This content is brought to you by vchain, which is a leading enterprise grade
Layer one public blockchain spearheading a digital revolution from a sustainable, highly scalable smart
contract platform. The v chain blockchain has many unique features, which makes it
an ideal choice for Web three applications. Vchain is working with many great enterprises
such as PWCGVONCI, BMW, and Walmart China. Most recently, they partnered
with the Boston Consulting Group to build a revolutionary decentralized application ecosystem. I'm a
big believer in this project. I have been since twenty eighteen. I've been
a VET token holder for years, and this blockchain is highly scalable, great
with security and speed, and it has low energy consumption. If you'd like
to learn more about vchain, please visit vchain dot org. Link will be
in a description. Hey everybody, Tony here, I'm at the DC Blockchain
Summit and with me is Ren mckechren, who is the CEO of fraud Optics
Incorporated brand. Great to have you on. Yeah, thanks, Tony.
I appreciate the opportunity of seeing me a lot in your podcasts and a big
fan, so thanks again for bringing the Moon. Yeah, Ren, excited
to talk to you. Given your background, tell us about yourself and fraud
optics. Yeah. So born and raised Boston, Go Boston Bruins, of
course. But I've been in DC for twelve years. I was in the
FBI for twelve years prior to jumping into the private sector. In those five
years, which is relevant to what I'm going to talk about the fraud optics,
the last five years I focused on international money flows around the world,
around corruption, around banking, chasing the money, chasing the bad guys,
and understanding where fraud exists, where a list of that activity exists. Then
we're closely with the DJ and SEC on enforcement and compliance of company in that
space. One of the Foreign Practices Act, the International Corruption and those kinds
of violations that go with that. So in that essence, understanding international money
flows and how money works was a very sensible transition of understanding blockchain how cryptocurrency
flows through it. So that really peaued my interest when I was coming out
of a bureaus what was next. And so in that sense, the FBI
was a great as you can imagine, education and understanding of both enforcement and
understanding compliance because we would actually investigate companies and individuals in those enforcement matters.
Wow, Now when you were at the bureau, is there like a division
for digital assets in crypto yet or you know, was things starting to ramp
up slowly? Now there is a Virtual Asset Unit, the AU which supports
different initials within a bureau. And as you can imagine, they've got a
case load and then but you know, very important group and they have amazing
folks, amazing tools, and obviously the work is going to continue to be
more and more high volume for them. And of course they have to work
with their partners around the different agencies the intelligence community because you have criminal issues
and you have national security issues all affecting crypto and so it's one of those
areas and specialties that goes across all areas where you think about from a national
security or you know, federal law enforcement area. It's a growing area of
concern but also an opportunity. Now blockchain, you know, it's verifiable,
it's transparent, there's many companies looking at or tracking data and analytics. It's
all there, right, So does it make it easy for law enforcement and
bureau and these folks to do their jobs versus the traditional cash or other types
of assets. Great question. And the old way we would do it chasing
money flows is we would have to find the money, go to the bank,
corresponding banking relationships, getting bank subpoenas, and going through all the debits
and credits. But with the blockchain, it's beautiful from a forensic accounting standpoint,
and work a lot of forensic accounts. We always deploy those looking at
the money flows. The blockchain is brilliant. It's transparent. You see the
flows, you see the announces, you see the wallets and the entities.
However, Comma right, the problem then becomes, you know the people behind
what we call ultimate be official ownership of those wallets. Right? And so
if I'm chasing money in the old days around the world, I see money
go to a bank account, I said, peen of the bank, and
I understand the KYC. You know your customer, the AML questions, they
may have asked, suspicious sectivity courts that may even filed. But if I
come in my investigation upon a wallet that is fairly holding cryptos as a as
a fraud scheme, sure there's no place in subpoena, right, There's no
place to do a search want. Of course, if it's in exchange,
that's one thing. There's an opportunity for information requests, right, But as
you know, the issue is these wallets, these private wallets that we really
have a tough time, hard question for you because a lot of this is
being figured out with it by the government, right, and how we're going
to regulate all of these things. On one hand, I see the benefits
of someone having their own private wallet and so on and so forth, So
how do we find that balance? And this is a tough question I'm throwing
at you. Yeah, And as you know, there's i mean five bills
now kicking around the hill on this issue, and a lot of people that
are attracted to blockchain and cryptocurrency like the decentralized nature of it. And I
understand that from a privacy standpoint, right. The tricky part role is have
to be there's got some sort of negotiation on a little bit coming. You're
giving us a little and then taking a little so that people are comfortable.
Yeah, this feels like cryptocurrency. I'm not saying it's it's a standblepoint exactly,
but whatever that middle ground is I you see them debating, is actively
on the hill. And but as you know, we need the regulation because
we we we can't have is all the innovation and great people leaving the country
going over to the EU that now has my and other things right right,
and so it's critical that we get legislation from regulatory oversight. We want we
want to innovate, we want to take the technology further. We do not
want to hold back on that. But what is the middle ground? Very
very triggered. Yeah, I've been saying that lately that I think we're gonna
have to meet in the middle of the road with the regulators at some point.
Uh, the devil's into details. So we'll have to figure out,
Hey, don't kill the innovation, don't kill the ability for me to self
custody. But okay, you want me to report it on to the I
R S or whatever something. Wait, I don't know what an answer is,
but I think we'll have to find that middle ground because it's gonna be
tough. And look, bad actors are out there who are going to try
to take advantage of the technology and do bad things. Now, broad optics
tell us about who you work with and some of the crypto related wing back
up one more steps after the Bureau, I actually went to a company called
Exegen, which is a governance and risk firm that actually had a very significant
AI tool. We were looking at big data problems of open source around risk
mitigation, and so in that instance, I was learning about how we used
AI to collect large data boil it down for risk mitigation purposes to help banks,
third party risk people, corporates. So that model, I learned about
unstructured structured data sets, how to think really smart about that, proactive around
a list of activity. And so when we started front Optics, it actually
came out of the case I was working when I was when I came out
with a bureau and then which involved looking at off chain data on a major
blockchain fraud case, and we were so successful we actually referred the case to
the FBI sec DJ. The person was located on red notice and they were
arrested overseas and brought back. And what we did we went back and said,
that's very rare in the world of crypto fraud or crypto list of activity,
right, We said, what made the difference in that case, and
we'd began to look at of course we did from tracing critical to all of
us. But we actually was about the off chain data that we began to
look at around the wallet activities. Okay, this wallet is connected to what
else where do we look off chain? Because so much is you know,
innovation and investments around the blockchain, the cross chain understanding. People had forgot
this really beautiful enchanced data on off chain supporting blockchain investigations and risk appetite and
risk indicators and behaviors. And so we saw us opening it said wait a
minute, why can't we start to look at this as as as an area
for as both preventive and also to understand for investigations. Are you able to
buy any chance disclose the name of that case or who what it was?
I can't right now. It's still it's not it's not have been admunicated yet.
Okay, but it's a great example again using blockchain technologies. It's a
critical that I'm saying the crypto flows and then and then re engineering that on
the word on the off chain side to say, okay, are there is
there a Twitter handle involvement other NFTs in ball right right? Are there other
behaviors this guy, this lobster was using that we can look at whether it
could be a myriad of things to improvee IP addresses real location, start thinking
about rerect the refinance person and if you think about and these are areas that
we collect dave O, I p read bring a social you know, all
sorts of block aggregators, right, sure, So we bring that data together.
We'll say where does the profile of this personal pretension on this profile and
that's how we use them. Yeah, it's fascinating and I'm sure it's opening
up a ton of cans of worms, right like people trying to do different
things with this technology, to do bad activities. So is your service essentially
are you like working with government agencies like the SEC can call you up or
the THEOJ things like that. So we have reserved commercial and public sector clients
and we actually deliver as a product API, so our data they can make
calls and our data. It integrates with whatever platform they're using, if it's
an investigations platform, if it's a compliance risk platform, if it's a transactional
monitoring platform. Our data comes in and most of the time they're looking at
the transactions on the blockchain, and we're saying we're waiting to make guys let's
bring in there's an other subset of data that's really helped helpful to understand the
holistic activities. And so that's the area, that's the gap that we've identified.
We think there's nobody better than us doing that. But we also think
about adoption like a corporate multi national corporation is taking on transactional activity. Take
a big retailer saying, hey, we don't want to miss on the demographic.
We want to start accepting crypto, but we also want to protect our
clients, our consumers, right, and so we offer another level of protection
saying yes, watching understand it of course critical, but also understand what are
we looking at from a fraud stand one? What do we also know about
that before you transact on the streaming purpose? How do we help prevent the
flaud because, as you know, once the fraudsters are able to get those
transfers into those wallets, very difficult, as I mentioned earlier, even for
law enforcement search warrants and subpoena power, it's still should it'll be difficult to
actually what we call pull that back or discorge that from from the illicit purposes
of the FLAUD. Now as the crypto acid class has been growing adoption to
technology. Have you seen a ramp up in bad activity legal activity? Great
question. So twenty twenty three was a little bit down on the listed activity
from twenty twenty two based on a few numbers. Sure, But what I
can tell you is there's a tsunami of fraud coming. And this is why
January tenth spot bit point to the athlete's approved right. So who didn't want
to miss out? Flaudsters didn't want to miss out, and then people that
weren't thinking about buying into the fs but were told, hey, you're not
going to miss out on the big point etf are. Oh no, I
don't want to miss out on that. So what we've seen now in the
last six six weeks, because it takes a few months for fraud to be
determined and identified, is that we're getting calls and emails and people reaching out.
Had a varying substantial increase because we're seeing this wave right of just of
war fraud, and a lot of these unfortunately come through dating apps is a
big way they get in. They look at WhatsApp. I would say eighty
percent of the frauds that come into us are coming in through dating apps,
they quickly move them to WhatsApp at telegram and then they take the conversation from
there. Wow. And so we have also some proactive ways to cover what
is occurring today as frauds because there's a lot of interesting data going back and
forth. So we're also on the cutting edge of saying, wait, this
fraud is occurring right now with these actors with these URLs and these names and
these domains and these wallets. Cutting edge, right, Oh, we should
probably do an alert for our clients on that stuff, right to take this
part of their ecosystem. But I do like we want to take those bad
guys out of the equation, right, and we want to be an answer
to mitigate those risks. But I can tell you twenty twenty four is an
amazing year obviously, as we know, if a cryptocurrency, it's just beginning,
right, we know twenty four twenty five, it's it's going right,
Yeah, But we're also unfortunately now it comes with that right high tide also
raises the fraud boats, right unfortunately, right, right, yeah, great
point, And we want to protect people out there because there's a lot of
folks who don't fully understand his technology and how it works. They're seeing,
you know, news about it, and then some guy comes on a dating
app or whatever it is, or some girl and try to scam them.
We don't want that happening. So I certainly appreciate services like yours because if
we don't, you know, stop these things, it tarnishes the reputation of
the technology in the industry. You know, we see ourselves as a serious
company with serious people, you know, taking on this problem, and that
also helps for greater adoption, greater trust, better comfort. If it's going
to go the way it needs to go, we need good companies also coming
in to do the policing. Wait a minute, who is this guy?
Who are who's this antithy? Who is the swalle What do we know?
How do we protect our really valuable customers? And once we're able to do
that better and better, and it's going to the technology. We are getting
better. We're using the n to make relationships. You connect those nodes,
you're going to see better adoption. Once the trust goes up, we're going
to see the fraud go down. Now. Question for you, and I
don't know if this is off base or something you speak to, but you
know, over the years, there's been talks. I remember Kevin O'Leary saying
things like, you know, corporations and institutions are going to want to know
where the bigcoin or the ethereum came to them. Was it used by a
bad actor in another country? Are you getting that sense of corporations where they
want to know, Hey, we're going to transact big point, but we
want to know where that big point we're in its life cycle? Did it
go through some terrorist hands or something like that. So there's different levels of
companies with different types of cultures. Right, So some companies want to know
everything, sure, because their reputation is it means so much. They already
have a massive client base and they want to make sure they're protecting that and
protecting reptation of their company. Sometimes, not all the times. Younger companies
are hungry. They'll do whatever they can get to to grow their their market
base or grab that market share. Sure, they care less and have less
money and resources spend on confliance. But the best companies that we know who
care really do want to truly avoid that. So they do want to understand
the origins of those of those dollars, of those stable points, of whatever
tokens those are as best they can to a point where it's defensible to say,
look, we did the best we could. Just screen that. Sure,
we take that seriously. Wherever it's human trafficking, all those areas that
we were a terrorist financing, all those things that you would never want to
be associated with that can be terrible for reputational issues. Companies are smart about
that they do want to screen against the Oh. Absolutely, I'm curious,
you know, given your experience and what you guys doing, your thoughts on
the crypto regulations that are currently in the works. You get the fi T
bill vote coming up possibly next week or the week after. Uh, this
couple of bills and the Senate, any thoughts on what's happening there. Well,
I think SA was really a shot across the bat. It really sent
a message at a critical time. And we're coming up in November, right,
there's I think there's an election coming. I heard there's a rumor there's
an election coming. Yeah, right. That we had a lot of bipartisan
support, you know, and I'm really actually interested in the stable poind recent
legislation four weeks ago, again bipartisan support talking about banks taking the custody talking
about a MLKYC. We need something because where the EU is ahead of us,
I mean that means they're going to be first on taking good companies,
great technologists. We're going to be bleeding out all that talent the places where
they feel safe so they can actually stopping not worry about enforcement by however,
the loans of change field, so we see it as critical. I don't
know if it happens this year. My experience on the hill is generally nothing
happens a lot and during the presidential election year, but there are some very
strong supporters of it, you know, high level people in the different chambers
that want to make it happen. And it truly is becoming more of an
electrination. I'm from Massachusetts, that's from born and race, so I'm a
little bit of you know, hyper aware of what's going on right in that
race. Right, very interesting from the cryptocurrency standpoint, but you know,
like any great technology, the market's going to be way ahead of the government
on the You can't keep it down. You just got to find a way
that it works for people. Will not everybody's being defrauded through these these awful
stories that I'm hearing every day from people that are losing a lot of money
in their life savings and making bad decisions. We want to protect them absolutely.
Now, what's on your twenty twenty four roadmap? Yeah? So really,
right now our clients are hearing and telling us, I should say,
location, location, location, Right. Are they transacting with the walks that
maybe in a sanctioned country? Oh wow, right, that's an important issue.
Sure? Right? Are there clusterings of wallets that might show fraud or
conspiracies or entities that are producing more fraudulent wallets? Right? And so right
now we're seeing IP addresses and geolocation is something that you're asking for and looking
for more as another level to understand KYC or Okay, who are we really
dealing with? Of course there's issues with VPNs, right, but there's also
VPM bleeds right, So there's different areas of exposure there. And of course
every time I talk to somebody in in exchange or corporate a bank, they
bring up a new issue that's interesting. Some of that makes sense for us
to maybe on board that is as a product offering, but we're also looking
at all of that all the time, and of course partnerships, but also
watching legislation carefully, so more than anything for us. If they're regulatory,
is there some passage on regulatory oversight, it's going to require consumer protections,
right, and we're at the forefront of that. We are very helpful from
it and the ok R I see to make sure we get it right.
And so we're obviously favorable, like every every year around here is for that.
Sure, we're hopeful. What you guys are doing is certainly critical for
further adoption of this technology. And you know, I'm excited to see the
additional updates and we'll probably have to have you on as things progress. As
you know, the market rises and like you said, all the rising tide
list even the fraud boats right. So but great speaking with you, and
I love what you guys are doing. Yeah, thanks Tony, congrats on
the book. Yeah, big fan. Love what you guys are doing.
You're doing a great job educating on many levels, not just investing. Every
little piece is so important, and you're getting the word out I think to
the public is critical. So thanks and looking forward to talking to good soon.
Awesome, Thank you, Cheers,