1 00:00:14,160 --> 00:00:16,760 Speaker 1: This is Wall Street Week. I'm David Weston bringing you 2 00:00:17,040 --> 00:00:21,560 Speaker 1: stories of capitalism. This week, the business of defense, where 3 00:00:21,600 --> 00:00:24,080 Speaker 1: the United States is getting its money's worth for its 4 00:00:24,160 --> 00:00:28,880 Speaker 1: military spending. Plus turning the tables on cybercrime, we look 5 00:00:28,920 --> 00:00:32,120 Speaker 1: at how law enforcement and private firms are using technology 6 00:00:32,320 --> 00:00:35,320 Speaker 1: to track down criminals and even get some money back. 7 00:00:35,840 --> 00:00:38,920 Speaker 1: But we start with a story about choice, the choice 8 00:00:38,920 --> 00:00:42,680 Speaker 1: most Americans are making between two parties, two presidential candidates, 9 00:00:43,040 --> 00:00:46,440 Speaker 1: two economic approaches, and what that choice could mean for 10 00:00:46,520 --> 00:00:49,600 Speaker 1: global Wall Street. Beginning with the US economy and the 11 00:00:49,640 --> 00:00:53,720 Speaker 1: battle with inflation from Bloomberg International Economics and Policy correspondent 12 00:00:54,000 --> 00:00:55,840 Speaker 1: Michael McKee. 13 00:00:56,760 --> 00:01:00,560 Speaker 2: Voters face a pretty stark choice. One candidate to tweak 14 00:01:00,640 --> 00:01:04,240 Speaker 2: but preserve the status quo. The other wants to completely 15 00:01:04,280 --> 00:01:07,399 Speaker 2: remake the global economy. The US came out of the 16 00:01:07,400 --> 00:01:10,479 Speaker 2: pandemic in better shape than any other country. During Joe 17 00:01:10,520 --> 00:01:13,240 Speaker 2: Biden's term in the White House, almost seven million jobs 18 00:01:13,240 --> 00:01:16,720 Speaker 2: were created, Unemployment fell as low as three point four percent. 19 00:01:17,319 --> 00:01:20,240 Speaker 2: Inflation briefly roared, but has now fallen back to an 20 00:01:20,280 --> 00:01:23,880 Speaker 2: annual rate of two point two percent. So Kamala Harris 21 00:01:23,920 --> 00:01:28,959 Speaker 2: would essentially follow the Biden playbook invest in creating jobs 22 00:01:29,000 --> 00:01:33,280 Speaker 2: and raising productivity, expand and strengthen the social safety net. 23 00:01:33,640 --> 00:01:36,440 Speaker 2: Taxes would go up on corporate earnings and the rich. 24 00:01:37,600 --> 00:01:40,720 Speaker 2: Inflation was a lot lower when Donald Trump came to office, 25 00:01:40,720 --> 00:01:43,680 Speaker 2: coming out of the Great Financial Crisis. Up until COVID, 26 00:01:43,760 --> 00:01:47,039 Speaker 2: it averaged just one point seven percent if you leave 27 00:01:47,040 --> 00:01:50,160 Speaker 2: out for COVID year. Six million jobs were created during 28 00:01:50,160 --> 00:01:52,880 Speaker 2: his term and unemployment fell to three and a half. 29 00:01:52,680 --> 00:01:57,680 Speaker 1: Percent despite inflation. Despite more than five hundred basis points 30 00:01:57,680 --> 00:02:01,080 Speaker 1: of FED rate hikes, American businesses seem to have done 31 00:02:01,120 --> 00:02:04,200 Speaker 1: well over the last four years, raising the question of 32 00:02:04,240 --> 00:02:08,000 Speaker 1: what they look for in the next administration. Josh Bolton 33 00:02:08,040 --> 00:02:10,560 Speaker 1: works for the CEOs of the largest companies in the 34 00:02:10,560 --> 00:02:14,360 Speaker 1: country as President and CEO of the Business Roundtable. 35 00:02:15,000 --> 00:02:20,480 Speaker 3: The economy's been been pretty good ever since since we 36 00:02:20,639 --> 00:02:25,760 Speaker 3: pulled out of the pandemic. We've had too much inflation, 37 00:02:25,960 --> 00:02:29,000 Speaker 3: which they fed is now seems to be succeeding and 38 00:02:29,040 --> 00:02:33,000 Speaker 3: bringing under control. But for the most part, the economy 39 00:02:33,040 --> 00:02:37,640 Speaker 3: has been relatively successful, but not nearly as successful as 40 00:02:37,680 --> 00:02:40,639 Speaker 3: it ought to be. And one reason we haven't been 41 00:02:40,639 --> 00:02:43,160 Speaker 3: as successful as we ought to be is that there 42 00:02:43,280 --> 00:02:48,000 Speaker 3: is just too much regulation holding back the robust vitality 43 00:02:48,200 --> 00:02:52,440 Speaker 3: that American business has over the decades historically been able 44 00:02:52,480 --> 00:02:58,920 Speaker 3: to exercise. So as our business leaders look to the 45 00:02:59,040 --> 00:03:02,079 Speaker 3: kinds of policy they want to see in twenty twenty 46 00:03:02,120 --> 00:03:06,760 Speaker 3: five and beyond, regardless of who wins the election, they 47 00:03:06,800 --> 00:03:10,399 Speaker 3: want to see a sensible regulatory environment that lets them 48 00:03:10,480 --> 00:03:13,960 Speaker 3: do what they do best, which is make money. 49 00:03:14,960 --> 00:03:18,080 Speaker 1: Taxes are always on the minds of business leaders, but 50 00:03:18,120 --> 00:03:21,960 Speaker 1: they've played an especially large role in this campaign, particularly 51 00:03:22,000 --> 00:03:24,560 Speaker 1: when it comes to that twenty one percent corporate tax 52 00:03:24,639 --> 00:03:27,160 Speaker 1: rate that came from the Tax Cuts and Jobs Act 53 00:03:27,240 --> 00:03:30,639 Speaker 1: under President Trump, and that law is up for renewal 54 00:03:30,720 --> 00:03:31,240 Speaker 1: next year. 55 00:03:31,760 --> 00:03:35,360 Speaker 3: The members of the Business Roundtable were strongly behind the 56 00:03:35,400 --> 00:03:42,320 Speaker 3: twenty seventeen tax reform, which was extraordinarily successful in lifting 57 00:03:42,360 --> 00:03:46,120 Speaker 3: the American economy out of the doldrums we had experienced 58 00:03:46,160 --> 00:03:49,800 Speaker 3: since the Great Recession. In the two years immediately after 59 00:03:49,880 --> 00:03:54,640 Speaker 3: the twenty seventeen tax reform, the median household income increased 60 00:03:54,680 --> 00:03:58,440 Speaker 3: more than it had in the previous ten years combined. 61 00:03:58,800 --> 00:04:02,400 Speaker 3: So the members of the Business Roundtable are really concerned 62 00:04:02,400 --> 00:04:03,600 Speaker 3: about keeping that going. 63 00:04:04,760 --> 00:04:07,880 Speaker 1: The presidential campaigns have also spent a lot of time 64 00:04:07,960 --> 00:04:11,160 Speaker 1: talking about tariffs, how they work, and what they would 65 00:04:11,200 --> 00:04:13,440 Speaker 1: mean for US business and the economy. 66 00:04:14,200 --> 00:04:19,240 Speaker 3: Overwhelmingly among the membership of my organization, the view is 67 00:04:19,680 --> 00:04:22,919 Speaker 3: that trade is extremely important to the success of the 68 00:04:23,040 --> 00:04:28,640 Speaker 3: US economy. Some tariffs may be necessary, particularly to counteract 69 00:04:29,680 --> 00:04:34,039 Speaker 3: unfair trade behavior from some of our trading partners, but 70 00:04:34,279 --> 00:04:38,839 Speaker 3: broad based taxes along the lines that President Trump has 71 00:04:38,880 --> 00:04:43,880 Speaker 3: proposed would be very damaging to the US economy and 72 00:04:44,200 --> 00:04:47,560 Speaker 3: particularly those at the lower end of the income scale. 73 00:04:48,040 --> 00:04:52,239 Speaker 1: The line between economics and geopolitics has become increasingly blurred, 74 00:04:52,600 --> 00:04:57,560 Speaker 1: whether it's tariffs, export controls, or industrial policy. Richard Haes 75 00:04:57,600 --> 00:05:00,640 Speaker 1: of Centerview Partners has spent his career on these issues 76 00:05:01,080 --> 00:05:03,599 Speaker 1: in the government and as President of the Council of 77 00:05:03,640 --> 00:05:05,279 Speaker 1: Foreign Relations for twenty years. 78 00:05:05,760 --> 00:05:09,000 Speaker 4: If you're talking about large across the ward tariff increases 79 00:05:09,480 --> 00:05:12,040 Speaker 4: not linked to behaviors, not if you will with a 80 00:05:12,080 --> 00:05:15,240 Speaker 4: sledgehammer rather than a scalpel, you have to assume there's 81 00:05:15,279 --> 00:05:19,120 Speaker 4: going to be retaliation. So you know you have the 82 00:05:19,120 --> 00:05:22,120 Speaker 4: initial effects of the American tariffs raising costs. Here it's 83 00:05:22,160 --> 00:05:25,680 Speaker 4: obviously inflationary, as all sorts of economists are pointed out, 84 00:05:25,800 --> 00:05:27,760 Speaker 4: But then you have the double down effects on the 85 00:05:27,800 --> 00:05:30,520 Speaker 4: knock on effects when the others retaliate. You know, many 86 00:05:30,520 --> 00:05:33,080 Speaker 4: of our trading partners aren't going to take it and stride. 87 00:05:33,320 --> 00:05:35,120 Speaker 4: So yes, you could have a trade war under a 88 00:05:35,200 --> 00:05:36,600 Speaker 4: Trump presidency. 89 00:05:37,360 --> 00:05:40,359 Speaker 1: Good old fashioned geopolitical tensions have come back in the 90 00:05:40,440 --> 00:05:43,719 Speaker 1: last four years, with wars in Ukraine and the Middle East, 91 00:05:43,960 --> 00:05:47,200 Speaker 1: and China increasing its presence around Taiwan and in the 92 00:05:47,240 --> 00:05:49,960 Speaker 1: South China Sea, which has injected a new degree of 93 00:05:50,000 --> 00:05:53,359 Speaker 1: uncertainty in the global economy that businesses do not like. 94 00:05:54,120 --> 00:05:57,799 Speaker 1: Is there a potential risk to national security from putting 95 00:05:57,800 --> 00:06:01,040 Speaker 1: too much emphasis on economics looking at the strategy. 96 00:06:01,680 --> 00:06:03,760 Speaker 4: The short answer to your question is yes. It turns 97 00:06:03,800 --> 00:06:07,000 Speaker 4: out that stability is the basis of all else, whether 98 00:06:07,040 --> 00:06:09,440 Speaker 4: it's the rule of law, whether it's balance of power, 99 00:06:09,680 --> 00:06:12,880 Speaker 4: so whether it's inside of society around the world, you 100 00:06:12,920 --> 00:06:16,359 Speaker 4: can't conduct economic relations, You can't make long term investments, 101 00:06:16,360 --> 00:06:19,760 Speaker 4: for example, without confidence about the rule of law and stability. 102 00:06:20,000 --> 00:06:23,520 Speaker 4: So I would say of the two, the geopolitics are 103 00:06:24,120 --> 00:06:26,520 Speaker 4: the more are the more basic. 104 00:06:27,000 --> 00:06:30,600 Speaker 1: When you talk about stability being from Bloomberg, think of 105 00:06:30,680 --> 00:06:33,719 Speaker 1: an investment. One of the things investors want is stability. 106 00:06:34,920 --> 00:06:36,840 Speaker 1: Will they get more stability out of one of these 107 00:06:36,880 --> 00:06:39,520 Speaker 1: candidates than the others, a more certain world in which 108 00:06:39,520 --> 00:06:40,160 Speaker 1: they can invest. 109 00:06:40,880 --> 00:06:43,240 Speaker 4: I would think under a Kamala Harris presency. You know, 110 00:06:43,240 --> 00:06:45,520 Speaker 4: it's always dangerous to make predictions about the future, as 111 00:06:45,600 --> 00:06:47,880 Speaker 4: Yogi Berra Wants pointed out, but you're likely to get 112 00:06:47,880 --> 00:06:50,640 Speaker 4: more continuity than changed. The economy is doing well, We're 113 00:06:50,640 --> 00:06:55,599 Speaker 4: growing up north of three percent, inflation's been coming down. 114 00:06:55,760 --> 00:06:59,640 Speaker 4: We've had four years of a Biden Harris presidency, and 115 00:06:59,680 --> 00:07:01,919 Speaker 4: I would say that the arrows are heading in the 116 00:07:02,000 --> 00:07:05,320 Speaker 4: right direction. So yes, she'd have some changes corporate tax 117 00:07:05,400 --> 00:07:08,760 Speaker 4: rates and so forth, but by and large continuity would outweigh. 118 00:07:08,440 --> 00:07:12,160 Speaker 3: Change America first. 119 00:07:11,360 --> 00:07:14,840 Speaker 4: I think a Trump presidency would introduce much greater uncertainty. 120 00:07:15,600 --> 00:07:18,160 Speaker 1: Global Wall Street has also watched is the debate over 121 00:07:18,240 --> 00:07:22,640 Speaker 1: regulation rages between the Republican and Democratic standard bearers. The 122 00:07:22,680 --> 00:07:25,360 Speaker 1: one who moves into the Oval office in January could 123 00:07:25,400 --> 00:07:28,920 Speaker 1: have a major impact on the rules governing the finance industry. 124 00:07:29,760 --> 00:07:33,600 Speaker 1: That's the particular expertise of Professor Catherine Judge of Columbia 125 00:07:33,680 --> 00:07:34,160 Speaker 1: Law School. 126 00:07:34,560 --> 00:07:37,360 Speaker 5: So one of the really striking features of financial regulation 127 00:07:37,760 --> 00:07:41,960 Speaker 5: over the past eight years is how little it has changed, right, So, 128 00:07:42,000 --> 00:07:44,160 Speaker 5: I mean when Trump first came into office, he was 129 00:07:44,200 --> 00:07:48,160 Speaker 5: the first Republican president in office after the Dodd Frank Act, 130 00:07:48,440 --> 00:07:52,280 Speaker 5: a lot of people expected dramatic change, dramatic rollback. We 131 00:07:52,320 --> 00:07:55,480 Speaker 5: had a little bit of legislative rollback. We certainly did 132 00:07:55,480 --> 00:07:59,040 Speaker 5: have some regulatory rollback. His vice chair at the FED, 133 00:07:59,080 --> 00:08:01,240 Speaker 5: who was in charge of these matters, Randy Corrals, was 134 00:08:01,280 --> 00:08:04,800 Speaker 5: incredibly effective in terms of the strategy that he put together. 135 00:08:06,040 --> 00:08:09,440 Speaker 5: That being said, if you talk to a typical banker, 136 00:08:09,760 --> 00:08:13,160 Speaker 5: it wasn't a dramatically different environment that they were facing, 137 00:08:13,240 --> 00:08:15,600 Speaker 5: particularly for the large banks at the end of those 138 00:08:15,640 --> 00:08:17,360 Speaker 5: for years, relative to the beginning. 139 00:08:17,640 --> 00:08:19,880 Speaker 6: Regional banks face some rollback, but not a lot. 140 00:08:21,080 --> 00:08:24,040 Speaker 1: The independence of the Federal Reserve has been much discussed 141 00:08:24,120 --> 00:08:27,600 Speaker 1: during the US election, though some question just how much 142 00:08:27,640 --> 00:08:31,680 Speaker 1: any president could or would do to undermine that independence. 143 00:08:32,320 --> 00:08:36,000 Speaker 2: Economists say both candidates plans would add trillions to the 144 00:08:36,080 --> 00:08:38,880 Speaker 2: national debt, although the whole would be a lot bigger 145 00:08:38,920 --> 00:08:42,080 Speaker 2: under Trump, interest rates would rise along with the price 146 00:08:42,160 --> 00:08:45,080 Speaker 2: level as the government had to sell much more debt. 147 00:08:45,440 --> 00:08:48,360 Speaker 2: The FED might have to start raising rates again, though 148 00:08:48,400 --> 00:08:51,600 Speaker 2: Trump says he'll pressure the Central Bank to keep rates low, 149 00:08:51,920 --> 00:08:56,040 Speaker 2: a move that might stir volatility in the markets. All 150 00:08:56,120 --> 00:08:59,160 Speaker 2: these are campaign promises, of course, and some or all 151 00:08:59,320 --> 00:09:02,760 Speaker 2: may not happen. Many business executives here and elsewhere say 152 00:09:03,080 --> 00:09:06,040 Speaker 2: Trump has a history of bluster but not following through. 153 00:09:06,720 --> 00:09:09,080 Speaker 2: With the race as close as it is, however, the 154 00:09:09,160 --> 00:09:10,600 Speaker 2: world is holding its breath. 155 00:09:11,280 --> 00:09:13,560 Speaker 5: So I mean, it's interesting Donald Trump has said that 156 00:09:13,720 --> 00:09:16,200 Speaker 5: being the FED chair is the best job in government. 157 00:09:16,840 --> 00:09:19,640 Speaker 5: It is at least possible that under a second Trump 158 00:09:19,640 --> 00:09:22,199 Speaker 5: presidency it might be the worst job in government. 159 00:09:22,240 --> 00:09:24,400 Speaker 6: I mean, some of his biggest economic. 160 00:09:24,000 --> 00:09:30,000 Speaker 5: Initiatives, higher tariffs, really limiting immigration, would have an inflationary impact. 161 00:09:30,600 --> 00:09:33,800 Speaker 5: We know going back to twenty nineteen and early twenty 162 00:09:33,840 --> 00:09:38,040 Speaker 5: twenty that he was very vocal with his frustration that 163 00:09:38,240 --> 00:09:40,680 Speaker 5: share Powell at that time had interest rates where they were. 164 00:09:40,720 --> 00:09:41,920 Speaker 6: He wanted them to be lower. 165 00:09:42,280 --> 00:09:46,200 Speaker 5: And so you can imagine a scenario where we're facing 166 00:09:46,240 --> 00:09:50,439 Speaker 5: significant inflationary pressures and prices are going up, but a 167 00:09:50,480 --> 00:09:54,800 Speaker 5: FED chair has a hesitancy in really tightening interest rates 168 00:09:54,800 --> 00:09:57,160 Speaker 5: and tightening monetary policy in the way that would be 169 00:09:57,200 --> 00:10:01,640 Speaker 5: necessary to combat the inflation is doing so might lose 170 00:10:02,040 --> 00:10:06,319 Speaker 5: the faith and the backing of a second President Trump. 171 00:10:06,600 --> 00:10:10,360 Speaker 1: And finally whoever becomes president in January, it will not 172 00:10:10,440 --> 00:10:13,120 Speaker 1: be up to them alone to decide the direction of 173 00:10:13,240 --> 00:10:17,760 Speaker 1: regulatory policy. Congress will have a substantial say, both through 174 00:10:17,840 --> 00:10:22,320 Speaker 1: legislation enacted or blocked, and through the Senate confirmation process 175 00:10:22,360 --> 00:10:24,480 Speaker 1: for those who lead key agencies. 176 00:10:25,280 --> 00:10:28,160 Speaker 5: You know, you can both overstate and understate this very easily. 177 00:10:28,280 --> 00:10:32,079 Speaker 5: So if you actually look at significant rule makings, President 178 00:10:32,080 --> 00:10:35,880 Speaker 5: Biden has actually undertaken more significant rulemakings than any other 179 00:10:35,960 --> 00:10:39,640 Speaker 5: recent president, and interestingly, President Trump is number two, so 180 00:10:39,679 --> 00:10:41,719 Speaker 5: each of them did actually work very hard to kind 181 00:10:41,720 --> 00:10:42,199 Speaker 5: of bring. 182 00:10:42,000 --> 00:10:43,400 Speaker 6: About meaningful changes. 183 00:10:44,280 --> 00:10:46,680 Speaker 5: That being said, you know, you can look at financial 184 00:10:46,720 --> 00:10:49,319 Speaker 5: regulation as an example of an area where we haven't 185 00:10:49,360 --> 00:10:51,560 Speaker 5: seen as significant a change as. 186 00:10:51,440 --> 00:10:52,280 Speaker 6: We would have expected to. 187 00:10:52,520 --> 00:10:55,360 Speaker 5: So I think under Trump we would have expected significant deregulation. 188 00:10:55,760 --> 00:11:00,240 Speaker 5: We did get deregulation, but it was more modest in scope. 189 00:11:00,520 --> 00:11:04,600 Speaker 1: Still ahead the price of protection, We discussed the changing 190 00:11:04,720 --> 00:11:08,440 Speaker 1: landscape of US defense spending next on Wall Street League. 191 00:11:18,880 --> 00:11:21,920 Speaker 1: This is a story about getting our money's worth when 192 00:11:21,960 --> 00:11:25,520 Speaker 1: we really need to, when our national defense depends on it. 193 00:11:27,679 --> 00:11:32,360 Speaker 7: We spend an enormous amount of money, and we have 194 00:11:33,000 --> 00:11:38,240 Speaker 7: the best military in the world. Is it sufficient for 195 00:11:38,520 --> 00:11:39,840 Speaker 7: all of the problems. 196 00:11:39,440 --> 00:11:43,040 Speaker 1: We have no For over twenty years, John Henry helped 197 00:11:43,080 --> 00:11:46,560 Speaker 1: oversee defense spending for the US government, rising to become 198 00:11:46,640 --> 00:11:50,640 Speaker 1: Deputy Secretary of Defense under President Clinton. Now he's president 199 00:11:50,679 --> 00:11:53,920 Speaker 1: and CEO of the Center for Strategic and International Studies. 200 00:11:54,200 --> 00:11:58,480 Speaker 7: We do have a fine military, but it's an extremely 201 00:11:58,679 --> 00:12:04,480 Speaker 7: inefficient system that we have to buy things in the 202 00:12:04,480 --> 00:12:05,560 Speaker 7: way we're organized. 203 00:12:05,720 --> 00:12:08,400 Speaker 1: The Department of Defense budget for twenty twenty four is 204 00:12:08,559 --> 00:12:12,439 Speaker 1: edging toward a trillion dollars, more than the next nine 205 00:12:12,559 --> 00:12:16,920 Speaker 1: countries combined. It amounts to some thirteen percent of federal spending, 206 00:12:17,160 --> 00:12:20,120 Speaker 1: or about three point five percent of total US GDP, 207 00:12:20,880 --> 00:12:24,520 Speaker 1: and goes toward everything from pens and notepads to missiles 208 00:12:24,559 --> 00:12:27,679 Speaker 1: and fighter jets. But for all that it spends, there 209 00:12:27,679 --> 00:12:29,800 Speaker 1: are plenty of people who believe it may. 210 00:12:29,640 --> 00:12:34,360 Speaker 8: Not be enough as a percentage of GDP. The US 211 00:12:34,440 --> 00:12:38,160 Speaker 8: government is spending half as much today on defense as 212 00:12:38,160 --> 00:12:41,960 Speaker 8: we did in the nineteen eighties. We're spending one twentieth 213 00:12:42,000 --> 00:12:44,280 Speaker 8: as much on defense as we did. 214 00:12:44,080 --> 00:12:45,120 Speaker 6: In the Korean War. 215 00:12:45,679 --> 00:12:49,000 Speaker 8: So the needs are growing, the funding is declining. 216 00:12:49,600 --> 00:12:52,840 Speaker 1: Amy Ziegart is a political scientist and a senior fellow 217 00:12:52,880 --> 00:12:57,560 Speaker 1: at the Hoover Institution specializing in US national security and defense. 218 00:12:58,040 --> 00:13:00,439 Speaker 8: I think there are two problems, David, is that we're 219 00:13:00,480 --> 00:13:03,120 Speaker 8: not spending enough, and two is that we're not spending 220 00:13:03,200 --> 00:13:07,280 Speaker 8: wisely enough. We need to be spending money on low cost, 221 00:13:07,760 --> 00:13:12,520 Speaker 8: high tech, affordable unmanned systems and other capabilities. 222 00:13:12,880 --> 00:13:15,880 Speaker 1: How much the US spends is one thing. Spending it 223 00:13:15,920 --> 00:13:19,520 Speaker 1: in the right places is quite another, particularly in a 224 00:13:19,600 --> 00:13:22,880 Speaker 1: world where the very nature of war is changing rapidly, 225 00:13:23,320 --> 00:13:26,000 Speaker 1: as we've seen most recently in Eastern Europe. 226 00:13:26,120 --> 00:13:30,640 Speaker 7: We're watching the war in Ukraine and it's opening up 227 00:13:30,840 --> 00:13:35,440 Speaker 7: entirely new concepts of warfare that we're going to have 228 00:13:35,520 --> 00:13:38,560 Speaker 7: to really figure out. And I don't think we quite 229 00:13:38,640 --> 00:13:41,400 Speaker 7: yet know how to do that, but we do have 230 00:13:42,400 --> 00:13:44,959 Speaker 7: a very good system for looking into the future and 231 00:13:45,160 --> 00:13:47,880 Speaker 7: designing weapons for that future. 232 00:13:48,480 --> 00:13:51,880 Speaker 8: Many Americans are familiar with the Indiana Jones movie Raiders 233 00:13:51,880 --> 00:13:54,520 Speaker 8: of the Lost Arc, that famous scene where there's a 234 00:13:54,559 --> 00:13:58,439 Speaker 8: machete wielding guy in the market and Indiana Jones takes 235 00:13:58,440 --> 00:14:04,480 Speaker 8: out the gun the superior technologlogy and shoots them. That's 236 00:14:04,480 --> 00:14:07,040 Speaker 8: been the strategy of the US military for the past 237 00:14:07,080 --> 00:14:10,800 Speaker 8: thirty forty years. We're going to out engineer the adversaries. 238 00:14:10,880 --> 00:14:13,880 Speaker 8: And it doesn't matter if we have if we're outnumbered 239 00:14:13,880 --> 00:14:16,560 Speaker 8: by them, but our capabilities are going to be exquisite, 240 00:14:16,600 --> 00:14:18,840 Speaker 8: and that's how we're going to win. That's not the 241 00:14:18,880 --> 00:14:19,960 Speaker 8: battlefield anymore. 242 00:14:20,040 --> 00:14:20,400 Speaker 6: Now. 243 00:14:20,600 --> 00:14:23,840 Speaker 8: If we're Indiana Jones in that marketplace, it's ten thousand 244 00:14:23,880 --> 00:14:26,760 Speaker 8: machete wielding guys, and some of them have guns too, 245 00:14:27,280 --> 00:14:29,400 Speaker 8: and so Indiana Jones is going to run out of 246 00:14:29,400 --> 00:14:32,160 Speaker 8: bullets before he runs out of bad guys to shoot. 247 00:14:32,520 --> 00:14:35,520 Speaker 8: That is essentially the United States and what we face 248 00:14:35,760 --> 00:14:39,040 Speaker 8: with the rising threat of China in Taiwan, the South 249 00:14:39,120 --> 00:14:42,600 Speaker 8: China Sea and wargames show it. The CSIS wargames show 250 00:14:43,040 --> 00:14:45,200 Speaker 8: we run out of ammunition within a week or two 251 00:14:45,560 --> 00:14:46,880 Speaker 8: in a fight with China. 252 00:14:47,120 --> 00:14:49,880 Speaker 1: For the US to keep up with changes on the battlefield, 253 00:14:50,120 --> 00:14:53,280 Speaker 1: it will need more than just new equipment and new technology. 254 00:14:53,800 --> 00:14:56,160 Speaker 1: It will need to reform the way it procures that 255 00:14:56,240 --> 00:15:00,280 Speaker 1: equipment and technology, making it more streamlined and flexible than 256 00:15:00,320 --> 00:15:01,880 Speaker 1: what the Pentagon does today. 257 00:15:02,800 --> 00:15:07,840 Speaker 8: I think there's widespread agreement that the procurement process is 258 00:15:08,080 --> 00:15:12,240 Speaker 8: desperately in need of modernization. In revamping, so the procurement 259 00:15:12,280 --> 00:15:14,960 Speaker 8: process is very good at some things. It's not very 260 00:15:15,000 --> 00:15:17,960 Speaker 8: good at rapidly developing and fielding capability. 261 00:15:18,400 --> 00:15:21,479 Speaker 1: Those trying to do the innovating agree that the process 262 00:15:21,520 --> 00:15:26,000 Speaker 1: badly needs reform. Andy Lowry is CEO of Epirus, a 263 00:15:26,040 --> 00:15:29,880 Speaker 1: defense tech company based south of Los Angeles. He's working 264 00:15:29,880 --> 00:15:32,880 Speaker 1: on a system to protect against drones like those used 265 00:15:32,960 --> 00:15:34,920 Speaker 1: so effectively in Ukraine. 266 00:15:35,200 --> 00:15:42,520 Speaker 9: Bases, aircraft, tanks, cars, vehicles, stadiums, refineries, borders. All of 267 00:15:42,560 --> 00:15:47,440 Speaker 9: these things right now are falling prey to infiltration of drones. 268 00:15:47,560 --> 00:15:50,720 Speaker 9: Not just flying drones. You have drones on the water, 269 00:15:51,240 --> 00:15:54,000 Speaker 9: drones on land, drones in the air, drones in space. 270 00:15:54,360 --> 00:15:57,000 Speaker 1: Lowery's company is one of the many so called neo 271 00:15:57,160 --> 00:16:00,240 Speaker 1: primes laboring to help the defense department make the big 272 00:16:00,320 --> 00:16:04,000 Speaker 1: shift from slow development of huge weapon systems to the 273 00:16:04,000 --> 00:16:06,800 Speaker 1: new world of innovation and fast scaling. 274 00:16:07,120 --> 00:16:10,040 Speaker 9: So we've kind of grown a little comfortable, i would say, 275 00:16:10,080 --> 00:16:12,680 Speaker 9: in the way that we've been fighting this sort of 276 00:16:12,720 --> 00:16:17,400 Speaker 9: war of deterrence. But now enter this new age of 277 00:16:17,720 --> 00:16:23,160 Speaker 9: consumer electronics, highly distributed, highly networked. No one single thing 278 00:16:23,240 --> 00:16:26,359 Speaker 9: can do that much damage. But when you add hundreds 279 00:16:26,960 --> 00:16:30,240 Speaker 9: and put them in a swarm, configuration. It's the new 280 00:16:30,240 --> 00:16:32,880 Speaker 9: way that wars are being fought, and it's confounding our 281 00:16:32,880 --> 00:16:33,760 Speaker 9: defense department. 282 00:16:34,120 --> 00:16:36,800 Speaker 1: Lowry says part of the problem is the size of 283 00:16:36,800 --> 00:16:40,680 Speaker 1: the Defense Department itself, arguing that it's scale and its 284 00:16:40,680 --> 00:16:43,400 Speaker 1: procurement system may get in the way of spending its 285 00:16:43,440 --> 00:16:44,320 Speaker 1: money Wisely. 286 00:16:44,720 --> 00:16:49,120 Speaker 9: It's expensive to produce and maintain defense technology because one, 287 00:16:49,680 --> 00:16:53,320 Speaker 9: it's very low volume. You know, military systems for the 288 00:16:53,320 --> 00:16:56,440 Speaker 9: most part, traditionally have been low volume. They haven't had 289 00:16:56,440 --> 00:16:58,760 Speaker 9: to produce a lot of them. So there's a lot 290 00:16:58,760 --> 00:17:01,480 Speaker 9: of change and a lot of cut stimization to each 291 00:17:01,520 --> 00:17:04,800 Speaker 9: and every program. So that adds a lot of expense. 292 00:17:05,400 --> 00:17:08,960 Speaker 9: Two is we're trying to get best in breed performance. 293 00:17:09,040 --> 00:17:11,080 Speaker 9: I mean, we don't want to skimp on how high 294 00:17:11,080 --> 00:17:15,320 Speaker 9: a performance that we get. So performance becomes paramount to 295 00:17:15,400 --> 00:17:18,280 Speaker 9: building great systems, and so it becomes expensive to get 296 00:17:18,359 --> 00:17:20,000 Speaker 9: the highest level of performance. 297 00:17:20,400 --> 00:17:22,719 Speaker 8: The most frustrating part of this story is that there 298 00:17:22,720 --> 00:17:26,080 Speaker 8: are lots of really talented, dedicated people that are trying 299 00:17:26,119 --> 00:17:29,560 Speaker 8: to change this whole process, and they are swimming upstream. 300 00:17:30,040 --> 00:17:33,960 Speaker 8: So the late Ash Carter, Secretary of Defense, really started 301 00:17:33,960 --> 00:17:37,159 Speaker 8: this push for a Defense Innovation Unit here in Silicon Valley. 302 00:17:37,600 --> 00:17:41,600 Speaker 8: Lots of people really worried about the direction of spending 303 00:17:41,720 --> 00:17:46,000 Speaker 8: and the need to actually produce more capabilities on a 304 00:17:46,040 --> 00:17:49,760 Speaker 8: faster cycle to adapt to the times. Members of Congress, 305 00:17:49,800 --> 00:17:53,040 Speaker 8: some of them really care about defense innovation, but members 306 00:17:53,080 --> 00:17:55,560 Speaker 8: of Congress, we know, care about getting re elected, and 307 00:17:55,600 --> 00:17:59,600 Speaker 8: so there are natural electoral incentives for members of Congress 308 00:17:59,640 --> 00:18:01,720 Speaker 8: to put tech the jobs that they currently have in 309 00:18:01,760 --> 00:18:02,360 Speaker 8: their district. 310 00:18:02,520 --> 00:18:05,560 Speaker 1: One path toward reforming defense spending is through doubling down 311 00:18:05,600 --> 00:18:08,879 Speaker 1: on the private sector. Henry says. It has both the 312 00:18:08,920 --> 00:18:12,080 Speaker 1: capital to deploy and the tolerance for risk taking that 313 00:18:12,200 --> 00:18:13,359 Speaker 1: innovation demands. 314 00:18:13,680 --> 00:18:19,000 Speaker 7: Probably the most important thing is, you know, fifty years ago, 315 00:18:19,480 --> 00:18:23,760 Speaker 7: the Defense Department invested in technology that was going to 316 00:18:23,800 --> 00:18:31,920 Speaker 7: be a definitive winner on the battlefield. We're still locked 317 00:18:31,960 --> 00:18:36,320 Speaker 7: in that system, but now it's the private sector where 318 00:18:36,359 --> 00:18:42,080 Speaker 7: there's far more dynamic and innovative developments. But this revolution 319 00:18:42,240 --> 00:18:46,159 Speaker 7: that's taking place in digital technology is in the private sector, 320 00:18:46,800 --> 00:18:48,560 Speaker 7: and we don't know how to bring that into the 321 00:18:48,560 --> 00:18:51,920 Speaker 7: government because we want them to slow down and fit 322 00:18:52,000 --> 00:18:55,399 Speaker 7: our model. Well, they're not going to do that, you know, 323 00:18:55,520 --> 00:19:00,280 Speaker 7: I mean we you know, defense acquisition runs at yes 324 00:19:00,440 --> 00:19:03,639 Speaker 7: and the private sector is moving at five x. I 325 00:19:03,640 --> 00:19:07,960 Speaker 7: mean their development cycles are measured in months. Our development 326 00:19:07,960 --> 00:19:11,200 Speaker 7: cycles are measured in years, almost decades. 327 00:19:11,680 --> 00:19:14,840 Speaker 1: Part of the answer to encouraging faster innovation may lie 328 00:19:14,880 --> 00:19:18,760 Speaker 1: in adding more companies to the mix. Since nineteen ninety, 329 00:19:18,840 --> 00:19:22,280 Speaker 1: the number of defense prime contractors has plummeted, going from 330 00:19:22,359 --> 00:19:25,640 Speaker 1: thirteen in some weapons categories to no more than three, 331 00:19:26,200 --> 00:19:28,840 Speaker 1: and in some categories to only one or two. 332 00:19:29,320 --> 00:19:32,240 Speaker 8: If we were talking in the nineteen nineties, we would 333 00:19:32,240 --> 00:19:35,960 Speaker 8: have had dozens of big defense companies. That helps competition, 334 00:19:36,320 --> 00:19:40,440 Speaker 8: it helps innovation. Now they're five defense primes. We've had 335 00:19:40,600 --> 00:19:44,880 Speaker 8: massive consolidation of the defense industry, and that means prices 336 00:19:44,920 --> 00:19:47,720 Speaker 8: are likely to go up and knowledge gets lost and 337 00:19:47,840 --> 00:19:51,080 Speaker 8: innovation is slower than it otherwise would be. Do we 338 00:19:51,160 --> 00:19:53,679 Speaker 8: need more companies in defense? And the answer is a 339 00:19:53,720 --> 00:19:55,960 Speaker 8: resounding yes, we do. 340 00:19:56,600 --> 00:19:59,280 Speaker 1: One reason there's less competition today than in the nineteen 341 00:19:59,400 --> 00:20:02,919 Speaker 1: nineties is the US budget process itself, which makes it 342 00:20:02,960 --> 00:20:06,920 Speaker 1: difficult to invest in new systems and discourages smaller companies 343 00:20:07,000 --> 00:20:09,680 Speaker 1: from sticking around to find out whether the political wins 344 00:20:09,680 --> 00:20:11,520 Speaker 1: in Washington will blow their way. 345 00:20:12,040 --> 00:20:14,080 Speaker 8: So the first thing, if I were Queen of the 346 00:20:14,080 --> 00:20:17,359 Speaker 8: world for a day. That Congress could do would be 347 00:20:17,440 --> 00:20:21,040 Speaker 8: to pass an annual budget. So most Americans I think 348 00:20:21,480 --> 00:20:24,119 Speaker 8: here that there's a continuing resolution in Congress and the 349 00:20:24,160 --> 00:20:27,280 Speaker 8: government's averted a shutdown, And isn't that good news From 350 00:20:27,359 --> 00:20:32,280 Speaker 8: an innovation perspective, it's terrible news. So whenever Congress can't 351 00:20:32,320 --> 00:20:35,280 Speaker 8: reach a budget and we're operating on a continuing resolution, 352 00:20:35,960 --> 00:20:40,600 Speaker 8: it means the Pentagon can spend no new money. That 353 00:20:40,680 --> 00:20:45,040 Speaker 8: means no new weapons, no new research and development. And 354 00:20:45,119 --> 00:20:48,760 Speaker 8: so if you're a small company, like a startup here 355 00:20:48,800 --> 00:20:52,520 Speaker 8: in Silicon Valley, the Pentagon is a terrible customer because 356 00:20:52,600 --> 00:20:56,200 Speaker 8: Congress doesn't pass a budget. Thousands of very small companies 357 00:20:56,560 --> 00:20:59,760 Speaker 8: that are key suppliers in the defense industry have left 358 00:20:59,800 --> 00:21:03,439 Speaker 8: the defense business in the past decade because of this 359 00:21:03,560 --> 00:21:07,920 Speaker 8: Kakamani budget process, that Congress cannot pass an annual budget 360 00:21:08,160 --> 00:21:10,399 Speaker 8: and can't fund new innovation in the interim. 361 00:21:10,640 --> 00:21:13,479 Speaker 1: Perhaps the most important for us driving the inertia at 362 00:21:13,480 --> 00:21:16,639 Speaker 1: the Defense Department today is the premium it puts on 363 00:21:16,760 --> 00:21:18,840 Speaker 1: avoiding risk at all costs. 364 00:21:19,359 --> 00:21:22,320 Speaker 9: The question becomes is it all necessary? A are we 365 00:21:22,840 --> 00:21:27,520 Speaker 9: over over flexing on how much risk we're willing to accept. 366 00:21:27,880 --> 00:21:31,600 Speaker 9: We're like willing to accept no risk. And when I 367 00:21:31,640 --> 00:21:34,240 Speaker 9: was a chief engineer of a series of space programs 368 00:21:34,280 --> 00:21:38,359 Speaker 9: back at Raytheon it was really bad. They wanted not 369 00:21:38,480 --> 00:21:41,520 Speaker 9: a single shred of risk on the space program. And 370 00:21:41,640 --> 00:21:44,720 Speaker 9: I would say, I would actually contend that that's what 371 00:21:44,920 --> 00:21:49,119 Speaker 9: really crippled our space program until SpaceX came around, is 372 00:21:49,119 --> 00:21:54,560 Speaker 9: that the zero risk appetite, not control risk, not manage risk, 373 00:21:54,880 --> 00:21:58,560 Speaker 9: eliminate all risk. That's one of the biggest factors that's 374 00:21:58,560 --> 00:22:01,280 Speaker 9: slowing down the DoD on these large programs. 375 00:22:01,640 --> 00:22:04,760 Speaker 7: But now we live in this world where we've got 376 00:22:04,760 --> 00:22:08,359 Speaker 7: to it's got to be perfect every step of the way, 377 00:22:08,840 --> 00:22:13,359 Speaker 7: and that means we have excessive costs and very slow acquisition. 378 00:22:14,160 --> 00:22:18,000 Speaker 1: Rapidly changing technologies could run up against a military industrial 379 00:22:18,000 --> 00:22:21,879 Speaker 1: complex largely focused on what is instead of what will be. 380 00:22:22,720 --> 00:22:25,000 Speaker 1: And if that weren't enough, we're on the verge of 381 00:22:25,080 --> 00:22:28,440 Speaker 1: an even more fundamental shift in the dynamics of warfare, 382 00:22:28,960 --> 00:22:33,159 Speaker 1: the shift to artificial intelligence. De Pentagon's AI related spending 383 00:22:33,240 --> 00:22:36,320 Speaker 1: tripled from twenty twenty two to twenty twenty three. 384 00:22:36,440 --> 00:22:40,240 Speaker 8: I think generative AI, like all technologies, has upside and 385 00:22:40,320 --> 00:22:43,439 Speaker 8: downside risk One of the benefits of JENAI is that 386 00:22:43,480 --> 00:22:46,120 Speaker 8: it can come up with things that humans would never 387 00:22:46,200 --> 00:22:50,159 Speaker 8: have imagined. From a tactical perspective in battle, that's a 388 00:22:50,200 --> 00:22:54,160 Speaker 8: good thing. From a strategic perspective, how are we managing 389 00:22:54,240 --> 00:22:57,960 Speaker 8: conflict between two countries, it can be very dangerous. I 390 00:22:58,080 --> 00:23:02,760 Speaker 8: worry a lot that we haven't fully thought through the 391 00:23:03,040 --> 00:23:09,119 Speaker 8: crisis escalation risks when other countries are adopting generative AI 392 00:23:10,160 --> 00:23:14,520 Speaker 8: and not thinking through how it could lead us into 393 00:23:14,560 --> 00:23:16,800 Speaker 8: situations neither side would want. 394 00:23:17,160 --> 00:23:21,040 Speaker 1: Whether it's artificial intelligence, or swarming drones, or any of 395 00:23:21,040 --> 00:23:24,560 Speaker 1: the many other changes the Pentagon faces. It's more important 396 00:23:24,560 --> 00:23:27,479 Speaker 1: than ever that we get what we pay for, and 397 00:23:27,600 --> 00:23:30,680 Speaker 1: looking to the private sector may help show the way. 398 00:23:32,880 --> 00:23:33,040 Speaker 6: Up. 399 00:23:33,119 --> 00:23:36,720 Speaker 1: Next, fighting fire with fire, how tech firms and law 400 00:23:36,800 --> 00:23:41,360 Speaker 1: enforcement team up to combat cybercrime. That's ahead on Wall 401 00:23:41,359 --> 00:23:55,760 Speaker 1: Street Week. This is a story about turning the tables, 402 00:23:56,160 --> 00:23:59,879 Speaker 1: taking the technology criminals exploit to do wrong, and use 403 00:23:59,920 --> 00:24:01,760 Speaker 1: it to bring them to justice. 404 00:24:03,359 --> 00:24:08,520 Speaker 10: Unfortunately, human trafficking is as prevalent now at any other 405 00:24:08,680 --> 00:24:10,600 Speaker 10: given time we had it in our history. 406 00:24:10,760 --> 00:24:14,040 Speaker 1: Timmy and Nagy runs Timia's Cause, a group that raises 407 00:24:14,080 --> 00:24:17,719 Speaker 1: awareness about human trafficking one of the range of crimes 408 00:24:17,800 --> 00:24:21,919 Speaker 1: using technologies such as electronic money transfers and smartphones to 409 00:24:22,040 --> 00:24:25,920 Speaker 1: spread around the world today, and estimated twenty eight million 410 00:24:26,000 --> 00:24:29,560 Speaker 1: people are victims of trafficking. Back in nineteen ninety eight, 411 00:24:30,000 --> 00:24:32,399 Speaker 1: Nagy was one of those victims herself. 412 00:24:32,800 --> 00:24:35,640 Speaker 10: When I was twenty years old, I came to Canada 413 00:24:36,400 --> 00:24:38,840 Speaker 10: thinking that I'll be a nanny or a babysitter, but 414 00:24:39,000 --> 00:24:44,919 Speaker 10: unfortunately the employees turned out to be an international human 415 00:24:44,960 --> 00:24:48,399 Speaker 10: trafficking ring, so I became a victim of human trafficking 416 00:24:48,480 --> 00:24:49,680 Speaker 10: for three months. 417 00:24:50,200 --> 00:24:54,280 Speaker 1: Human trafficking, which includes forced labor of all sorts, has 418 00:24:54,320 --> 00:24:57,720 Speaker 1: grown globally more than twenty percent in the last ten years, 419 00:24:58,040 --> 00:25:00,800 Speaker 1: now amounting to some two hundred and thirty six billion 420 00:25:00,880 --> 00:25:04,320 Speaker 1: dollars annually. It's spread is built in part on the 421 00:25:04,320 --> 00:25:07,719 Speaker 1: criminal's use of technology to take and move money and 422 00:25:07,760 --> 00:25:11,919 Speaker 1: to communicate with those involved, both the victims and the customers. 423 00:25:12,480 --> 00:25:15,680 Speaker 1: But as large and disturbing as human trafficking is, it's 424 00:25:15,720 --> 00:25:19,280 Speaker 1: far from the only crime business that's been transformed by tech, 425 00:25:19,640 --> 00:25:23,280 Speaker 1: prompting law enforcement to ramp up efforts specifically targeting the 426 00:25:23,400 --> 00:25:25,640 Speaker 1: use of technology to commit crimes. 427 00:25:26,040 --> 00:25:31,200 Speaker 11: Because we're located in Silicon Valley. For many years, we've 428 00:25:31,240 --> 00:25:36,720 Speaker 11: devoted tremendous resources to combating high tech crime cyber crime. 429 00:25:37,280 --> 00:25:40,760 Speaker 1: As the District Attorney of Santa Clara, home to Silicon Valley, 430 00:25:41,119 --> 00:25:46,240 Speaker 1: Jeff Rosen has seen how criminals have innovated alongside technology. 431 00:25:45,840 --> 00:25:50,159 Speaker 11: Over the last ten to fifteen years. The kinds of 432 00:25:50,440 --> 00:25:54,399 Speaker 11: crimes that we investigated have changed as the criminals have 433 00:25:54,520 --> 00:25:58,080 Speaker 11: changed the way that they're designing these crimes. So, just 434 00:25:58,119 --> 00:26:00,359 Speaker 11: to give you a sense, when I start it is 435 00:26:00,400 --> 00:26:04,320 Speaker 11: DA about fifteen years ago, this high tech crime task 436 00:26:04,359 --> 00:26:10,920 Speaker 11: force that we have was basically investigating and prosecuting traditional 437 00:26:11,040 --> 00:26:17,640 Speaker 11: crimes that involved say, computers or laptops. So they were 438 00:26:17,640 --> 00:26:20,640 Speaker 11: only high tech in the sense that people were stealing 439 00:26:20,880 --> 00:26:24,359 Speaker 11: massive amounts of computers and laptops and then trying to 440 00:26:24,400 --> 00:26:27,760 Speaker 11: ship them out of the country, usually to Asia. But 441 00:26:28,240 --> 00:26:32,600 Speaker 11: very quickly we saw the kinds of crimes that criminals 442 00:26:32,640 --> 00:26:36,320 Speaker 11: were committing used the Internet. 443 00:26:36,440 --> 00:26:39,840 Speaker 12: Criminals have gone way beyond cybercrime and are in all 444 00:26:39,960 --> 00:26:43,280 Speaker 12: different types of crime that exist against society. 445 00:26:43,800 --> 00:26:46,960 Speaker 1: Jonathan Levin has seen the evolution of high tech crime 446 00:26:47,040 --> 00:26:50,800 Speaker 1: through his work at his blockchain analysis firm. Chain Analysis. 447 00:26:51,359 --> 00:26:58,640 Speaker 12: Everything from narcotics, trafficking, human trafficking, to terrorist financing, counter proliferation. Really, 448 00:26:58,680 --> 00:27:00,959 Speaker 12: if you think about it, it's just another means of 449 00:27:01,000 --> 00:27:04,919 Speaker 12: moving money. And criminals have been early adopters in every 450 00:27:05,000 --> 00:27:09,119 Speaker 12: type of technology, whether that's the Internet or phones, and 451 00:27:09,200 --> 00:27:12,879 Speaker 12: so they are also early adopters for the uses of 452 00:27:13,240 --> 00:27:15,240 Speaker 12: currencies like cryptocurrencies. 453 00:27:16,080 --> 00:27:19,359 Speaker 1: You might think that highly sophisticated, tech literate citizens of 454 00:27:19,400 --> 00:27:23,119 Speaker 1: Silicon Valley might be less vulnerable to being scammed or 455 00:27:23,160 --> 00:27:28,080 Speaker 1: exploited online, but Rosen says it may be just the opposite. 456 00:27:28,200 --> 00:27:32,919 Speaker 11: A lot of individuals in our county are comfortable in 457 00:27:32,960 --> 00:27:36,760 Speaker 11: a high tech setting, and they use social media accounts, 458 00:27:36,760 --> 00:27:39,960 Speaker 11: and they're comfortable with technology, and they think of themselves 459 00:27:40,000 --> 00:27:45,440 Speaker 11: as sophisticated individuals, both financially and in their personal and 460 00:27:45,760 --> 00:27:51,240 Speaker 11: professional lives. And what they don't realize is there's really 461 00:27:51,280 --> 00:27:56,639 Speaker 11: no match for the psychological techniques that scammers are using, 462 00:27:56,960 --> 00:27:59,800 Speaker 11: where they're sending out millions of these messages each day. 463 00:28:00,160 --> 00:28:03,320 Speaker 1: According to a twenty twenty four NASDAQ report, the full 464 00:28:03,440 --> 00:28:09,320 Speaker 1: range of transnational illicit activities, including romance scams, business email compromise, 465 00:28:09,400 --> 00:28:13,760 Speaker 1: and human trafficking, generated over three trillion dollars in twenty 466 00:28:13,800 --> 00:28:17,320 Speaker 1: twenty three, with fifty billion dollars alone coming from a 467 00:28:17,359 --> 00:28:21,080 Speaker 1: scam known as pig butchering, where victims are allured into 468 00:28:21,119 --> 00:28:24,200 Speaker 1: pouring more and more money into fake investments. 469 00:28:24,560 --> 00:28:27,360 Speaker 11: Most of that fifty billion is from the United States, 470 00:28:27,920 --> 00:28:31,400 Speaker 11: and in terms of what we can specifically trace back 471 00:28:31,480 --> 00:28:35,920 Speaker 11: to Silicon Valley, we're talking about the over the last 472 00:28:35,920 --> 00:28:39,880 Speaker 11: several years. We're talking the tens from the tens to 473 00:28:39,960 --> 00:28:43,320 Speaker 11: the hundreds of millions of dollars worth of money that's 474 00:28:43,600 --> 00:28:46,959 Speaker 11: been stolen from individuals that live in our county and 475 00:28:47,400 --> 00:28:49,960 Speaker 11: gone to organized crime at Southeast Asia. 476 00:28:50,120 --> 00:28:53,840 Speaker 1: Criminals couldn't scale their global efforts without the assistance of technology, 477 00:28:54,200 --> 00:28:57,080 Speaker 1: but that same technology can also be used to turn 478 00:28:57,120 --> 00:29:00,000 Speaker 1: the tables and catch the culprits or if they can't 479 00:29:00,120 --> 00:29:03,040 Speaker 1: be reached abroad, to get at their ill gotten gains. 480 00:29:03,560 --> 00:29:06,560 Speaker 1: In the case of pig butchering that most often involves 481 00:29:06,680 --> 00:29:08,560 Speaker 1: Southeast Asia. 482 00:29:08,200 --> 00:29:12,240 Speaker 11: One question was, here's a crime that's happening, We're not 483 00:29:12,360 --> 00:29:16,480 Speaker 11: able to prosecute the perpetrators. Is there anything that our 484 00:29:16,560 --> 00:29:21,200 Speaker 11: task force should do? And so, after discussions with the 485 00:29:21,240 --> 00:29:24,640 Speaker 11: individuals on our task force, both the prosecutors as well 486 00:29:24,680 --> 00:29:28,600 Speaker 11: as our local and federal law enforcement. We decided we're 487 00:29:28,640 --> 00:29:31,120 Speaker 11: going to try to get the victim's money back as 488 00:29:31,200 --> 00:29:33,400 Speaker 11: much of it as we can, even if we can't 489 00:29:33,440 --> 00:29:37,680 Speaker 11: prosecute the perpetrators because they're beyond our reach in Cambodia, 490 00:29:37,800 --> 00:29:41,080 Speaker 11: in me and mar And then we set about figuring 491 00:29:41,080 --> 00:29:43,920 Speaker 11: out how to do that. So we use tools like 492 00:29:44,000 --> 00:29:48,600 Speaker 11: chain analysis and a tool from TRM Labs to follow 493 00:29:48,680 --> 00:29:52,160 Speaker 11: money as it moves across the blockchain, and we've gotten 494 00:29:52,280 --> 00:29:54,640 Speaker 11: very good at tracking money. 495 00:29:54,760 --> 00:29:58,480 Speaker 1: It's one thing to detect the criminal, actually search them out, 496 00:29:58,600 --> 00:30:00,520 Speaker 1: turn them over to law enforcement. It's another thing to 497 00:30:00,560 --> 00:30:02,200 Speaker 1: get the money back. How often can you get the 498 00:30:02,240 --> 00:30:02,720 Speaker 1: money back? 499 00:30:03,200 --> 00:30:06,520 Speaker 12: Increasingly, it's actually something that we are proactively working on 500 00:30:06,560 --> 00:30:09,400 Speaker 12: with our private sector clients. If you look at the 501 00:30:09,440 --> 00:30:12,480 Speaker 12: pig butchering example, it's a problem that is now costing 502 00:30:12,520 --> 00:30:15,200 Speaker 12: the United States billions of dollars a year. We are 503 00:30:15,360 --> 00:30:19,680 Speaker 12: identifying that activity and helping map that all the way 504 00:30:19,880 --> 00:30:23,800 Speaker 12: to the points where money is being laundered, and together 505 00:30:23,840 --> 00:30:28,640 Speaker 12: with tether and OKX, last year, two hundred and twenty 506 00:30:28,720 --> 00:30:33,560 Speaker 12: five million dollars of proceeds were seized from the people 507 00:30:33,600 --> 00:30:37,680 Speaker 12: who were perpetrating these crimes and eventually that money can 508 00:30:37,720 --> 00:30:41,400 Speaker 12: hopefully be returned back to victims. You know, cryptocurrencies, every 509 00:30:41,440 --> 00:30:45,600 Speaker 12: single transaction is public. The thing that you know, criminals 510 00:30:45,640 --> 00:30:50,120 Speaker 12: think is that there is no linkage between their transaction 511 00:30:50,280 --> 00:30:53,040 Speaker 12: that they've made on that public network. They know that 512 00:30:53,080 --> 00:30:55,680 Speaker 12: everyone can see it, but they don't think that anyone 513 00:30:55,720 --> 00:30:58,880 Speaker 12: will be able to link that transaction back to the 514 00:30:58,920 --> 00:31:02,960 Speaker 12: services that they using. And actually a ch analysis, we've 515 00:31:02,960 --> 00:31:06,760 Speaker 12: spent the last decade mapping out those addresses to those 516 00:31:06,760 --> 00:31:09,360 Speaker 12: services and have a very good understanding of all of 517 00:31:09,400 --> 00:31:12,480 Speaker 12: the ways that people are actually using cryptocurrencies today. 518 00:31:12,640 --> 00:31:15,000 Speaker 1: When it comes to human trafficking, it's not so much 519 00:31:15,000 --> 00:31:17,600 Speaker 1: about getting the money back as it is about locating 520 00:31:17,600 --> 00:31:21,480 Speaker 1: the victims, using their digital footprints to free them from servitude, 521 00:31:21,880 --> 00:31:24,040 Speaker 1: and bringing the criminals to justice. 522 00:31:24,400 --> 00:31:26,920 Speaker 10: The basic thing is that you need to understand the 523 00:31:27,040 --> 00:31:32,640 Speaker 10: behavior of human trafficking. So mainly let's talk about domestic 524 00:31:32,720 --> 00:31:37,440 Speaker 10: sex trafficking because that's one of the most prevalent type 525 00:31:37,440 --> 00:31:40,200 Speaker 10: of trafficking in nortumb not most, but this is the 526 00:31:40,280 --> 00:31:43,920 Speaker 10: easiest to detect right now. So you just need to 527 00:31:44,040 --> 00:31:48,320 Speaker 10: understand how these victims live, what's the lifestyle they travel 528 00:31:48,360 --> 00:31:51,720 Speaker 10: all the time city to city, they don't eat. So 529 00:31:52,400 --> 00:31:56,440 Speaker 10: once you understand the behavior behind trafficking, then you can 530 00:31:56,640 --> 00:32:00,600 Speaker 10: basically look at the transactions and the transaction will show 531 00:32:00,640 --> 00:32:04,080 Speaker 10: you black and white that this individual is potentially traffic. 532 00:32:04,320 --> 00:32:07,480 Speaker 1: NAGGI now works with banks and other financial institutions to 533 00:32:07,560 --> 00:32:11,120 Speaker 1: find these patterns, using technology they developed to fight fraud 534 00:32:11,560 --> 00:32:16,600 Speaker 1: and helping law enforcement shut down trafficking operations through transactions. 535 00:32:16,960 --> 00:32:21,840 Speaker 10: Now we can actually prove how human traffickers are trafficking 536 00:32:21,880 --> 00:32:26,000 Speaker 10: these individuals and how they are the one who's benefiting 537 00:32:26,080 --> 00:32:29,719 Speaker 10: from this. So we have to prove proceeds of crime, 538 00:32:30,280 --> 00:32:32,200 Speaker 10: and that's how we would do it. 539 00:32:32,200 --> 00:32:35,200 Speaker 1: It's not just individual law enforcement agencies like the Santa 540 00:32:35,240 --> 00:32:39,840 Speaker 1: Clara Dea using technology to fight cybercrime. Increasingly, they're teaming 541 00:32:39,920 --> 00:32:43,440 Speaker 1: up with other agencies and private sector companies like Chanalysis 542 00:32:43,680 --> 00:32:45,040 Speaker 1: to attack the problem. 543 00:32:45,240 --> 00:32:49,040 Speaker 11: Part of the conferences that we have had about combating 544 00:32:49,040 --> 00:32:54,760 Speaker 11: cryptocurrency crypto thefts of money via these online scams is 545 00:32:55,080 --> 00:33:00,800 Speaker 11: we've invited companies that create products that allow law enforcement 546 00:33:01,080 --> 00:33:05,840 Speaker 11: to trace the movement of crypto funds as it moves 547 00:33:05,840 --> 00:33:09,680 Speaker 11: from an individual's bank account to other kinds of exchanges. 548 00:33:10,080 --> 00:33:13,880 Speaker 11: So chain Analysis and TRM Labs are two of the 549 00:33:13,920 --> 00:33:18,600 Speaker 11: companies that we have worked with, and partly we're speaking 550 00:33:18,640 --> 00:33:21,960 Speaker 11: with them about the kinds of tools that we need, 551 00:33:22,040 --> 00:33:24,080 Speaker 11: the kinds of things that we're seeing that would be 552 00:33:24,120 --> 00:33:27,400 Speaker 11: most beneficial in the products they make. And part of 553 00:33:27,400 --> 00:33:31,960 Speaker 11: it is those companies letting us know about techniques that 554 00:33:32,000 --> 00:33:35,280 Speaker 11: they're seeing for criminals to move money quickly. 555 00:33:35,600 --> 00:33:39,600 Speaker 12: We actually managed to bring together the private sector and 556 00:33:39,680 --> 00:33:42,760 Speaker 12: public sector to work in one room together to look 557 00:33:42,800 --> 00:33:45,560 Speaker 12: at what are the instances where the private sector has 558 00:33:45,640 --> 00:33:49,200 Speaker 12: identified some type of fraud and how does that match 559 00:33:49,480 --> 00:33:53,080 Speaker 12: to the information that the government has been receiving from victims, 560 00:33:53,320 --> 00:33:56,640 Speaker 12: And together they use chainalysis to create the common map 561 00:33:56,760 --> 00:34:01,160 Speaker 12: of the full life cycle of the fraudulent activity. And 562 00:34:01,280 --> 00:34:04,200 Speaker 12: that is what the blockchain provides, is that you can 563 00:34:04,240 --> 00:34:07,720 Speaker 12: see victim funds, you can see where those victim funds 564 00:34:07,840 --> 00:34:10,160 Speaker 12: end up and where they are being laundered, and the 565 00:34:10,280 --> 00:34:14,000 Speaker 12: goal is ultimately to hold those people accountable and return 566 00:34:14,080 --> 00:34:15,320 Speaker 12: money back to victims. 567 00:34:15,400 --> 00:34:18,120 Speaker 1: There's an old adage that we're always planning for the 568 00:34:18,239 --> 00:34:21,720 Speaker 1: last war. Cyber criminals are not only fighting the current 569 00:34:21,800 --> 00:34:25,120 Speaker 1: war against law enforcement, they're busy planning for the next one, 570 00:34:25,400 --> 00:34:28,480 Speaker 1: and Leven of Chanalysis at least says bring it on. 571 00:34:29,200 --> 00:34:32,359 Speaker 1: Rosen and private actors like Chanalysis are getting better than 572 00:34:32,360 --> 00:34:35,880 Speaker 1: ever at identifying patterns to catch bad actors who use 573 00:34:35,920 --> 00:34:37,440 Speaker 1: technology to commit fraud. 574 00:34:37,760 --> 00:34:42,640 Speaker 12: We actually really like competition, and we think about it 575 00:34:42,680 --> 00:34:45,879 Speaker 12: as a way for us to leverage all of our 576 00:34:45,920 --> 00:34:49,239 Speaker 12: technology from the last decade to be able to bring 577 00:34:49,280 --> 00:34:51,839 Speaker 12: to bear or new problems. And so even if there 578 00:34:51,880 --> 00:34:56,520 Speaker 12: are new laundering techniques, or there's new privacy protocols or 579 00:34:56,560 --> 00:35:00,680 Speaker 12: things that happen in cryptocurrency, we have met mechanisms and 580 00:35:00,680 --> 00:35:04,000 Speaker 12: strategies about how we can continue to keep up with 581 00:35:04,200 --> 00:35:05,800 Speaker 12: those adoption curves. 582 00:35:06,000 --> 00:35:08,520 Speaker 1: Now there's a new tool on the horizon that may 583 00:35:08,560 --> 00:35:11,799 Speaker 1: push law enforcement and the private sector even further in 584 00:35:11,840 --> 00:35:15,120 Speaker 1: combating cybercrime. Artificial intelligence. 585 00:35:15,440 --> 00:35:17,040 Speaker 11: Some of the things that we think are going to 586 00:35:17,080 --> 00:35:19,480 Speaker 11: begin to happen in the future are going to use 587 00:35:19,560 --> 00:35:26,640 Speaker 11: AI to supercharge this process. So instead of needing hundreds 588 00:35:27,080 --> 00:35:30,839 Speaker 11: of people to send millions of these messages, maybe you're 589 00:35:30,840 --> 00:35:34,400 Speaker 11: only going to need a dozen people to send tens 590 00:35:34,400 --> 00:35:38,239 Speaker 11: of millions of messages because they're using artificial intelligence. So 591 00:35:38,280 --> 00:35:41,920 Speaker 11: that's one way that we think the criminals can scale 592 00:35:42,000 --> 00:35:47,880 Speaker 11: their efforts. Another concern is with advances in technology that 593 00:35:47,920 --> 00:35:53,200 Speaker 11: allow for things like deep fakes and impersonating people's voices 594 00:35:53,680 --> 00:35:56,920 Speaker 11: or impersonating what they look like as well as what 595 00:35:56,960 --> 00:35:59,479 Speaker 11: they sound like. That's going to make the criminals even 596 00:35:59,520 --> 00:36:00,560 Speaker 11: more effective. 597 00:36:00,640 --> 00:36:03,279 Speaker 1: Every powerful tool can be used to do harm or 598 00:36:03,400 --> 00:36:05,680 Speaker 1: used to do good, and to me and Nagy, he 599 00:36:05,719 --> 00:36:08,760 Speaker 1: sees ways that AI could give her even more power 600 00:36:08,840 --> 00:36:10,640 Speaker 1: to combat human traffickers. 601 00:36:11,000 --> 00:36:16,400 Speaker 10: This is an incredible way to see AI and artificial 602 00:36:16,440 --> 00:36:22,040 Speaker 10: intelligence and technology coming together to fight such a terrible 603 00:36:22,160 --> 00:36:26,520 Speaker 10: financial crime such as human trafficking. And also the fact 604 00:36:26,520 --> 00:36:30,200 Speaker 10: that as a survival of such a crime, I am 605 00:36:30,360 --> 00:36:34,120 Speaker 10: so excited to see that there are other technologies and 606 00:36:34,280 --> 00:36:39,240 Speaker 10: technology in general are coming on board and we finally 607 00:36:39,320 --> 00:36:43,320 Speaker 10: starting to see some real results and starting to deploy 608 00:36:43,920 --> 00:36:47,160 Speaker 10: real technology to fight such a terrible crimes. 609 00:36:48,440 --> 00:36:49,440 Speaker 6: That does it for us. 610 00:36:49,440 --> 00:36:52,359 Speaker 1: Here on Wall Street Week, I'm David Weston. We'll see 611 00:36:52,400 --> 00:37:05,160 Speaker 1: you again next week for more stories of capitalism.