligations and a lot of compliance costs. And yet what is the actual return on all these, all this paperwork and putting aside all the privacy issues, right? Cause these SARs typically contain very sensitive personal, you know, transactional information on them, which makes them targets for hacking or leaking or, or whatever else. When it comes to blockchains, you know, you can see that $10,000 or frankly that $4,000, even though it’s structured in many different ways, you see that transaction right away.
Sujit Raman (35:37):
And you can set up your use of, for example, the TRM tool to notify you when funds are being transferred so that it’s, it’s an automated process. It’s not like you have to sit there monitoring it. And so that’s why, again, I say, you know, the, the, the sort of, the blockchain creates a completely different way of thinking about international financial flows of thinking about rooting out illicit activity and bad actors, but also maintaining privacy in a way that’s actually very privacy protective. You know, you don’t have the government or you don’t have some large, you know, third party institutions snooping on all your transactions or kind of monitoring every single financial thing and then trying to sell you ads or, you know, whatever else it is. In some ways if we get this right, it actually does create a regime in which you’re safer in a lot of ways. You’re also more protected and you also have more freedom. I, I, I don’t want to sound like a utopian about it because we’re a long way to go, but I think for a lot of people in the industry that’s actually the compelling and sort of exciting vision that we’re trying to build.
Sarah Oh Lam (36:36):
And I mean, I hear two different things and what you’re saying, like part of it is, well, shouldn’t the current traditional financial system be faster? Like it’s slow and for not good reasons. Like, so is this an indictment on the Swift network or the current like monitoring processes that they’re just too slow and, and digital money can move faster, but it, it also sounds a little bit like it’s just an evolution of the current system. So we’re, we’re going to eventually be overlaying the same enforcement regimes on crypto, they’ll just be better. Is that correct?
Sujit Raman (37:10):
Yeah, so I mean, we are certainly operating within a particular regime, right? Like we live in a world in which the bank’s secrecy act exists. We’re living in a world in which sanctions are what they are. And if you violate them, you know, OFAC comes knocking on the door and if it’s a really willful violation, it’s my old colleagues of the Justice Department, right? So I mean, I think we’re operating within, at least in the enforcement realm within particular you know, legal regimes that are, they are what they are. So the question becomes how do you comply with them? And in a way that’s actually, you know, mission driven, right? That’s actually a sort of advancing the goals of why these laws exist in the first place. And I think, you know, most compliance professionals would, would tell you that, you know, as time has gone on, we have sort of ended up in this world where there’s just a lot of paper shuffling and people take it seriously, you know, they want to do the right thing.
Sujit Raman (38:07):
I mean, you know, it’s not that this is just sort of mindless, I mean, you know, people who enter the space are often motivated to make sure that illicit actors are not using the global financial network to, to do really bad things, you know, human trafficking or terrorist financing or whatever. So I, I think the mission orientation is there, but there is so much volume and frankly there are so few enforcers out there, right? You need the resources to be doing this kind of work. And increasingly as time has gone on, we’re finding that mismatch where there’s just a lot of paperwork and the government can only pick and choose a few cases. And the reality is a lot of, again, illicit actors are getting away with it, so to speak. So I think what, you know, everything that we’ve just been describing, the promise that this technology foretells is the ability to be much more targeted, much more efficient, but also much more effective in, you know, identifying illicit activity and making sure that bad actors truly are, you know, identified and then brought to justice.
Sarah Oh Lam (39:06):
Awesome. So what do you think about like your crypto peers, you know, I’m sure like you have thoughts about, there are some people who are just like all in gung-ho nothing’s wrong with it. There are others who are more realistic or skeptical, and then folks like yourself who’ve come from a traditional enforcement background and are now in this new technology. What do you think of, of the crypto community?
Sujit Raman (39:29):
I mean, look, it’s fascinating, right? I mean, it really does feel, I was talking to a friend about this actually just the other day, and it, it feels like the early days of the internet to be honest. You know, the days when you could go on a, in a chatroom, I don’t know, I’m probably dating myself here, but sort of the mid-nineties, right? Where you sort of get your dialogue modem and you go to a chatroom and you don’t know who you’re going to interact with because you have no idea who’s on the other side. It could be, you know, it could be somebody from down the street. It could be, you know, a professional, you know, poker player. It could be some other random person, it could be a high school dropout, it could be a PhD, it could be a professor. I mean it could be anybody, right?
Sujit Raman (40:04):
And I think there was a sense of excitement around that. I mean, I certainly remember it, I was in high school in the mid 1990s, but there’s also a little bit of that, like who, who is on the other side and who are, you know, what’s going on. And that’s, I think where we are with a lot of crypto, there’s a lot of energy, there’s a lot of innovation. You know, some of the finest data scientists are flocking to this, this field. And there’s a reason for that because that’s where a lot of the challenges are. It’s where a lot of the, we talked earlier about some of the technological issues, you know, so you’ve got brilliant people moving in. You’ve got institutional traditional institutions moving in like banks. You’ve got governments interested in this for, for various reasons. That’s how I first came into crypto was through my enforcement background.
Sujit Raman (40:43):
It’s a very diverse community and I think that’s what makes it a lot of fun. But with that, you know, comes its own set of risks and I think a lot of that initial kind of libertarian push behind crypto is starting to be leveled out by a recognition that there does need to be regulation, but it’s got to be smart regulation, it has to be regulation that actually advances the goals of what, you know, everyone is in, is in the industry for. But I think even some of the leading, you know, most prominent members of the crypto community are now very much publicly on record saying we need regulation. Whereas I think, you know, three years ago, two, three years ago, four years ago, you might have heard a very different message coming from those very same people. So that just shows the maturity in the thinking of how people sort of think about governments within the crypto ecosystem and what role government can and should play.
Sarah Oh Lam (41:34):
Great. Well on that note, I think that was a really good wrap up. Crypto is here to stay. I mean, we were talking about it five years ago and we’re going to look at another five, 10 years and see what happens. Thanks Sujit so much for your time and hope to hear from you again soon. Great.
Sujit Raman (41:48):
Thanks for having me.
Sarah Oh Lam (41:50)
Thanks for being with us.