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Ep 62: Crypto Crime, Sanctions & Signals: Evidence in the Blockchain
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Description: Illicit finance in crypto exists, but it's not the whole story. Ari Redbord (TRM Labs) walks us through the real numbers, how blockchain data is used as evidence, and what better enforcement could look like. From sanctions to smart compliance tools, we get into what’s working and what still needs to improve.
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Transcript
Introduction to The Policy Layer Podcast
00:00:06
Speaker
Welcome to the Policy Layer, where we talk about the real decisions shaping crypto, tech, and the future of trust. I am Silvia Sanchez, your host from the Avalanche Policy Coalition. We aim to bridge the gap between the builders of Web3 and the people that are shaping the rules. On our podcast, you'll hear from policymakers, developers, academics, and others working at the edge of tech and regulation.
00:00:32
Speaker
We ask the questions that everyone's actually wondering and we keep it easy to follow. This is the Policy Layer.
Aerie Redbird's Background in Policy and Crypto Compliance
00:00:43
Speaker
Hi everybody and welcome back to the Policy Layer. I am Silvia and today we're talking about something that's often misunderstood, frequently politicized and also very trendy. Illicit finance in crypto. We're going to get into what's real, what's just hype and what's actually traceable.
00:01:03
Speaker
My guest today is somebody who has spent years working at this from a lot of angles. We have Aerie Redbird, the global head of the policy at TRM Labs, the blockchain intelligence company. And prior to joining TRM, Aerie was the senior advisor to the deputy secretary and the undersecretary for terrorism and financial intelligence at the US Treasury. In addition, Ari works closely with regulators, The Hill, and the Interagency on Issues Related to the Bank Secrecy Act, cryptocurrency, and anti-money laundering strategies. And this is quite a lengthy intro, so I'm really happy that he's here with us. And thank you so much, Ari. Hey, Sylvia, thank you so much for having me. No one's ever called me trendy before, so I love that.
00:01:47
Speaker
um That is fabulous. And no, really looking forward to the conversation today. Awesome. So you have gone from DOJ prosecutor to crypto compliance guru, if we want to put it in that way. um But what pulled you into this side of the digital world, crypto assets? What was that sort of of pull, of shift for you?
00:02:08
Speaker
You know, it's interesting. My my crypto origin story is is a little different than folks, you know, who invested in Bitcoin early. i wish that was my origin story. um but But really, when I was a prosecutor at the Department of Justice, I was starting to see North Korea more and more use Bitcoin to launder funds. This was before these huge hacks that we've seen proliferate over the last few years.
00:02:30
Speaker
and kind of got interested in the technology. What is this, right? How can you transfer funds outside of the global financial system?
TRM Labs' Mission to Protect Technology
00:02:37
Speaker
And really started to go down that rabbit hole a little bit. And when I got to to the U.S. Treasury Department, um you know, the li Libra project launched. um Ultimately, Facebook's failed stablecoin project, but I think that has such a huge impact on the space. So tried to really understand it from a policy perspective. And then finally, when I joined yeah TRM about five and a half years ago after about 13, 14 years in the US government, um I realized that the technology is extraordinary, but we really need to protect it.
00:03:06
Speaker
And what we're doing at TRM is we're really building that infrastructure to help financial institutions and cryptocurrency businesses, law enforcement, stop bad actors from using crypto to keep the overwhelmingly lawful ecosystem safe. That's amazing. And it's great to also remember that most of the ecosystem is actually safe. There are people building legitimate projects, solid economies.
Understanding Crypto Crime and Compliance
00:03:29
Speaker
And i also wanted to pivot into the elephant in the room because how much crypto is actually being used for illicit activity today? Because I think it's very easy when we get lost in the headlines and when we hear of a fraud and crypto, it sort of feels bigger than what it actually is now. No, you absolutely nailed it. And, um you know, this is great timing. Our crypto crime report for 2026 just dropped a few days ago. And to give you a sense, 2025 was a record year for crypto crime.
00:03:59
Speaker
ah We saw an all time high of about $158 billion dollars in illicit activity in the crypto ecosystem. But really, really importantly, that only makes up about 1.2%, actually down from twenty twenty four And the reason I say all of this is like whenever we're talking about illicit activity and all I do is think and talk about illicit activity. But really what I'm thinking and talking about is that one, one and a half percent.
00:04:26
Speaker
um and And those threats are existential, right? They are people losing their life savings to scams. They are, you know, $1.5 billion dollars North Korea hacks to be used for weapons proliferation. It's um Iran, of the IRGC funding operations in crypto. but it's still only a tiny percentage of overall activity. So while I'm always thinking about it, I always really try to sort of – ground myself in the reality here that it it is still a tiny percent of overall activity, which is overwhelmingly lawful. That's amazing. And this reminds me of a statement that I've heard you say at a few conferences, and it's a crypto doesn't create new crime, but it creates new evidence. And just building on that, could you unpack that a bit more for people who still think that crypto somehow enables crime?
00:05:18
Speaker
Absolutely. You know, look, I don't even like, you know, my my colleague Nick Furneaux famously wrote a book called There's No Such Thing as Crypto Crime. And he and I have used that expression for years. And I love that he used it at the title for his book. ah But there is not. there are there are Crypto is going to be used in the commission of every crime. It's the means of value transfer. Just like there's no dollar crime, there's no cash crime. It's just crime.
00:05:42
Speaker
And as the crypto ecosystem grows, we're going to see more and more lawful activity. And we're going to go see we're going to see more and more illicit activity. I thought 2025 is just ah really the first and best example of we've seen this incredible growth in the ecosystem, financial institutions starting to engage state proliferation of stable coins, four trillion in stable coin activity. um But we've also seen an increase in crime. But again, a smaller amount.
00:06:08
Speaker
from the actual percentage of overall activity. um You know, it's interesting. I love that that saying, and I probably stole that from my colleague, Chris Janczewski, who leads our global investigations team. He was a very famous investigator for IRS criminal investigation. He and I were in this very cool Netflix documentary together on the Bitfinex hack. But Chris talks about blockchains as crime scenes.
00:06:32
Speaker
And what's so extraordinary about them as crime scenes is that they are traceable, they are trackable, and they're immutable, meaning that they can never change and are forever, right? ah We don't have that in the real world. um and And that is why if you talk to investigators at irsci If you talk about investigators at FBI, HSI, ah the Met Police in the UK, in Singapore and around the globe, they will say that crypto investigations on chain are much easier than the bulk cash smuggling and networks of shell companies that they have to deal with in the real world. And I think that's pretty much the value proposition of blockchain. I think that's why so many people are building on top, because it's immutable, it's traceable. So basically, it could be easier to investigate when the evidence is on chain. um And I think that it's so important to remember that blockchains are public ledgers and not get... jumbled up with everything that happens in the crypto and the side of trading and everything but just remember that they are out there you can go on the explorer people can see what happened when and who did it so just could walk us through like on this quick overview of how trm helps trace illicit flows in real time Absolutely. So what we are at our heart and soul is a data provider. We have a team of blockchain intelligence experts who focus on threat categories. So we have someone who focuses full time on child sexual abuse material, focuses full time on ransomware, North Korea, terrorist financing and 40 other categories, sanctions.
00:08:06
Speaker
um and and And they are attributing cryptocurrency addresses. In other words, they're labeling addresses that are associated with illicit activity. um And ultimately, so ultimately, we have someone transacting or or or or ah connecting with a terrorist financier.
00:08:23
Speaker
They send us an address and we label that address terrorist financing. But we're then able to see where are funds going ah from that wallet address. ah who Who are they receiving funds from? What wallets are they receiving funds from? And we start to map out the illicit crypto economy.
00:08:41
Speaker
Law enforcement is then able to use our tool in real time to watch those funds flow from an address that we've associated with terror financing. You know where are they going? Are they going to a cryptocurrency exchange where we can act where where law enforcement can send a subpoena or a legal process?
00:08:58
Speaker
to block those funds or get the underlying information, the user information. And then they're building these investigations. And that's what results in these like really cool graphs that you see on our website and on my LinkedIn posts um that describe the funds moving. Those graphs are just like,
00:09:14
Speaker
a physical representation but what that is is really tracing in real time as funds move this is an only in crypto possibility right you can't there's no trm for wire transfers and and and and shell companies um where you can see every transaction traced and tracked and immutable in a public ledger Wow,
Addressing AI-Enabled Scams and TRM's Innovations
00:09:33
Speaker
that's fantastic. And I think that's why we also wanted to to do this and to bring more light to it, because I think that that can really help build more safety in the ecosystem, not just in the quantitative sense, as you said, even like the...
00:09:50
Speaker
Crypto crime went down based on the report last year and that's also a huge thing. But the other side of safety, I think, is also people's perception and how they feel interacting with the market. um And as TRM looks across multiple chains, jurisdictions and crime typologies, what's something that you have spotted recently that that surprised you? Just like in a basic sense, what does TRM see that perhaps others might be missing? Bad actors are moving faster than ever before.
00:10:20
Speaker
And that's the reality. We're all moving faster than ever before. You know, over the last year or so, we've seen this proliferation of of artificial intelligence, of AI. And bad actors have supercharged operations.
00:10:32
Speaker
ah So we've seen about a 500% increase in AI-enabled scams and fraud. Many of those involve crypto, right? Because again, crypto is the means of value transfer. um they're they're the ah Scams are much more targeted.
00:10:45
Speaker
They go after you specifically. It's no longer these sort of spam emails in in broken English, but it's very, very um focused. ah precise phishing attacks. They're using video, right? We've seen these Elon Musk videos online. They're using audio, ah even having family member voices being used.
00:11:05
Speaker
um I did this very cool TRM talks. I think it was the most popular that we had last year with a gentleman named Hani Fareed. Hani is probably one of the foremost experts on deep fakes from UC Berkeley. He has a company called Get Real Labs, and he came on the podcast as me.
00:11:22
Speaker
essentially like in the space you see right now looking like me, the microphone, the whole show. And it it was it was very cool for marketing, but it was also just like harrowing to see something like that. And that's what we're dealing with. Bad actors are moving faster and more effectively than ever before. um We're seeing money laundering ah program done programmatically using AI. We're seeing ransomware. using um agentic agents instead of um affiliates. So we're seeing bad actors move faster than ever before.
00:11:52
Speaker
So what we've been really focused on at TRM is how can we move as fast or faster and really leveraging AI at every level of our platform, using it in all the tracing that we're doing, using it to build out patterns of activity and using it to support partnerships. So if you sort of like, so I think the speed has been the thing that's been most extraordinary. The Bybit hack, February 2025, North Korea attacked the cryptocurrency exchange Bybit, one of the largest in the world, and stole $1.5 billion.
00:12:26
Speaker
the that the the The amount is staggering. But what was even more staggering to me is how fast they were able to launder funds from Ethereum to Bitcoin. So what we said then is like, hey, we need to stop this.
00:12:39
Speaker
So we, over the last six months, we announced in August, have built the largest public-private information sharing network in crypto. It's called the Beacon Network.
00:12:50
Speaker
And it has the world's largest exchanges, Coinbase, Binance, Kraken, OKX, Crypto.com, Blockchain.com, HTX, Poloniex. About 80% of centralized crypto volume is part of the Beacon network. We then have fintechs like Robinhood and Stripe and PayPal. We have DeFi protocols, which is such an important piece. People talk about money laundering and DeFi. Well, there are things we can do using technology in DeFi to block funds.
00:13:18
Speaker
from hitting those platforms. And we've married them with about 70 law enforcement agencies globally um that flag illicit crypto addresses and in real time send alerts, beacon alerts, think lighthouses.
00:13:32
Speaker
um So so and and ultimately those exchanges are blocking and seizing illicit proceeds. So I say that like to me, this is all about speed. um All I think about is how can we move faster as bad actors are moving faster? And it's all about leveraging the technology. So I'll stop there. But ah just to say, um I always think about um not how do we overregulate the space, but how do we leverage it, this transformative technology in order to go after bad actors? You don't need more regulation. We need more expertise. We need more training. We need we need to really, really be leaning into blockchain technology.
Balancing Technology and Regulation in Crypto Crime
00:14:13
Speaker
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00:14:24
Speaker
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00:14:41
Speaker
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00:14:59
Speaker
Pretty awesome. Then, there's a whole world of crypto apps and tools to explore, direct from your wallet. Get the wallet that does more. Download Core today. That's a really good point. And i think also with with AI, kind of reminded me of... of a meme I saw earlier that was like before you could tell when something was made by ai but now the real fear is realizing that it's getting harder and harder to tell what's real, what's just a fake AI video. So if this is just a trivial example, like of of a video that seems legit, that they're using your voice and everything, just imagine what else is happening behind the scenes and that it probably will continue to get faster and faster. And I like the point about
00:15:44
Speaker
regulation when it's not about over-regulating it, but giving people the tools, smart knowledge, useful knowledge, education on on on the system, how to interact away with it safely. um But also, what are some of the the red flags that regulators should focus on instead of just and going to the nitty-gritty, over-regulating, but what can they do to just better leverage blockchain data instead of fearing it or over-regulating, which is the other other bad side. Yeah, I think there's a lot of great suggestions out there. i think it's... um
00:16:22
Speaker
It's ensuring that cryptocurrency firms, stablecoin issuers, ah centralized exchanges um have the capabilities in order to um to do compliance well. I think we could do compliance in crypto better than we could ever do it in the traditional world. ah In part, that has to do with the traceability and trackability of open blockchains. I also think that has to do with the capabilities that stablecoin issuers have to burn and reissue their native token to victims of scams and and and that sort of thing so i think it's really really uh ensuring that uh that the industry is sort of doing its job i think um encouraging public private partnership like beacon public private disruption network real-time information sharing and interdiction there's some great language in the latest discussion draft
00:17:14
Speaker
on market structure on exactly that certifying real-time information sharing and interdiction networks right relying on the industry to impart at least police itself because we've shown we can certainly do that and beacon is a great example of that um there are there are a whole host of sort of other pieces to this um there's a hold law that's part of the latest disc discussion discussion draft, which basically limits liability for crypto firms that hold funds for a certain amount of time in order to um in in in order to ensure that they're not involved in illicit activity or to give law enforcement a chance to to freeze those funds. there there so So much of it is, are we making sure that every law enforcement agency in the world has the tools and training that they need to follow the money? um And then
00:18:05
Speaker
Two, and maybe more importantly, it's focusing on the bad actors. um There are a lot of bad guys who are using crypto. ah North Korea hackers, ransomware gangs, um sanctions evasion. We put out a piece a few weeks ago ah that the Washington Post picked up on Iran using crypto ah infrastructure.
00:18:26
Speaker
We need to use every national security tool. Scam centers is probably the biggest one today. of these networks of scam centers, Chinese money laundering networks. We need to focus all of our national security resources on and off chain going after those guys, not the services, ah you know, the lawful services that they're using.
Self-Regulation and Future of Blockchain
00:18:45
Speaker
So my my whole thing has always been focus on the bad actors. There's a lot we can do. I spent a lot of years doing national security cases and and a treasury ah working with the national security apparatus. There are a lot of authorities that we have.
00:18:58
Speaker
whether it's sanctions, whether it's offensive cyber, whether it's, um you know, terrorist organ, foreign terrorist organization designations that we've just put on the cartels. There are things that we can do that have nothing to do with crypto that we should really be leaning into. And that's a great point to remember about ah not just making a bunch of and heavy enforcement and regulating the space, but enabling law enforcement to have the tools, have the training and do it at a good speed. Because since the bad actors are going crazy fast, that's also the other challenge. and realizing that there are the bad actors we have to focus on them and this leads me to the next point which is sanctions and they have become a big tool in in crypto enforcement but what are the limits of this approach uh what what do you what do you think about them
00:19:52
Speaker
Yeah, i look, i i um I spent a number of years at the U.S. Treasury Department working with teams at OFAC, which is our sanctions regulator, the Office of Foreign Asset Control. And all the designations that you see out there, sanctions are coming from OFAC in the U.S. The U.N. has their own. The U.S. has their own. The U.K. has their own. um So there's always been this question about the efficacy of sanctions. Do sanctions work, right? how How is it possible that we've had full country sanctions on Iran for, a you know, decade or more and um that regime is still in power? My view is that, you know, sanctions have an impact.
00:20:26
Speaker
Are they going necessarily result in regime change in places like Venezuela or Iran? Likely not. There's probably more. um But i I think that crypto plays a very, very small role today. i think we're going to see bad actors look to crypto more and more when it comes to sanctions evasion. Look, the the the promise of crypto in large part is cross-border value transfer at the speed of the internet, right?
00:20:50
Speaker
ah' it's It's not connected directly to the US financial system. So ah bad actors that want to send funds outside the US financial system can certainly do it in crypto.
00:21:02
Speaker
I think the reality though is law enforcement globally can now track and trace those funds as they move. And sanctions just like other types of threats, um I think that there's an opportunity to investigate and ultimately enforce um in In ways we never could in in the traditional world. um but But I think like everything else, bad actors are going to continue to try to evade U.S. sanctions.
00:21:27
Speaker
And the job ultimately of the U.S. is going to – it is going to be to follow the money and um and ultimately try to disrupt these networks. um I would say that like, you know, in terms of our crypto crime report this year, sanctions related activity in 2025 was was driven in large part by Russian linked flows, right? Russia trying to evade ah global sanctions that have have been hit. They've been hit by pretty hard um over the last over the last few years. And we're going to see how that continues to play out. But it's a cat and mouse game that has always been going on between evasion and enforcement.
00:22:06
Speaker
Right. That's a good way to to put it. um And what's one thing that the industry in general can do today to get ahead of the illicit finance narrative before it gets written for them?
00:22:18
Speaker
it's It's a great question. You know, I have briefed, you know, U.S. senators and and and and congresspersons um over the course of the last year. And what I like to talk about is not what they should do in terms of regulation, but the what is possible today.
00:22:35
Speaker
And there's a whole narrative around, you know, illicit activity. But the reality is that, like, the vast majority of crypto firms of, of, of, of um, of crypto businesses is that they have compliance controls in place, certainly the largest that we all think about, the large cryptocurrency exchanges. But even DeFi protocols are members of the Beacon Network.
00:22:57
Speaker
They are not able to work with law enforcement to seize funds because there's no compliance team, right? It's decentralized, it's automated, but they are able to block flagged cryptocurrency addresses.
00:23:08
Speaker
um and And everyone I talk to, um when they hear about this, are excited and want to join the Beacon Network, right? From we're talking everyone, you know, DeFi protocol, centralized exchanges.
00:23:19
Speaker
There is so much that we could do as an industry and are doing. We run the largest ah database of fraud and scams, not just in crypto, but in the world, called Chain Abuse. That is an industry reporting platform.
00:23:33
Speaker
um We run Beacon. We have a partnership with Tether and Tron called T3, where we investigate only cases involving illicit activity in the stablecoin tether on the Tron blockchain. Like there are so much we can do as an industry. And I would encourage folks who are listening to this. to get on board with Beacon, to do more proactively, to really hype chain abuse and the things that we can do, because they're excellent talking points. And when I go to meet with members of Congress on both sides of the aisle, um they're surprised oftentimes that we're able to do as much as we do to mitigate illicit finance risk.
00:24:07
Speaker
That's amazing. that's That's so great. And we'll also link to it in the description if people are curious, want to also check it out. um And just as we close, if we were to fast forward five or 10 years from now, what do you hope the conversation around crypto and illicit finance looks like? And what do you not want to hear anymore by then? i love it. Look, i I think more important than illicit finance, crypto is just going to be money and blockchains are just going to be rails.
Future of Crypto in Everyday Transactions
00:24:37
Speaker
And um the the technology is going to fade to the background. And we're just going to like pull out our phones and transact, right? You know, um you know i I want to pay for for your dinner with stable coins and we just tap phones that way, right? It's going to be seamless. It's going to be easy.
00:24:56
Speaker
And it's just going to be part of the economy. So we're not going to have crypto task forces, crypto units within law enforcement agencies. It's every agent or investigator is going to investigate crypto because it's just going to be the means of value transfer in every case. And we're not going to have this discussion. Well, is crypto just used for crime?
00:25:16
Speaker
It's going to just be, Hey, what is the percentage of financial crime out there in the world? Um, based on the the total economy. um It's going to be less about crypto and more just about money, payments, a new financial system. And I really, really believe that. I do believe that we are critical infrastructure at TRM in terms of building that.
00:25:35
Speaker
um And I believe that as we grow as an industry, um it's going to be critical to make sure that we're keeping bad actors off of our platforms in order for the ecosystem to really grow and flourish. Okay. That's fantastic. And let's hope we can also get there and that we onboard more users, good actors into this ecosystem and actually catch up and egg get fast with the bad actors that inevitably inevitably will
Conclusion and Engagement with TRM Resources
00:26:01
Speaker
be there. um because illicit finance in crypto isn't going completely away, but as you have made it super clear today, neither is the data, the nuance, and the people building smarter systems and tracking and the bad actors.
00:26:16
Speaker
So... That's a wrap for this episode of The Policy Layer. Thank you so much again, Ari, for keeping it real. And thank you so much to our listeners for tuning in. We invite you to check out TRM's latest report linked in the description. And yeah, thank you so much, Ari, once again. And we'll be back with more voices shaping health tech, money, and power move. Sylvia, thank you for having me.
00:26:38
Speaker
Awesome. Thank you.
00:26:43
Speaker
We hope you enjoyed this episode of the policy layer. If you want to learn more, check out avalanchepolicy.com for free educational resources. And also follow us on social media at avalanchepolicy to stay updated.