Welcome to season 3 of the Public Key podcast! New Season, New Hosts, New Look. In this episode 145, we examine the evolving criminal landscape and nobody knows this better than the IRS Criminal Investigation (IRS-CI) unit, who has been an international leader when it comes to combating crypto and cyber-related crimes. Jim Lee (Global Head of Capacity Building, Chainalysis), who previously spent almost 30 years in IRS-CI sits down with Jarod Koopman, a leading figure in government law enforcement and the Executive Director of Cyber and Forensic Services at IRS-CI Investigations to discuss the crucial role of digital assets and cyber technology in combating cyber and crypto crime.
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Public Key Episode 145: Ghosts on the Blockchain: Unraveling International Crypto Crime Networks
The criminal landscape is evolving and nobody knows this better than the IRS Criminal Investigation (IRS-CI) unit, who has been an international leader when it comes to combating crypto and cyber-related crimes.
In this episode, we are lucky to have Jim Lee (Global Head of Capacity Building, Chainalysis), who previously spent almost 30 years in IRS-CI sit down with Jarod Koopman, a leading figure in government law enforcement and the Executive Director of Cyber and Forensic Services at IRS-CI Investigations.
The duo discuss the evolving landscape of financial crimes and the crucial role of digital assets and cyber technology, while Jarod shares his extensive experience and how his career shifted towards cyber investigations as cryptocurrencies gained prominence.
He explains how IRS-CI stays ahead of crime through an innovative approach to investigations and deep international partnerships and collaborations in law enforcement and highlights the need for authorities around the world to stay on top of emerging typologies and the use of cutting edge AI technology.
Quote of the episode
”Enforcement as a service…Why can’t we use the Germans who are amazing at infrastructure networking and piercing that veil and let’s use IRS-CI as the financial component to really follow the money and let’s use the FBI or the Canadians or the Australians to do this other piece. And it becomes this joint workforce that is working against the criminals.”
– Jarod Koopman (Executive Director, Cyber and Forensic Services, IRS – Criminal Investigation)
Minute-by-minute episode breakdown
2 | Jarod’s early days as a Federal agent working high stakes investigations
4 | The evolution of crime and cryptocurrency’s impact on investigations
7 | Challenges in combating cybercrime and crypto-related offenses
11 | Global collaboration in combating crypto-related crimes
17 | International alignment in fighting tax crimes in crypto
22 | Unveiling the new IRS-CI’s Advanced Collaboration and Data Center (“ACDC”)
28 | Understanding tax obligations for cryptocurrency gains in the US
32 | Government agencies face challenges amid budget cuts and hiring freezes
34 | Exploring AI and digital assets in financial fraud prevention
38 | Law enforcement’s strategic approach to the Metaverse
40 | Emerging blockchain crimes and AI threats in Law Enforcement
Related resources
Check out more resources provided by Chainalysis that perfectly complement this episode of the Public Key.
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- Website: IRS Criminal Investigation (CI) serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes
- Report: IRS-CI 2024 Annual Report
- Article: Taxpayers need to report crypto, other digital asset transactions on their tax return
- Article: Former security engineer sentenced to three years in prison for hacking two decentralized cryptocurrency exchanges
- Blog: 2025 Crypto Crime Report Preview: $2.2 Billion Stolen from Crypto Platforms in 2024, but Hacked Volumes Stagnate Toward Year-End as DPRK Slows Activity Post-July
- YouTube: Chainalysis YouTube page
- Twitter: Chainalysis Twitter: Building trust in blockchain
- Tik Tok: Building trust in #blockchains among people, businesses, and governments.
- Telegram: Chainalysis on Telegram
Speakers on today’s episode
- Jim (James) Lee * Host * (Global Head of Capacity Building, Chainalysis)
- Jarod Koopman (Executive Director, Cyber and Forensic Services, IRS – Criminal Investigation)
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Transcripts
Jim
Well, Jarod, thanks for joining us that chain analysis, public key podcast. It’s great to have you in town. You’re getting away from the snow a little bit up in the Buffalo area. It’s great to have you here in DC. And appreciate you coming and joining us here for the podcast. I wanted to start you know you’re a career government federal law enforcement officer, about 23 years in government, can you just tell our audience about you walk us through your first couple of days as a federal agent and some of the cases that you worked on early on in your
Jarod
Yeah, sure. Kind of pushing back on the memory a bit here. But no, as you’re probably well aware too. I mean, that’s a it’s an exciting time. You know, the first few days walking into the office, you’re kind of built with that enthusiasm of what you can do and the impact you can have for not only CI but the government as a whole. And I think my early days walking in, realizing that you can have an impact on financial aspect of protecting society, bringing funding back to the government treasury, all those things were exciting. I was fortunate enough, though, to come into a group that was really high speed had some really senior agents that took us under their wings and taught us kind of how to work these cases and how to do it efficiently. I think one of the first cases I came into was actually one of the most prolific and high dollar value mortgage fraud cases out of like upstate New York. Great Case Agent kind of walked through I got to see from kind of inception to trial, and kind of got that whole spectrum. And then ultimately, to work in my own cases that were in that same area, white collar fraud, mortgage fraud, tax and then ultimately, I think in that first maybe 10 years of my career working some really large scale cases, I had, I think five trials in about three years at one point, which you know for us, it’s pretty rare to go to trial, but sometimes when you have the larger cases, the defendants really have no other option but to take their chance. But I think what that did is it set me up to understand what we needed to actually complete the case and to be successful for prosecution.
Jim
I’ve often thought going to trial is oftentimes more work, or just as much, if not more, work, than the actual investigation itself. And I think when you go to trial, you really learn how to be an investigator, and if you did it five times in that period of time, I don’t know what that, of course, sets you up for success. And I I’ve always been really impressed with the men and women in IRS CI, and that’s why I love the division so much, because everybody’s just so mission driven. They understood what their value was and what they did for the American public. So, yeah, it’s couldn’t agree with you more, I think, you know, in the past couple of decades, the criminal element, you know, has really evolved. And I’m curious from your eyes, you know, as the executive over cyber forensics, I mean, are you seeing more technology being used in crime today and or are there new crimes that you couldn’t even have imagined when you first started out as an agent?
Jarod
Oh, yeah, absolutely. I mean, I think we didn’t have cell phones back then. I mean, you, you were the same time. I mean, I think maybe the first year on the job, I was issued a beeper. Most evidences, paper copy. Everything we did was face to face interviews. You know, we’re still sitting in a car doing surveillance. All the evidence was was needed to be held in a filing cabinet, you know. And more importantly, I think almost all financial transactions were done in cash or through the financial sector. That has completely shifted to now being these small computers, you know, massive super computers in our pockets. You know, it’s digital evidence for everything. It’s use of cryptocurrency to evidence in general. Being everything digital, it’s created some challenges, but I think it’s also, to your point, brought in a new wave of crime that we’ve never even we never even thought was possible back then. Yeah, you know, it wasn’t like we had a group that’s been studying crypto for decades, right? We kind of learned this on the fly. And this was all new to both us, to both the financial sector and to the criminals.
Jim
You know, you mentioned, you know, the beepers. And I remember a couple of things from the early days as well. You know, we had a typewriter when I first started that we had one typewriter in the middle of the Detroit off that you had to sign out on a clipboard after write up a memo. I remember getting a page pulling over to a pay phone to make phone call. And the other thing that you jogged my memory, I remember a yellow band at the bottom of a document that had to get, like, six signatures that had to be can carried around, that technology has changed,
Jarod
and that’s what’s made us more efficient. It’s made us what has been able to stay on par with as the criminals advance, we have to advance and you know, and that takes effort, because it’s driving a larger ship on our end.
Jim
Let’s jump right to, you know, this evolving technology from your lens, you’ve got a storied career with IRS. I know you’ve led the cyber division, really stood it up within IRS CI from its inception, when did you start seeing a heavy concentration of cryptocurrency and the blockchain being mentioned and investigations just throughout the Asia? Yeah, so I think there’s a couple key points in kind of that time frame, that timeline. Well.
Jarod
We had that early day, the 2011 1213, where you saw like the Liberty reserve, the Silk Roads, the BTCs of the world. That was the first exposure that we really had. And it was, it was really like everybody, and we have some phenomenal agents that work for us, that have dove into that area, that were forefront, cutting edge, doing that type of work, and it was those cases kind of put it on the map. But it was really, wasn’t until probably 2017, to 19, that we really saw it become a little bit more mainstream. It was like, this stuff’s not going away. This isn’t a fad. This was really becoming incorporated and adopted by a society. We saw IRS issuing notices for tax purposes. You saw financial institutions recognizing that this was part of their portfolio. So all those things started to come into play, which also brought a criminal element more to the forefront. And we saw, you know, the creation of like fraudulent ICOs. You saw the dark net marketplace exploding. You saw service providers that were all kind of tacked onto the ecosystem of crypto, whether it was virtual asset service providers, wallet providers, just the transaction between Fiat and crypto. Those were all occurring at that time, and I think it just drove the market.
Jim
Yeah, I remember those early days. I remember conversations with you and some of the agents, you know, and they were trying to explain that to me, and I’m thinking, What did you just say? And I remember, you know, having conversations early on. You mentioned we had agents, you know, throughout the division that were looking at cyber related type cases, you know, with the filing, like of electronic returns, right? And looking at IP addresses. And I just remember, you know, things changing, and, yeah, and things fast,
Jarod
yeah, very quickly, you know. So crypto, I always tell everybody, I mean, what took the financial institution almost 100 years to kind of perfect and have framework and guide rails and everything in place? Took crypto, you know, less than a decade, yeah,
Jim
you know, on that point, thinking back, I remember international type cases, you know, early on, you know, 1520, years ago, let’s say, had an international component to it, but they were few and far between. It took 2025, years. Now, just about every case has an international component, but crypto involved in crime, you’re right. It happened quick, not a perfect analogy, but just to kind of show how fast and global, yeah, so
Jarod
like almost every case we work now has a international component.
Jim
That’s right, yeah. Interesting. Do you remember what your first thoughts were about crypto and the impact that would have on the criminal landscape. You
Jarod
know, it’s funny, you have these moments in time where it’s kind of solidified as, like, you know, this was an aha moment, you know. And we were actually, I was sitting in Chicago, actually, both of us were sitting there. You were the sack at the time, recognizing that crypto wasn’t going away. And there was a great case agent, Christian Chesky out of South Bend, who I was overseeing that office. And I remember a conversation where he was saying, Yeah, I just listened to Joe Rogan podcast on, you know, cryptocurrency and understanding kind of what it’s like. And we had no idea what it was, nobody, nobody did at that time. So it was one of those things that kind of committed to each other, like, all right, yeah, I’ll buy some. Well, you buy some, and we’ll kind of figure out how this works and at least learn or develop. But I think from that, that point forward, we were both, and not even just the two of us, but a larger group within CI we’re big proponents of the technology, like we see a big use case. We see a big benefit to having that as a supplement to kind of the traditional finance. And we knew that it wasn’t going to easily go away. It was something that was actually going to probably drive and create more of an ecosystem. And so that’s where we first saw kind of this, like, forward leaning into, let’s be, you know, the agency. Let’s be those, those folks that are kind of diving into this space. And not to mention that, you know, our agency is financial investigators. That’s our 100 year history, over 100 years now, you know, we have to be kind of understanding all the landscape that entails.
Jim
Yeah, it’s just another financial rail. It’s a great point. Yeah, I remember those early days and I mean, I think in my mind, I mean, advancements in technology is great. It’s great for the human race, right? I think as career law enforcement officers, you know, with advancement in technology, the fraudsters are also going to take advantage of that, you know, which they’ve adopted,you know, pretty rapidly.
Jarod
I think we recognize that too. We saw the pseudo anonymous nature, the speed, the global capability. It was just like bringing a whole like storm of this, wow, they could, they could move money fast. It’s gonna be harder for law enforcement to trace and track. And you know, that pseudo anonymous nature, nothing was tying to, like, their name or address or something. So it was a challenge.
Jim
On a side note, you mentioned Chicago, and I still remember people watching us do sprints in the basement at five in the morning, where I would always be like, five steps ahead. I remember that, not quite sure. I remember that
Jarod
going that way.
Jim
A couple quick hitters. I just based on, you know, around priorities within CI, there are crimes involving crypto still a priority with CI? Is that going to be a priority item in 2025 oh,
Jarod
yeah, absolutely. I think you touched on earlier when you said it’s just another, you know, rail of the financial system. And we always say that it’s like you’re going to still have the underlying crimes of investment fraud, Ponzi schemes, white collar fraud, tax. On now. It just has an element of the medium of exchange being crypto or digital other digital assets, and it’s just understanding that this is now an incorporated wave of the future.
Jim
I couldn’t agree with you more, and a lot of the conversations that I’m in all lead to that. As a cyber director, executive, federal government, extremely high position, I’m curious, how do you and how does the agency define a cyber crime? Yeah, so we took a little
Jarod
bit more of a conservative approach, in the sense that really it’s anything that touches the Internet to then help the criminal facilitate the crime or to conceal their transaction. So it could be really anything that’s internet based that’s on in furtherance of that scheme, malware
Jim
attacks, yeah, submitting false returns electronically. How about narcotic sales off chain, where then the organization uses crypto to launder their illicit funds?
Jarod
Yeah, absolutely. They can get separated in a couple different buckets, like we talk about cyber enabled versus cyber dependent. Fraud and cyber dependent would be like, if not for the Internet, those things wouldn’t exist. So your malwares, your DDoS attacks, your, you know, these sophisticated hacks, things like that, but then your cyber enabled, they’re going to be kind of what I was talking about earlier, the traditional cases, traditional fraud that just has an underlying digital asset component. How
Jim
important is international law enforcement collaboration, from your perspective, in unraveling, you know, these crimes involving crypto critical
Jarod
I mean, I can’t understate that amount of necessity that that requires we mentioned it earlier. I mean, almost every case now has a global reach, and almost every case is touching into a different country, or a country or several countries. So the requirement for us to not only have good law enforcement relations with those countries, those cyber components, but also from a policy standpoint, being able to work with those countries for mutual legal assistant treaty requests, that’s where we kind of will reach out to those countries to get documents or records through legal process, to request their assistance on surveillance records, maybe even an arrest. Those are all critical pieces that we can’t do ourselves and we can’t do it. Well, I couldn’t
Jim
agree with you more. I mean, the international aspect of how fast and how efficient value can move on a blockchain. You know, I think law enforcement agencies think they can do it, and I think law enforcement agencies can, they’re just not efficient. The speed is what creates a challenge. I feel for Oh, absolutely. I mean, when
Jarod
you can sense almost an unlimited amount, unlimited amount of money overseas in a matter of seconds, there is a whole different sense of urgency there that you can’t do alone.
Jim
IRS Criminal Investigation seems to be an agency that’s often mentioned in the headlines, revolving around like large dark net markets or mixer shutdowns and just enforcement actions in general, and you have a lot of these organizations that seem to be operating right out in the open. What are the challenges that law enforcement, from your perspective, have with these investigations? Yeah,
Jarod
so that’s a there’s quite a bit there. You know, I think you’re talking about a very small percentage of criminals that have the sophistication to actually operate in that space. These criminals usually have really high operational security. They’re cyber savvy in order, you know, to understand how they operate. They’re usually hiding behind Tor, you know, which is a anonymous browsing system to be able to really hide their tracks. They’re using services like Bulletproof Hosting infrastructure, which really, all of these things are Vals that the government has to pierce to be able to try to find who’s behind this activity. And more and more the technology is going to be on the favor of the criminal because it’s they don’t have restrictions on how they use it. They can leverage kind of expertise across all of the criminal organizations. And then, in addition to that, like just the sense that, you know, they are using and constantly adopting new technology, day one was Bitcoin transactions from wallet to wallet that is almost easy now you know to understand and to follow, but now you’re talking about, you know, bridges and, you know, peel chains and cross chain transactions and swapping tokens and anonymity, enhanced coins and smart contract the list goes on, and it’s like those are the methods and the typologies that the criminals use that then the government has to kind of follow up with understanding how it works, and then trying to unravel and uncover their activity.
Jim
You know, a side note on what you just said, and agents, hey, you mentioned a lot of money laundering techniques. Do you feel that agents have to have a little self initiative to stay on top of all that, just to keep current? I mean, agents have to have some self initiative to do some self education or to stay current?
Jarod
Yeah, absolutely. I mean, and that’s what makes our what I feel makes our agency so great is we have a ton of men and women that just are really pride themselves on becoming and staying proficient in this space. And it’s not like you can pick up a book and just learn this stuff. It’s occurring, and it’s adapting and adapting to almost weekly to monthly changes. So they’re interested in the space. They love to do this type of work. They’re pushing themselves to be experts and. You do that, it’s, it’s understanding that this ecosystem continues to grow, and it’s kind of, what’s the next level, what’s the next thing that we have to be prepared for? And we can, we constantly see it, you know, whether it’s the, you know, the layer two coins or the defy the dexes, you know, there, it’s constantly evolving, and we have to basically stay on par with it. It
Jim
gets back just to the temperament and the mission driven focus of Irish Criminal Division and the agents that are there, and just the forward leaning to stay up and current on everything, yeah,
Jarod
very impressive. And we pride ourselves on being, like, innovative, you know, I always tell everybody like we’re small enough of agency, or it’s like we’re a small ship against the cruiser. You know, we can kind of navigate much faster, turn that ship quicker to say, okay, look, a lot of the criminals are moving towards x. We have to go learn about x and go become proficient in it. A
Jim
lot of criminal organizations these days, they reside outside of the US. They’re not here. I’m curious again, from your thoughts, just some insights that you might have on how IRS criminal investigation has been able to leverage International and Public, private partnership collaborations to shut down some of these bad actors that really have a global reach. Yeah?
Jarod
Sure, yeah, that’s a loaded question. There’s a lot to that. So unpacking that first is, like, you know, the International piece I think we have early on. You know, we saw exactly what we talked about earlier this international, global reach. And in doing so, we placed one of our first thing was, where do, where does it make the most sense for us to be kind of dialed into and with small resources at an agency like CI, we have to be very efficient on what we do. We ended up placing an agent at Europol, which is a hub and, you know, in the Netherlands, that really is focused on kind of collaborating amongst 100 of countries that all sit together. So it’s kind of your biggest bang for your buck by putting somebody there to leverage that task force environment. So in doing that, we were able to really jump start, kind of our international capability, and then recognizing, over time that this is becoming even more focalized to different specific areas, to different countries, different exchanges that are popping up because it’s easier to do so in certain countries, the ones that you could imagine that we don’t have good relationships with. And then shortly after, we established not only the cyber component, but more of a cyber tax component. I think you remember very well, because you do a lot of work with the j5 Yeah. So the Joint Chiefs of tax administration. So these countries that were brought together to focus on the joint effort around tax crimes, but then also with cyber or crypto Nexus working together, understanding this is not only a US problem. This is a UK problem, Australian problem, Canadian problem, and being able to bring those folks in, because we’re all trying to drive the same mission. And then last year, I think the last point would be our cyber attaches. So I mentioned we put, you know, folks at Europol. We took a look at, like, as the global economy continues to shift, where are these pockets of digital asset crypto ecosystem components popping up? Where are they really a benefit for us to be kind of dialed into. And we started looking at, you know, the Singapore, Australia, somewhere in Latin America, Germany, and having like presence at areas that not only is there a lot of crypto or digital asset transaction volume occurring, but there’s exchanges that there’s partners that sit there that have a robust kind of task force that are addressing global crime. So that made sense for us to really kind of hone in on those areas and say, Yeah, let’s put some more folks there.
Jim
Yeah, yeah, you mentioned the j5 earlier, and I was always super impressed with the j5 and the j5 challenge, which oftentimes focused on developing investigations revolving or that utilize crypto. And, yeah. I mean, what a novel concept. You put a bunch of subject matter experts in a room in a public private partnership setting, and you just tell them, just develop relationships. You let them work. Yeah. I mean, what a novel concept, to let the agents and the analysts in the public private partnership setting just do what they do best well. And
Jarod
I think I said several times prior is that this was probably the first time, probably in history, where, like, a program area like digital assets or crypto, broke down a lot of those, like international barriers to really allow us to share data, work jointly, to be become more efficient as, like a global enterprise for enforcement,
Jim
yeah, and I know that’s a model, you know, around the globe that law enforcement agencies have taken notice to. I still get questions today on,
Jarod
you know, it’s funny, because, I think not purposely, but I coined this term enforcement as a service several years ago. I think I mentioned it was just stuck. But, you know, it’s kind of a it was actually, I was overseas doing a conference, and it was in relation to cyber crime as a service. Cyber crime as a service, this model that the criminals can deploy, you know, the best hackers to go hack, the best money launderers to launder the funds, and the best crime bosses and groups organized crime, you know, groups to actually control and oversee everything. They’re using expertise. And we were operating in a silo until, really this time frame where, you know, now this enforcement is a service, and I’m taking. Credit for all Yeah, is this one that like, Well, why can’t we use, you know, the Germans, who are amazing at infrastructure, networking and, you know, piercing that veil. And let’s use irsci as the financial component to really follow the money. And let’s use the FBI, or the Canadians, or the Australians do this other piece. And it becomes this, like, joint workforce that is working exactly against the criminals. I
Jim
am going to use it. I will. There’s no contact. I will. I will tag it to get it wrong. So your annual report just came out, the CIA annual report being a great product that really highlights a lot of the work the division is doing. It was just released recently, and I noticed, I looked at it yesterday, actually, and I noticed that there were about 111 new cyber investigations initiated. And based on our conversation earlier, cyber as a big like umbrella, how many of those would you say? Are that crypto are involved in those crimes? Yeah,
Jarod
out of that, probably it’s right around about 70. You know, give or take, I mean, that’s it fluctuates depending on cases open and prosecuted, but right around that number is what we have in can
Jim
you break that down? Off the top of your head, how many of them actually involve tax versus, you know, some title 18? Judge,
Jarod
yeah, we’re sitting right about 50% 45% that involves a tax related charge. And the interesting thing is, is, like, it doesn’t just have to be one or the other. You know, we work cases as you know, that could be money laundering with a tax component, or it could just be a tax component itself, based on the facts of the case,
Jim
right? That makes sense. I also saw where there were about 72 cyber prosecution recommendations. Same question, how many of those involve some facet of crypto, yeah,
Jarod
roughly about 45 okay, yeah, about 45 of them are crypto
Jim
related. Yeah. It feels like, you know, the past two, three years, it feels like it’s really morphed to about 50% being tax or tax related, versus pure money laundering
Jarod
five or eight years ago. Yeah, and that’s primarily due to that adoption, consumer adoption, and also some of the regulations put in place by IRS and Treasury to say that crypto transactions are taxable transactions, that when you know you have that qualifying event, qualifying it as an asset to actually be fall under those regulations.
Jim
Yeah. The other thing I noticed in the report, they’re about in 2024 they’re about 920, 5 million in cyber related assets. See, and I’m curious, is it safe to say that it’s all crypto, and if so, is there a specific case that comes to mind that dominated that amount, or was it a number of
Jarod
cases? Majority, I think 915 million or so was, was crypto related, digital asset related? And yeah, it’s primarily tied to it. You usually have one or two big cases that drives that big seizure, and that was a down year for us, right?
Jim
Yeah, compared to billions in the past. Yeah.
Jarod
Now we have had some really great successes, and a credit to our workforce, because they put in the time and effort to really do their job and do it right, and to, you know, to be able to get up in front of, you know, here, to get in front of conferences and kind of, you know, to really shout that, you know, look at all the great work we’re doing. And then on top of that, we’ve seized, you know, 12, 13 billion, right, over the last three, four years. That’s something to be, I think, proud of as an agency, but also just as an American citizen, right? Well,
Jim
that’s what the public expects. Yeah. I mean, shut down these criminal organizations take the illicit funds that they’re earning and return it to victims. Yeah, I mean, it’s just, it’s just what the public expects, and now you’ve done a nice job at the division with that over the years. Let me shift gears on you real quick. What I think is a game changer for irsci, and revolves around the creation of the advanced collaboration and data center or ACDC, as you copyrighted that. Can you explain what the mandate is for this center and what challenge is that going to solve from your perspective? Yeah,
Jarod
and it’s funny. I always chuckle, because it definitely did coin that and backed into ACDC, you know, I like the name. It was something that stuck. We plan to, you know, every project or case we work will be a song title, and we’ll play on that, you know, something we enjoy, to at least make some light of it. But I think what it grew out of this genesis of the people right? So understanding that it’s really the skill set and the knowledge of the workforce that is what made us so successful, and it was combining the right people together. So we kind of piloted this for several years in the DC area, and we had and then out in LA, but having the right folks sitting together, and I’m talking about like agents, computer scientists, data scientists, contractors, linguists, analysts, all sitting together with one mission, right? And the mission is find the bad guys, and it’s focused around the crypto and digital asset environment, but find the bad guys doing bad things and find the most egregious ones, right? And you can go off into a lot of tangents there, and kind of what our mission will be. But when you boil it down, that was the idea was, can we scale this up and do even more by bringing folks together to really have that one mission drive? Well,
Jim
I think the division actually. Has proved it over and over and over, somewhat in silos, with just some of these massive investigations where you’ve seen some success and, yeah, bringing it all together simply makes sense, yeah. And I
Jarod
think we’ve been operating kind of in that structure for quite a while. So informally, set up formally, kind of putting some some like structure around it, is the idea of the CDC, you know. And there’s some other pieces to it as well, like training, the training component, like, as you can imagine, you mentioned earlier, there’s a significant need to stay current with some of this technology, not only from CI, but our partners, right? So it’s the Treasury bureaus, it’s the other law enforcement agency, it’s state level. It’s our civil component to be able to enforce the tax compliance efforts. All of that comes back to knowledge gap, training, understanding of the space and staying current with the technology developments. So this center would be another hub for mission focus, but then also training components to really hold government. Yeah,
Jim
and I suspect any time you’re talking scale and sustainability, you got to talk about policy and procedure. I’m supposed a centralized hub that makes sense and make sure people are consistent with the way they’re operating. So, yeah, it makes sense on the AC DC. I’m curious, you mentioned case development or lead development? Do you envision the ACDC actually generating investigative leads for the division at irci and outside of irci? Yeah,
Jarod
we do. I think it’s gonna be gonna be unique, because it’s kind of like all in one, one stop shop, right? It’s like training, operational, investigative support and ongoing casework, and then lead generation. So lead generation could be around a new development, a new program, area working with public, private partnerships, contractors, private industry, and saying, is there an area that we need to focus on? And then if so, can we generate some some work streams around that to actually get ahead of it, right? And so it’s kind of matching in real time, this like data that we’re seeing occurring in the in the ecosystem, to then what can we do from an enforcement standpoint to really drive that compliance?
Jim
I know the really good kind of idea that you had setting that up. When you talk about enforcement, I don’t know that they’re in any enforcement action where there’s a seizure involved. You’re not taking a computer or an iPad or a phone something cyber related, and having a forensic cyber unit actually sit there to actually deal with all that makes a lot of sense as well.
Jarod
Yeah, and our forensic capability is really top notch. We have very experienced certified Forensic analysts and agents that do that type of work. And you can only imagine that space is not decreasing. We’re only collecting more data. We’re only coming up and running against more phones, more computers, more digital evidence. Those are all challenges and problems that we need sufficient staffing to handle it. But, yeah, one of the things we’re doing is outfitting that with the top of the line forensic capability, and we’re hoping that it’s kind of that cutting edge facility that can really drive anything we need. Yeah,
Jim
very forward leaning the CCUS, a dedicated Cyber Crime Unit in DC and LA. I’m just curious, is there any more thought at the division to establishing more dedicated CCUS around the country, within IRS CI, yeah, we’re
Jarod
a small agency. I mean, bandwidth is always an issue, so we have to be very selective on what we’re working and the resources we’re putting towards it. So you know, the idea here is to stick with that, that two east and west coast CCUS, true CCUS, but that doesn’t inhibit our field offices and our agency from developing these smaller, field office level cyber crime units. Same thing. Now take AC DC and scale that down to a specific area like Chicago or New York. You’re saying, do the same thing. Bring together your personnel that are interested in this space, working these type of cases, so that they can learn from each other, build off each other, and then start to do more, have more success as a unit versus individually. Yeah. Well, again,
Jim
I feel that makes a lot of sense. Because, you know, believing that crypto is just one more financial rail, it has a division that spends 100% of their time on financial investigations, the agents they’re going to have to understand. It just makes sense. It’s not going away. Let’s, let’s shift into tax just for a moment. Here. You know the public key podcast here at chainalysis had done several tax episodes historically, and you know where the common theme is that crypto gains wildly unreported here in the US. And I’m curious again, from your perspective, with Bitcoin, seen a historic rise, you know, in price recently. What do you think individuals who are winning big? What do they need to think of? Well, think about when it comes to tech,
Jarod
yeah, I think that first off, they have to know that there’s a requirement there, right? So that’s the first part. We don’t expect you to know all the intricacies of the tax law and everything like that’s why we have professionals. We have CPAs to rely on. We have companies that do that type of work. Now, certainly, if you know qualified, you can, but understanding that there’s a process there where you know when you have a tax. Event. So if you send, spend or transfer cryptocurrency or any digital asset, there’s a requirement to understand that there was a basis of when you purchased it and then when you relinquished it or got rid of it, that there’s a capital gain of short term or long term, but there’s a tax due, annoying on on the amount that was made, on the capital gain. Now also vice versa. If there was a loss, you would be allowed to take that loss as well. But as you mentioned, historic rise Bitcoin at over 100,000 a coin recently that’s going to have a bunch of these, you know, big winners that invested in crypto are now looking to cash out and made some really significant amount of money. That is a capital gain, and there’s a requirement by them to pay their fair tax on that, on that share, right? Right? Yeah.
Jim
And I know there’s a civil aspect here and a criminal aspect here, and I know from my time at the division, I feel I can say this for you. Correct me if I’m wrong, but I mean, criminally, you’re not interested in people that are making a mistake. You’re interested more in people that are taking affirmative steps to actually evade the reporting of That’s
Jarod
right. Capital, yeah, that’s right. They’re taking some aspect to actually hide, conceal, trick the government, you know that they didn’t make that money and that they don’t have any tax due, right? I
Jim
suspect a lot of the money laundering techniques you mentioned, a lot of those could be considered affirmative acts, depending on how an individual absolutely what they’re doing. Yeah,
Jarod
absolutely. And it’s a totality of the case, right? We don’t look at it through an optic of one specific issue. That’s
Jim
right, that’s right. Okay. There are rumors that we hear in the media that government budgets, in general, across government, are going to be reduced, you know, which also oftentimes translates to reduced hiring if, in fact, this happens, the rumors are it’s happening across government, and you’re not able to hire, how are you going to be able to do more with less? Yeah,
Jarod
to be frankly honest. I mean, we won’t do less with less, right? But the agency is very driven there, and really, this is what I’m so proud of from an agency standpoint, is that we could have less, and we’re going to continue to do the job and the mission that we have, you know, in front of us, and that’s going to be finding the most egregious cases. So we’ll find ways to get even more efficient. We’ll find ways to continue to work those cases that will bring significant value impact to the citizens or American public. And that’ll be tax collected. It’ll be seized assets from criminals. It’d be putting the bad guys away that are doing terrorism financing, human trafficking, child exploitation and leveraging, you know, the financial rails to do. So, yeah, it’s going to be a challenge, and it’s one of those things that we’ve seen historic cases in the past, we’ve done billions in fraudulent investment fraud cases. We’ve done billions in these hacks and things that have gone back to victims or are going back to victims. Currently, those cases, you know that you may not have as many of them, and that’s the result of, you know, some of this, you know, decreased hiring and decreased staffing.
Jim
No, that’s something that all government agencies are paying attention to right now. Okay, let’s move looking forward. Is there any project or initiative or collaboration in your mind that stands out that IRS CI is going to get involved in or be focused on, kind of moving forward?
Jarod
Yeah, there’s several. I mean, one, I want to put a plug for some of the work that one of our employees is doing. Lauren core, who came over from financial institution, she generated a CI first initiative, which is a really outstanding program to be when it’s dealing with financial fraud, crypto digital assets included in the traditional frauds, of what we see having a direct contacts with those financial institutions, with the ecosystem, with the folks that are doing that type of work, to come to Ci to provide that type of leads, information intelligence, so that we can be proactive and very nimble in a sense of moving quickly on some of those frauds. The other thing is, then, just some of the projects that we’re looking at that are cutting edge, I think the next wave of kind of the future. I mean, I’m sure every business is talking about AI these days, and kind of how that’s going to impact some of the case, work, use cases from criminal standpoint. But also goes back to the same process that we were in 10 years ago, right, understanding crypto, how it’s going to impact the criminal landscape. Now it’s AI. How’s AI going to come into play? How can we use it get better? But in order to do that, we have to scale up and become familiar with it and get better at it ourselves. And then with that, I think even in the digital asset space, I mean, we’ve seen things like defi and web three driving, smart contract use gaming. I bring this up a lot. You know, it’s an area that we’re focused on understanding that space has opened up a lot. My son plays Fortnite. And it used to be, you can go into Fortnite, yeah, link my card, buy some, you know, V bucks, play in the game and no harm, no foul. Now it’s, you know, he’s, he’s in the game, encrypted chats. You can transfer your tokens to another game. You can transfer to a different game. You can off ramp it in crypto. It’s becoming an integrated model that is combining everything that we have available to us at a financial aspect. Yeah,
Jim
over the years, talking to you about this, I find myself in that conversation, you know, with some of these web three games, this could probably be an episode in and of itself, right with. Just the use cases, the money laundering threat you know, that revolves around those types of games, the CI first thing that you mentioned, Lauren, it’s another forward leaning thing The Division is doing to really take advantage of public private partnerships, just to be more efficient, right? And that’s really what it’s doing. I know a lot of people are watching that you mentioned. Ai, can you talk about how CI is using AI now? Or do you feel that AI will play more and more of a role within law enforcement, specifically IRS, ci, just from your lens? Yeah,
Jarod
sure. So, yeah, we’re constantly looking at it. I think we’re at that early stage of evaluation and where it kind of fits correctly. It’s also one of those things that we want it from a government standpoint. You know, we have a standpoint. You know, we have aI governance boards make sure it’s being done not only from a deployment standpoint, but a safe and ethical manner, and again, from our standpoint, and for law enforcement and within CI we’re looking at just becoming better at the use of our data that we have. So we have a lot of operational data that we collect in our cases. How do we use AI to understand it, contextualize it, and at a quicker speed, be able to find, you know, the links to go after and seize more money, put more bad guys in jail, quicker, right? Can we, can we identify those needles in the haystack, faster to be able to actually go take some enforcement action, or, you know, some type of a client’s effort? And I think to the way that we’re utilizing it is primarily around data, but I think there’s a lot of other aspects with training, de confliction, things like that, that we can explore. You know, I think the important role in the future, I have a lot of ideas in my head. I think that we can really bring this I think, you know, I mentioned training. For instance, if there’s a ability for us to have aI sit on top of a lot of our handbooks and our standard operating procedures and our requirements from an agency policy, new agents can very quickly learn and ask questions of the data. Do I need to do if I’m looking to do an undercover operation or do a surveillance they’d be able to quickly gain insight on the guidance on what to do without having to have a senior analyst tying up time. So there’s efficiencies there. The other ideas that we have are more around, like report writing. You know, AI is really great at generating reports, but you have to understand, there’s always going to be human in the loop. Which that coin term is something that technology and AI is not going to be the deciding factor, right? The human will be the deciding factor. The human will be the one that overlooks and adds the context to the report, adds the other information to make it kind of a final, polished product. It’s just efficiency. Back in the day, you used to have templates, a template that helps you create something or work something. This is just adding to it.
Jim
Yeah, no, that case knowledge. It’s that the knowledge management. Yeah, it’s interesting, I think, at a more elementary level, with the tool, I think a lot about trial illustration. I mean, jury’s often time to understand complex money transactions. A lot of time, images and how you present things to a jury makes a lot of sense. And I just, I just feel that AI may be able to help spark some ideas on how to present, you know, complex money. Yeah, absolutely, yeah. When I was there, I’d had these conversations with you historically as well. We were building under your leadership. We were building a strategy around the metaverse. Is this still something that the division is trying to understand? Yeah. I
Jarod
mean, I think a lot of folks are trying to understand it. We do understand it now. It’s been kind of a couple years of, at least, you know, just just diving into the space again, going back to, like innovation, where is the potential for criminals to hide and conduct their operations? And that’s an area that, you know, we understand it. We’re kind of developing kind of strategic plan to kind of address how we get involved in that, how we operate there. I mean, going back to the gaming component, some folks might not think this is a priority area, but it really is a we see a lot of money being generated there. We see a lot of involvement from society to be involved in this, like Metaverse environment. And it’s something that’s, you know, foreign to most of us, especially at our age, but it’s something that we need to not just turn a blind eye to, but to really kind of hone in on. Again,
Jim
it’s forward leaning. The American public should be grateful that there are law enforcement agencies, and I know there’s others as well, but the IRC is leaning forward and building a strategy around that, trying to understand it before it’s too late. Okay, along with new things and forward leaning, what types of emerging crime type involving the blockchain technology or virtual assets, are you seen more frequently now compared to, say, five years ago? Yeah,
Jarod
good question. So I think, you know, we still see some of the original five years ago frauds, you know, the dark web marketplaces, Ico fraud, you know, maybe even the Ponzi schemes involving crypto. Those probably won’t ever go away right there. As long as humans have that innate ability to be criminal in nature, we’re going to see those what we see now is more of a sophisticated movement towards the defi space. So smart contracts vulnerabilities in those code to exploit, you know, different components, whether it’s flash loan attacks or wallet drainer. Or pig butchering schemes, you know, where they’re really enhancing, kind of a mixture of social media, crypto investment and taking advantage of these, like romance aspects. So starting to see this like just criminals are opportunistic. They’re gonna throw whatever they can against the wall, see what sticks. Mentality, I think the hacks and the type of sophisticated, uh, defy aspects are really, I think, what we see more of and also are taking a little bit more of our energy and time to really uncover it. Stop it, you know, because some of these are complicated schemes, right? Start talking about flash loans and pricing, liquidity pools and things of that nature. This gets a little bit a little bit complicated that we have to we have a lot of effort towards,
Jim
yeah, sure. Even more reason to stay on top of things and to keep agents and officers, you know, up to speed on the latest technologies and just just to be efficient
Jarod
and AI has changed the landscape, you know, going back to now, the criminal use of AI, you know, you see the deep fakes, right? The myths and disinformation, the cloning. I’ve seen some amazing presentations where cloning aspects, you can’t tell the original from the from the AI generated clone, right? I mean, that’s tough. And when you start thinking about the complications we had years ago with elder fraud cases, where somebody would just call and pretend to be the grandson that’s stuck and needs money. Now we have an actual face call, video call on your phone with somebody that is cloned and looks exactly like your grandson, and their voice is similar, and they’re saying they’re in trouble and in need, I’d probably fall for that if it was my, you know, like my daughter or somebody. Well,
Jim
I’ve seen some of those similar presentations, you know, just just in the recent past, and everything that you just said, and that I’ve seen them do it in seven different languages too, right? It’s incredible what this technology can do. On that note, are there particular sectors or industries that you feel are more at risk?
Jarod
Yeah, anytime a new service or a new sector is kind of introduced to the ecosystem, it’s exploited, right? We saw it with wallet service providers came out, and those wallet providers, they were being attacked because they were holding the private keys, and they were getting attacked. Then it moved to, you know, the bridges, and all the bridge attacks were happening because they were hacking their code or doing some type of manipulation there. We now see it with some of these liquidity pools or the smart contracts. Everybody’s using the smart contracts, and they have a great function. There’s a lot of use cases for where that could be incorporated into our society. But with that comes tremendous amount of code. With that comes a lot of hackers that are looking at vulnerabilities within that code that they can exploit. So I think as soon as you layer something new onto this ecosystem, criminals are looking at it as, how can I take advantage of that? It’s not mature yet, hasn’t gone through the aspects of being kind of bulletproof, and they look to take advantage of that. Well,
Jim
Jarod, look, I’ve kept you long enough all these current and emerging challenges out there with law enforcement, it’s time for you to get back to work. I’ve I’m just incredibly grateful to have had the opportunity to work with you. You know, over the years, you’ve always been incredibly dedicated to the mission. I know that’s not going to change. So, Jarod Koopman, everybody, I appreciate it. Thank.