Tech'ed Up

Solving Crimes on the Blockchain • Jennifer Vander Veer (TRM Labs)

May 12, 2022 bWitched Media
Solving Crimes on the Blockchain • Jennifer Vander Veer (TRM Labs)
Tech'ed Up
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Tech'ed Up
Solving Crimes on the Blockchain • Jennifer Vander Veer (TRM Labs)
May 12, 2022
bWitched Media

Former FBI agent, Jennifer Vander Veer,  now runs product strategy at TRM Labs.  She joins Niki to discuss what it was like to be one of the first cops on the digital currency beat, how criminals think about emerging technology, and separating fact from fiction when it comes to information retained on distributed ledgers.  She believes that blockchain technology could ultimately lead to a safer financial system.

“If you want crypto to become adopted fully and mainstream, you're going to have to have the kind of security and regulations and risk mitigation in place that the rest of the financial sector has.” -Jennifer Vander Veer

Show Notes Transcript

Former FBI agent, Jennifer Vander Veer,  now runs product strategy at TRM Labs.  She joins Niki to discuss what it was like to be one of the first cops on the digital currency beat, how criminals think about emerging technology, and separating fact from fiction when it comes to information retained on distributed ledgers.  She believes that blockchain technology could ultimately lead to a safer financial system.

“If you want crypto to become adopted fully and mainstream, you're going to have to have the kind of security and regulations and risk mitigation in place that the rest of the financial sector has.” -Jennifer Vander Veer


[music plays]

Niki:  I’m Niki Christoff and welcome to Tech’ed Up. Today kicks off Season 3 of the show, which will now drop every two weeks.

In this episode I’m talking to a former FBI agent about her work as one of the first cops on the digital currency beat. She says criminals definitely are laundering money on the blockchain.  For those of you who are just so over crypto, the next few episodes are on totally different topics.  I swear! 


Niki: Today in the studio, we have Jennifer Vander Veer, she was a federal agent for the FBI for 14 years?  [Jennifer:  14 years] And during that time you were not allowed to talk publicly? 

Jennifer: No, I wasn't an only, in very limited circumstances, but they don't really let us talk to the press or really talk much about what we do.

Niki: So, this is a great opportunity because other than being in a courtroom, you haven't talked to very many people, but you now can, because you have moved from law enforcement into crypto.

Jennifer: I have, although I was in crypto in law enforcement, but now I'm in the private sector, which is a whole other universe. 

Niki: I’m glad you said that because I think yesterday when we were chatting, I said we were all new to crypto. And you said “I'm actually not at all new to crypto1” [both chuckle] So, tell me a little bit about what you were doing for the FBI originally, and then how you ended up working on digital currencies and bad guys. 

Jennifer: Yeah. Well, when I started in the FBI, I was working counter-intelligence and so that is on the national security side of the house. And I worked things like espionage, economic espionage, and other “secret squirrel” type cases.

I loved doing it. I worked a number of country threats and it was really fascinating. But I was given the opportunity about eight years into my career to switch over into cyber, which to me was really interesting because I had a background in engineering and I'd been in the e-commerce world prior to getting into the FBI.

So, I really liked the idea of getting back into tech and doing something that was just much more out of the box and creative, because cyber was just a crazy wild west kind of world. So, I switched over to cyber and very shortly after getting into the cyber investigative area, I ran across a few cases that had crypto. And at the time, very few people in the Bureau and kind of still, not that many people in the bureau were looking into cryptocurrency.

So,. no one really knew what it was and there wasn't a playbook of how to investigate it. So, I got to just kind of teach it to myself and learn it. And I ended up getting pretty good at it. And so, I spent a lot of time just working really big cases, tracing cryptocurrency, which was just fascinating because I got to touch cases all across the Bureau in all these different realms of national security and crime and fraud and big exchange hacks, it was, uh, it was exciting. 

Niki: It is exciting! So you started doing this in what year?

Jennifer: Oh, 2015 or 2016. 

Niki: Okay. So basically seven years you've been working on these issues where, and the reason for this podcast, a big reason is to get people up to speed in Washington D.C.

And there are people in the government who really know this stuff. There are people, obviously in some of the buildings you worked with who are really smart on this cause they've been working on it as long as you have, but all of a sudden, the people like me, the lawyers and policy staffers have to really understand it.

And you and I were on Capitol Hill briefing staff yesterday, just to help them understand blockchain technology. And it's still very nascent for a lot of people. People are getting smart fast, but there's still a big gap. And one of the things I think is, y’know, a narrative is that criminals use crypto, which they do

And I don't think the industry should keep saying they don't use it. They do use it. You know this ‘cause you used to track them. [Jennifer: Yeah] So I'd love you to talk. Your work now, why you joined the private sector and what you're doing.  

Jennifer: Sure! So, definitely criminals are using crypto. I mean, criminals use any type of financial instrument out there, right?

Because there are some crime that is not financially motivated, but a lot of crime and a lot of illicit activity is financially motivated and the criminals are looking to do the same kind of things that, that people are, other people are, trying to do. They want to reduce their fees. They want to reduce their risk. And they're trying to move funds quickly and easily. And so, moving stolen or dirty money across any type of border or from one infrastructure to another is hard for criminals. They have to create fake IDs. They have to use intermediary parties, whether it's money mules, or other sorts of people to get money from one place to another. And every time that money touches something else, there's usually a cut that comes off of it. 

So, when actors are trying to move money, cryptocurrency is a great place to do it. And criminals also like taking on new technologies. They like to be in places where law enforcement doesn't have a lot of visibility. And when cryptocurrency was just moving into the world and just being adopted, we had almost no visibility into it. So, it was a place where they could operate very freely. Now that has changed and is continuing to change. But, quickly moving funds across borders with low fees is a great way to get stolen money out of the country. 

Niki: So, just to recap, for sure, criminals are using crypto, just like they're using any other kind of money. [Jennifer: Yes]  Criminals are early adopters of technology because it keeps them one, one step ahead of the law  [Jennifer: Yeah] and they also are interested in the same benefits other people are: getting cheap, fast, fewer intermediaries between their money and where they need it to go. 

Jennifer: Yeah, if you think about the typical Nigerian prince scheme, that still exists in a lot of different iterations, right?

So, someone in Nigeria would have to send a message of some sort to somebody in the U.S. and they would convince them to wire funds somewhere, usually not back to Nigeria, sometimes it would be to a bank in the U.S.  Someone would then have to get that, have that account in the in U.S. and then either move those funds out of that account by withdrawing from an ATM and Western Union or moving to another account and there would be all these hops, these schemes and eventually, and the, and the Nigerian fraud schemes, they have these very complex networks within the United States and outside the United States. And they would move money, many, many, many hops until it would work its way back overseas. And then, suddenly we started seeing them using crypto and suddenly all these networks that they needed to have on the ground in the U S were no longer necessary. And they could just move it over to Nigeria and cash it out there. 

Niki: It's like Ozarks. They don't need that guy sitting- I didn't really watch Ozarks, but I know he was laundering money.  [Jennifer: Yeah] Anyway, so. Okay. So,  when you were an agent, you were using some tools to, and I know you probably can't talk about everything you were doing and we don't want to give away exactly the tools that people in law enforcement use, but you were using some tools to track these bad guys, these criminals. And why did you move into the private sector? 

Jennifer: So, there are a number of companies out there that were building tools that allowed us to trace funds across the blockchain. And they're pretty well known.

Chainalysis is out there. And then the company I work for, TRM Labs, is out there and. And there's also a few others Elliptic, CipherTrace. And we were using all these tools to allow us to see funds moving from address to an address across the blockchain and kind of find out where they were ending up.

So, I became very familiar with a lot of the tools and was using them regularly. And at some point realized that this company, TRM Labs, was building a tool that was a little bit different. It seemed a little bit more innovative. It seemed like it was the kind of tool that was going to be able to grow rapidly as the blockchain emerged and evolved.

And I thought that was really exciting. And I was talking to them a lot and giving them feedback and kind of what I loved about the tool. And they were innovating really quickly. I would give them feedback. And a few weeks later, the feedback I gave them was back in the tool. And so when they asked me. If I was interested in leaving the FBI, it was a very, very hard decision.

It was, I was very passionate, and still am very passionate, about the mission of the FBI, but it just seemed like an exciting chance to grow myself professionally and do something different, but still be able to have the kind of impact that I was having. So, and the idea, and the idea, that I could help build a tool that would allow me to influence thousands of investigations rather than just use a tool to do a handful of investigations was very appealing. 

Niki: So, that's what you're doing now. You're working on creating and improving and innovating the tools that you had used when you were in the FBI to help your former colleagues.

Jennifer: Exactly. So, I am handling product strategy for TRM Labs. And what I do in that role is [pause] kind of act as an intermediary between our customers and our teams that actually do the building and relay what, how the tool needs to evolve to give them a sense of what the users need to do or need to have in order to be able to trace cryptocurrency.

And also we serve a lot of the financial sector too. So, there are a lot of financial institutions in addition to government customers that are doing tracing, but financial institutions are using these tools for compliance to make sure that they're not taking on bad money and also for risk assessment to make sure that as they are getting into this space, they're dealing with addresses and funds that are not coming from illicit sources.

Niki: I don't think it's good for the business of to pretend there are no criminals or to be anti law enforcement and the Feds. It's actually business advancing to say, there is this activity and we need to make sure that there are people on the case so that the legitimate businesses can grow and thrive and not have this extremely unhelpful narrative sticking to them.

And so, I'm actually, I think at some point early in crypto, there was this idea of being kind of anti the Feds. But in fact, I think partnering and helping address that illicit activity is a business, it's business advancing for the other companies. And I think they should lean into it. Hot take by Niki. I'll be, I'll be thrashed on crypto Twitter for saying that. 

Jennifer: Well, I think right now there's plenty of people in crypto that, that, want crypto to remain kind of outside the realm of regulation. And they're okay putting their money into crypto and not having it be at risk from all the forces that might cause risk and loss to them and that's their choice, but there's also a lot of investors now getting into crypto that don't want to take on that kind of risk. And so, I think if we want to attract the kind of investors that aren't okay with that sort of freedom and lack of regulation, we have to bring it in.

Niki: That's a great point because there are people I do see this. They're like, “Oh, it's a rug pull. That's just part of being in this space. I got, I got robbed.”  No, one's calling the Feds. And I think that is actually a type of person who invests. And there are hacks, right? For sure. There are hacks of people's accounts. But you're right, maybe as it becomes more mainstream, you'll have people- I would put myself in this category, I don't really feel great about the idea of not having cyber protections and having some control over what's happening to my funds. I don't want to lose them completely.

Jennifer: Yeah. And those types of, I mean, if you want crypto to become adopted fully and mainstream, you're going to have to have the kind of security and regulations and risk mitigation in place that the rest of the financial sector has.

Niki: Yeah. Can you help me understand? Sometimes I feel like there's an intellectual inconsistency when we talk about crypto where people say it's completely anonymous and then they say, but criminals don't use it. And I’m like that can't be true because if it's anonymous, I do think criminals are using it. Can you talk about anonymity and what's really on the blockchain, how that works?

Jennifer: Yeah. Yeah. So, the blockchain is a distributed ledger, so it's a record of all the transactions. And, and when I say the blockchain, I’m speaking generally, there are a lot of different blockchains, but generally speaking, they all work in a similar function in their distributed ledger, meaning that there is a record of all of the transactions that have ever occurred on that blockchain going back in time.

So, you have this, this batch of information, unlike in a bank where you could never see all of the transactions that that bank has conducted and all of its customers have conducted over time. And on the blockchain you can. So, you have a history of everything that's ever happened, which is visible to everybody.

Niki: Permanent evidence.

Jennifer: Permanent evidence. Yes. That chain contains a fair amount of information, but the key things that are on it are when the transaction occurred, how much the transaction was for and who the transaction was generally from and to. So the, the parties involved.  And there is no information that's contained that says who the parties are.

So, so it's, it tells you kind of an address, an anonymous number or a batch of numbers of who. I keep saying “who,” but it's not exactly who, right. It's just an address without any identifying information of where the funds came from and then where they went to. And so, there's no storage of any identifiers or names or dates of birth or IP addresses.

None of that is actually retained in the blockchain. 

Niki: There's not even any IP address?

Jennifer: No, IP addresses are not, none of- not on the standard blockchain. So, there's a lot of technology out there but generally speaking, no IP addresses on the blockchain. So, there's no way to connect this sort of transactional record, this ledger, to the people actually conducting the transactions, not from the blockchain itself.

So, as law enforcement, you can look at this and you can see everything that's happened and you can see the funds flowing and you can use tools to trace funds across the blockchain, but you don't know who's moving those funds. And so, that is where the investigation occurs because now you have to start putting together information that you have in other ways and connecting the addresses on the blockchain to real-world people or entities. And so, that is like one part of what blockchain analytics companies do. 

They, to me, I see them serving two major roles, as far as the intelligence they put in the blockchain, they help you trace the flow. So, they help you visualize this very, very complex pile of data of all these transactions of where funds are going from and to, but they also layer on this attribution information. And attribution information tells you the who, either person or organization or entity that is actually associated with an address or a group of addresses.

Niki: So, tell me if I'm getting this right. ‘Cause I might be getting it wrong. But right now we're seeing a lot of headlines about sanctions, Russian sanctions. And in theory- and then there's a lot of discussion: is crypto being used to evade sanctions? And the idea that an entire country, as big as Russia with their economy is somehow going to avoid the sanctions that U.S. citizens [interrupts self]. So, it's actually sanctioning us, right? We can't sell to them, but what I'm seeing with these oligarchs, and by the way, I might be totally wrong on this because I'm just reading headlines! [chuckles] 

But if a Russian oligarch has a, does not have any of their personally identifiable information on a wallet. There are investigators in the U.S. government still sanctioning those specific wallets because they have figured out who it is. And they know that it's a problematic actor if it's like a North Korean or someone. Is that right? 

Jennifer: Yes. So, if the U.S. government. Has evidence proving that a wallet is controlled by a sanctioned individual or entity, then they can sanction that wallet. And then you can't do business with that wallet because they have evidence showing that wallet is controlled by the sanctioned individual or entity. 

Niki: So, that's the use case where we would want companies like yours or whomever to be able to help partners identify a problematic person connected to their problematic activity.

Jennifer: Exactly. [Niki: Okay] And actually, when an address gets sanctioned on the blockchain, we include that in our tool. [Niki: Oh!] So, all of the financial, financial institutions and all of the, the investigators that are using our tool now can see immediately when they see that address in the blockchain or that, that it is sanctioned.

And it shows up as sanctioned in the tool and they know, okay, if we see transactions going to this address, this means that someone is now doing business with a sanctioned party and they can do the investigations to see who's doing business with that party. Or as a financial institution, they can know that they don't want to be doing business with that sanctioned address or with anybody that is moving funds to, or from that sanctioned address.

Niki: So, it is protective to the entities that want to comply with the law. [Jennifer: Absolutely] Right. And there are definitely entities in crypto that don't want to comply with the law. I don't know. I keep thinking of The Clash song. I fought the law and, you guys, the law won.  I like, I just keep thinking of it- and I know maybe I'm probably farther on the other side to early crypto adopters, but there's a little bit of tension among the people who work in this space.

And I think if we can separate out truly the bad guys and then everyone else has some of the privacy protections. No, one's looking at my wallet because what's in it like a dumb NFT of a rabbit [chuckles] rabbit, smoking a carrot. 

[both chuckle] 

And I have, like, almost no money [chuckles] in my, you know, I'm not really a problem-  one, I'm not a problematic actor or a criminal and two, I don't think there's any reason anyone would be looking at what I'm doing. 

But if you have a reason to, we want to have those tools.

Jennifer: Yeah, you do. If, if you are a person that's investing in crypto and one way or another, either a victim of a scam or your account gets hacked and that money gets stolen, you want someone to be able to figure out where that money is. And be able to try to recover it if it's possible to be recovered. And so, the tools that we build are the tools that are used to do that. 

Niki: Yeah. Perfect. So, we might end, we have just a couple more minutes. You said something harrowing to me the other day, you said people don't really understand the pipes that the regular financial system is built on. [chuckles] And it's why blockchain is so important. And so, I want to give you a platform to talk about that. 

Jennifer: So, I'm not a specialist in the financial sector, but I do know that the ways that we currently resolve transactions moving across international borders is very archaic. It's existed for a very long time. Wire transfers to SWIFT network. All of these things are very complicated and they require a lot of individual institutions to all work together, to be able to resolve a single transaction, moving across borders.

Niki:  So, you think blockchain technology will inevitably replace the current archaic sort of pipes that everything is built on because it's more transparent. It's faster. It's going to be more reliable than having a bunch of small entities.

Jennifer: I think the technology is superior. I don't have a crystal ball to be able to say what's going to happen in our financial sector, but I do think that the underlying technology, but I think the technology itself is very sound.

Niki: I agree with you.I think the blockchain technology is what's really interesting, but that's also not what regulators are, like, freaked out about in D.C. They're worried about the money side of it and people's financial exposure. [Jennifer: Yeah] So, if we can make those investments a little safer for mainstream people, I think that's going to help the industry thrive and grow.

Jennifer: I think one thing also to remember about [pause], the beauty of blockchain technology or this idea that you have a permanent ledger of all transactions is that crimes that are committed now, or that were committed in 2016, the Bitfinex hack, which my coworker at TRM, Christian Janczewski, actually was one of the lead investigators on. That occurred in 2016 and it wasn't until 2022 that they were actually able to charge and arrest anybody involved in that case. 

And the reason there was that much time and that much ability to continue working that case was because of the evidence. The flow of those funds existed throughout. The evidence of the crime was there at the beginning and it remains on the blockchain. So, any of the methods that were used to obfuscate those funds, whether it was going through, an elicit service, like a darknet market or going through a tumbler or a mixer., those technologies may have been very hard to trace at the time of the crime, but after law enforcement potentially sees those darknet markets, that had access to all the records or learned how to demix the mixers using the technology, they could understand how funds float through the mixers.

They were now able to trace the funds right to where they ended up, which is something that I think is a little bit analogous to what you think of as DNA evidence? So, in a lot of these very old cold cases, we have DNA evidence and it was a dead end because we didn't have a large record of DNA to match it to. But now with the emergence of all these records in services like, where we have all these DNA records, we can now start actually connecting the DNA evidence to the criminal actors that committed the crimes. And blockchain is very much the same way. We have this evidence and technology is going to emerge to help us trace all the things we can't trace now.

So, the crimes that are being committed now will likely be able to be solved in the future much more quickly than the, the, emergence of the DNA technology because blockchain evidence exists forever. 

Niki: Which is the beauty of the blockchain; it's there. [Jennifer: It’s there] You can see what was moved between two, I guess, places, entities. And then once you can figure out and have the tools as to who it is. It might take a while, but eventually you can solve that crime.

Jennifer: And TRM is innovating every single day to figure out how to trace funds and, and work at how or look at how the different technology is being applied to the blockchain and understand the heuristics behind it.

So, these kinds of tools and this kind of technology is emerging as fast as, as blockchain is emerging. The financial sector is going to get safer because you have this evidence that has existed for so long. So, I think as technology emerges, we will get safer. 

Niki: I think that's a great point to end on! And I want to thank you for coming on because there's such a stereotype of who works in crypto. And I have the great pleasure of working with a lot of women in this space and also people who are very committed to the national security mission, to the law enforcement mission, to, to the global financial system, not just U.S. actors, but people in places with collapsing currencies or collapsing regimes. Maybe you're in Ukraine and the only thing you're taking with you is your smartphone. 

And so, I really enjoy working with people and highlighting the voices that are a little bit different than what we see, which is, you know, guys driving Lambos.

{both chuckle]

So, I'm really grateful that you took the time to come on. 

Jennifer: I know a lot of fantastic and brilliant women working in crypto on the law enforcement side and on the blockchain intelligence side. So, we're out there and we're actually a big part of this effort.

Niki:  Awesome! Thank you so much for coming on and for the work you're doing.

Jennifer: Thank you!


Niki: Just a reminder that the show is shifting to an every-other-week schedule, so be sure to follow in the app so you don’t miss an episode.

My next conversation is with Payton Iheme from Bumble. She joins me in the studio to discuss the dating app’s crusade against digital flashing. That’s right, the gross but very real phenomenon of people sending unsolicited “dick pics.” 

You won’t want to miss it. Well, you might wanna miss it but you really shouldn’t. See you in two weeks.