Startups Helping the FBI Catch Bitcoin Criminals

When police in the United Kingdom’s South East Organized Crime Unit wanted to catch a drug dealer who was anonymously selling large quantities of MDMA through a dark web marketplace, they called Tom Robinson. Robinson, the co-founder of UK-based Elliptic–a company that uses forensics to track criminals using cryptocurrencies like bitcoin–helped police identify the 26-year-old Portsmouth dealer, who was later arrested and sentenced to 16 years in prison.

Elliptic is part of an emerging group of startups fighting crime in the burgeoning Wild West of cryptocurrency. Whether its to intercept drug sales, money laundering, or even kidnapping ransoms, startups from the U.S. to the U.K. are making and licensing forensic software to law enforcement agencies all over the world. Jason Weinstein, co-founder of the Blockchain Alliance, an organization that brings together data analysis companies with law enforcement agencies to combat criminal activity on the blockchain, says the forensic software industry making tools to track bitcoin transactions is “booming.”

Criminals were some of the first wave of early bitcoin adopters because of a misconception that the digital currency was untraceable and completely anonymous. But now, says Alan Cohn, a lawyer who is the co-chair of Steptoe & Johnson’s blockchain and digital currency practice, bitcoin and other cyrptocurrencies could be a criminal’s worst nightmare. Every bitcoin transaction is recorded to a public ledger called the blockchain, which acts as a database that tracks every dollar ever spent in bitcoin. “Criminals should run, not walk, away from bitcoin,” says Cohn, who co-found the Blockchain Alliance with Weinstein.

These crime-fighting software startups help law enforcement agencies–including Europol, the FBI, DEA, and the Department of Homeland Security–plot cryptocurrency transactions by using graph analysis to find patterns or clusters of associated digital wallets. Once they can connect wallets to specific crimes, money can be tracked across the bitcoin network to exit points through exchanges and into regular bank accounts.

Another area these startups are being wooed is by financial institutions that need to stay compliant with know-your-customer and anti-money laundering laws. Dave Jevans, the CEO and cofounder of CipherTrace, says even though over 50 percent of his Menlo Park, California-based company’s revenue comes from law enforcement agencies, a fast-growing part of his businesses is from financial institutions looking to stay compliant with the Securities and Exchange Commission and the Treasury Department. Jevans says CipherTrace’s software helps cryptocurrency exchanges avoid doing business with countries that are sanctioned by the U.S.–from Iran to Myanmar (Burma).

CipherTrace is also helping cryptocurrency hedge funds, wallets, and exchanges avoid accepting money obtained unlawfully, says Jevans. The software traces the provenance of each bitcoin involved in a transaction and can tell if money came from a money-laundering site, like BitBlender, a dark web marketplace like DreamMarket, or from digital wallets belonging to known criminals. “Our tools ensure our clients don’t accept dirty money,” says Jevans.

Elliptic’s financial compliance software also helps cryptocurrency exchanges avoid becoming an “exit” for criminals. Robinson says criminals using bitcoin eventually want to exchange their funds into dollars by using a bitcoin exchange. His company’s anti-money laundering software screens every incoming payment and outgoing payment, and if “the money came from an illegal source, it will stop the transaction and the exchange can file a suspicious activity report or close down the account.”

As cyptocurrency becomes more ubiquitous, criminals continue to adapt their methods, Now, says Robinson, some cutting-edge crooks are moving away from bitcoin to more secure coins like monero, which was built to be as anonymous as cash. The software companies will have to adapt their methods to keep up, he says.   

Weinstein, co-founder of the Blockchain Alliance, says his group is forming relationships between law enforcement agents and blockchain analysts because he believes as bitcoin and cryptocurrencies are adopted and understood by regulators, the less crime will go unabated.

“The more banks and government regulators push cryptocurrency away, the more they risk making it a place for criminals,” says Weinstein.  “There is no reason for any agent, or regulatory official, to be afraid of this technology, if they understand it, it can be a great asset.”

The Lawyer Behind the Google Memo Guy’s Lawsuit Isn’t Who You’d Expect

“A truly liberal environment should allow all viewpoints to thrive,” lawyer and entrepreneur Harmeet Dhillon told the Dartmouth Alumni Magazine in 2013. By that definition, her current hometown of San Francisco is decidedly not a truly liberal environment. Nor is the rest of Silicon Valley.

Given her experience as a Republican activist, official, and occasional candidate, Dhillon is aware of the mismatch between the San Francisco’s freewheeling reputation and its actual reaction to dissenters. During a 2012 state senate bid, Dhillon told the Wall Street Journal, “to be a Republican and wear that label proudly is to attract people to key your car.” She added, “All kinds of people are Republicans in the city. They just don’t advertise it because they think it’ll cause them to lose business, lose friends and generally attract scorn.”

(Tim Ferriss, the lifehacking guru and investor, recently said similar things to explain his decision to leave San Francisco for Austin. Ferriss considers himself a social liberal.)

Dhillon is in the news again because her firm is representing controversial fired Google employee James Damore, who is suing the company for allegedly discriminating against white people, men, and conservatives. The former two categories are protected by federal labor law, and the latter specifically in California.

It’s concerning, Dhillon said in a phone call with Inc., that a company as powerful as Google “has this level of intolerance.” She added, “You have to ask, how does that filter down to its products, its search engines, its policies,” and mentioned YouTube’s ongoing demonetization saga. (Many YouTubers are no longer able to generate significant advertising revenue from their videos as Google cracks down on objectionable content; some conservatives contend that they’re being hit harder because of their views.) 

“The way tech companies are set up is they are little villages,” Dhillon said, referring the Silicon Valley trend of providing free food and other amenities–perks that keep employees in the office longer. Hence “people get their community from their fellow extremists in their workplaces,” Dhillon said. “A lot of it is self-reinforcing in an alarming way.”

Since James Damore was broadly castigated as a racist and sexist (full disclosure: this reporter found much of that treatment unfair), it’s notable that his cause is being championed by a woman of color–one who has personally experienced racist slander, and whose ex-husband was the victim of a racially motivated shooting. When Dhillon’s family emigrated from India in the 1970s, they settled in Smithfield, North Carolina, a town that welcomed visitors with a Klu Klux Klan sign.

Why does Dhillon defy the progressive status quo that someone of her race, her gender, and her background is expected to defend? Well, she would likely scoff at the premise of that question. For one thing, Dhillon doesn’t buy into standard identity politics. “I certainly have tried to resist labels in my life,” she told Inc. “I think they’re limiting. Complex people can have complex different aspects to them.”

When she ran for Republican National Committeewoman in 2016, Dhillon told Refinery29, “While I’m proud of blazing that trail because of who I am, I don’t think anybody should vote for me because of who I am. People should vote for the best candidate. And I happen to be the best candidate with my diverse background.”

Dhillon’s background is not merely diverse in the sense that she’s an Indian woman. She’s done work for the Heritage Foundation and the ACLU. Best-known for her civil rights work, the lawyer is a dyed-in-the-wool conservative raised by her parents as a devout Sikh. (In 2016, Dhillon delivered a Sikh prayer at the Republican National Convention.)

And yet Dhillon does not embrace every Republican position. She is in favor of equal marriage rights for same-sex couples, and has said that she thinks overturning Roe v. Wade is a lost cause. In general, her stance is that the government should let people live their lives.

On the phone, Dhillon pointed out, “The bulk of what I do is representing women, and minority, and elderly people.” When it comes to civil rights law, “having a white client is actually very rare.”

And Dhillon knows how it feels to be in the situation of feeling persecuted at work. “I’ve been harassed in the workplace,” she said. “I’ve been discriminated against.” At various points in her career, she’s been the only minority in the room, or the only woman.

Dhillon sees her representation of Damore as an extension of this work, certainly not a repudiation of it. “I’m not ashamed at all. I think what is shameful is this kind of lemming-like groupthink in Silicon Valley,” she said. “There’s no reason why people can’t behave in Silicon Valley like they do in the rest of the country”–that is, trying to find common ground instead of trying to get each other fired.

Some Marijuana Entrepreneurs See a Silver Lining After Threat from Justice Department

Fear and paranoia ripped the cannabis industry on Thursday after news broke that U.S. Attorney Jeff Sessions rescinded Obama-era policies that allowed the recreational marijuana industry to flourish in six states. Without the policies in place, federal prosecutors can technically go after state-law abiding marijuana companies, which casts uncertainty and doubt across the industry.

In a statement released Thursday morning, Sessions announced that he rolled back the Cole Memo from 2013, which issued guidance to U.S. attorneys to not prosecute state-law abiding companies as long as they steered clear of federal priorities like not selling pot to kids and not being involved in organized crime. 

Marijuana entrepreneurs say the news was not surprising since Sessions is known for being staunchly opposed to marijuana legalization. However, since the move empowers U.S. attorneys to enforce the federal ban on cannabis, it did put entrepreneurs like Mike Ray on edge.

“It’s unnerving,” says Ray, the founder and CEO of California-based marijuana vape pen manufacturer Bloom Farms. “This is creating confusion for state-legal businesses. Some will go on with business as usual, some will be more cautious, others might walk away.”  

This new threat of a crackdown will have negative repercussions on marijuana business financing. John Hudak, deputy director of the Center for Effective Public Policy at the Brookings Institute, says it’s likely that investors will make risk assessments based on the new guidance from the Justice Department. 

“It’s hard to imagine that this won’t effect investor decisions,” says Hudak. “Capital available for cannabis companies could dry up.”  

Banks that serve the industry could also become skittish. Sally Vander Veer, the president of Medicine Man, a multi-million-dollar Colorado-based cannabis grower and dispensary chain, says the marijuana industry already has a tenuous relationship with banks. Medicine Man has solid relationships with two local banks, but she says banks and credit unions might not think it’s worth the effort or risk to serve smaller businesses in the industry. 

“This keeps me up at night,” says Vander Veer. “All this does is handcuff us from creating more jobs and generating tax revenue for our state.” 

There are industry experts who caution there’s no need for cannabis companies to panic. Henry Wykowski, a San Francisco cannabis attorney who has represented some of the largest legal marijuana companies, says state-law abiding companies should not behave any differently. Wykowski points out that the Cole Memo was not actually legally binding and contained language that stated the federal government reserves the right to prosecute any marijuana business because the drug is banned under the Controlled Substance Act.

“The Sessions memo doesn’t change anything,” says Wykowski confidently. “I told my clients that if they continue to comply with state law, they should be okay.” 

Some marijuana entrepreneurs even think there could be a silver lining. Bloom Farms’ Ray says the outpouring of support from other elected officials is promising. Since the news broke this morning, senators, governors, and U.S. attorneys from states where adult-use cannabis is legal issued statements condemning Sessions’ move. 

Senator Cory Gardner (R-Colorado), via a statement on Twitter, said Sessions “trampled on the will of the voters” in Colorado and other states where recreational marijuana is legal. 

“I am prepared to take all steps necessary, including holding DOJ nominees, until the Attorney General lives up to the commitment he made to me [to not rescind the Cole Memo] prior to his confirmation,” Gardner wrote. 

Ray says an unintended consequence of Sessions’ aggressive move is that it could finally spur a change in federal law. On Thursday, Senator Cory Booker (D-New Jersey), who introduced the Marijuana Justice Act to legalize marijuana federally in August, took to the Senate floor to speak against Sessions and urged Congress to reform marijuana laws. “The Cole Memo acted as a safety net for the industry, when we really needed something more solid,” says Ray. “What we need is Congress to remove marijuana from the Controlled Substance Act. Hopefully this will spur Congress to fix it.”