21st Century Financial Warfare: Examining the Nexus of Technology, Economy, & National Security

‍Nicholas Brathwaite: Hi everyone. This is the Tech Surge Deep Tech Podcast presented by Celesta Capital. In each episode, we spotlight issues and voices at the intersection of emerging technologies, company building and venture investment. I'm Nick Bra, founder Manager, partnering at Celesta Capital.

If you enjoy Tech Search, subscribe and leave us a review on your favorite podcast platform. Visit Tech Search podcast.com to sign up for a newsletter and check out our past episodes. Today, I'm delighted to be joined by my friend, Juan Zarate. Juan is a highly regarded global expert in national security, financial crimes, counter terrorism, and geopolitics.

He currently serves as managing partner of K2 Integrity, a global consultant firm focused on financial crimes, cybersecurity, and virtual asset advisory. He's also co founder and chairman of Consilient, a fintech startup that has developed a machine learning platform to help institutions detect financial crimes.

Juan previously served as the first ever Assistant Secretary for the Treasury for Terrorist Financing and Financial Crimes, where he led anti money laundering and sanctions expansion for the U. S. government following 9 11. He later served as Deputy National Security Advisor for President George W. Bush. In addition to all of those things, Juan serves on the Board of Directors and Advisory Boards for several global finance and technology companies, as well as a number of think tanks and policy institutions. He taught for several years at Harvard Law School and is the author of Treasury's War. The Unleashing of a New Era of Financial Warfare, a book which I read and thoroughly enjoyed.

Juan, thank you for joining us.

Juan Zarate: Nick, thank you for having me. What an honor to be with you. Um, you know what a, a fan of uh, yours I am and it's a real privilege to be able to speak with you. So thank you, Nick.

Nicholas Brathwaite: Well, let's start by talking about your role as counterterrorism czar. You have been on the front lines of shaping how we think of a counterterrorism for many years, starting with your work prosecuting terrorists.

And then working as a national security czar during the Bush administration. Now as a leader in the private sector, I would love to start by having you tell us a little bit about your time during the Bush administration and how that influenced, you know, not just your career, but what we do today.

Juan Zarate: Thank you, Nick.

Now I, I've been, uh, privileged to be in Um, some, some very special roles and, and, uh, in, in government and certainly outside of government since leaving in 2009, I was very lucky to be able to work for the president, work for. The National Security Advisor, Steve Hadley, at the time for the second term of the Bush administration at the White House as the, the, uh, lead national security official on counterterrorism.

So I, I appreciate the question. I think there, there are three things that happened in that post 9 11 period that I think were really important to think about and to keep in mind, especially with respect to national security moving forward. And certainly informed my work, both inside and outside of government

The first was. Uh, the president had a very clear directive post 9 11 that we were, uh, to move to a preventative paradigm. That is to say, we were no longer simply going to chase bad guys. We weren't going to react after the fact to terrorist activity. We weren't simply going to follow the money or build cases against financial networks.

What we needed to do was to create strategies, capabilities, tools, and alliances that would allow us To prevent terrorist groups from raising and moving money around the world, from operating, from ideologically investing in, uh, new recruits, uh, and doing everything possible to disrupt and dismantle terrorist groups.

And so, it was very much a preventative paradigm, which changed the way that the government was thinking about, uh, the protection of the homeland and trying to disrupt, uh, terrorism. Second thing that was really important, Nick, which often gets lost in translation and certainly the criticism of the Bush years.

Was the fact that the president was very clear that we were, um, waging an ideological battle, not against a tactic, but against the very idea that terrorism could be legitimized. That the purposeful use of terrorism to attack, uh, civilians, uh, to purposely, uh, use terror to try to change government policy, um, that that was no longer acceptable in part because of what we witnessed on 9 11, but certainly the potential for terrorism and terrorist groups to do much worse damage with weapons of mass destruction and the rest.

And so it was a concerted campaign to undermine The very idea that you could legitimate terrorism and so that, that formed part of the ideological battle, um, and attempts to undermine the legitimacy and credibility of terrorism. The last thing, and, and this then informed a lot of work that happened throughout the government at different places, was this idea that we had to think about the use of all elements of national power, uh, to disrupt and dismantle terrorism and the support networks that went around them, um, and that, and that, uh, fomented them.

And so in, in that regard, there was a lot of innovative work done, including on the financial side, where really, for the first time, the Treasury Department was brought into the core of our national security, where we started to think about how we use financial and economic levers, uh, to make it harder, costlier, and riskier for terrorist groups like Al Qaeda to raise and move money around the world.

And those strategies eventually led to New forms of thinking about deterrence, new ways of dealing with state actors that were supporting terrorist groups, dealing with networks globally, that were trying to do things like proliferation and human trafficking. So there was a whole body of work and national security doctrine that emerged out of those early days of nine 11 that have continued to evolve to this day, including on issues like national economic security,

Nicholas Brathwaite: what kind of lessons did we learn during that time that might have helped prepare us for some of the new approaches now, especially things like cyber terrorism that we are seeing today. What, what kind of lessons did you learn or what kind of? Um, things that we implement to combat this emerging threat of cyberterrorism.

Juan Zarate: I was fortunate in the roles that I had at the Justice Department, Treasury, then at the White House, um, to be, to have a seat that could see the global view of threats.

And so, when 9 11 happened, in, in many ways, it was the shock and the, the trauma and the tragedy of that day that brought to the fore this idea that, You could have non state actors and networks having systemic impact on the country. And so that core lesson, the fact that some group in the hinterlands of Afghanistan could actually attack the sole remaining superpower, that was a lesson that then began to inform, uh, our national security posture.

And so in that regard, we started to look at the networks that were potentially dangerous to our national security. Terrorist groups, militia groups, organized criminal groups, drug cartels, uh, maritime piracy, in addition to state actors. And so that's the first lesson, which was we can't ignore the non state and state actors that are trying to influence global balance of power.

Um, and I think that's, that lesson is even more important today than before. Because I think you've seen that with Iran and Russia and China and North Korea. Leveraging non state actors, criminal networks, cyber hackers, uh, to effectuate their, their goals. So, looking at networks broadly and globally was very important.

Secondly, looking at the asymmetric means by which these actors would try to impact. And so again, a lesson of 9 11 was, uh, this was a fairly simple attack in the sense that, uh, they didn't use sophisticated weaponry, they didn't use, uh, Hypersonic missiles, they use box cutters and the hijacking of planes as their means of asymmetric attack on the U.

S., both in New York and Washington. And so, we needed to think more clearly about where there was asymmetric vulnerability, as well as advantage, and we needed to think about defending against that. And so, looking at cyber vulnerabilities in our critical infrastructure. So, in the creation of the Department of Homeland Security, one of the key things that was done was to look at those critical infrastructures that matter systemically to the U

S., and thinking about how we defend against attacks, how public and private sector work together to defend, and how we create resilience in the system if, in fact, those systems are attacked. Um, and I think those, those were key lessons, Nick, because it then. laid the groundwork for a lot of the, uh, defense in depth strategies and a lot of the capabilities that we've built over time.

Nicholas Brathwaite: Could you elaborate a little bit more on, for example, if you take, if you take the case of cyber threats, while you guys were doing this work almost 15, 14 years ago, did you, did you start to see already the indications that some states were going to start using, um, technology? Uh, as a way of changing the terrorism landscape, if you can put it that way.

Juan Zarate: Absolutely, Nick. I think, um, in, in that period between, let's say, 2004 to 2009, it was clear that not only did you have state actors involved with not just terrorism, but cyber activity, but you had, uh, more flirtations with transnational networks and groups, uh, to use cyber attacks, to use, uh, Um, investment in new technologies to effectuate their goals, which was to, in some ways, many ways, undermine U.

S. interests, allied interests, um, even lethal effects of those, of those capabilities. And so, yes, and so we, we were worried about, you know, how the North Koreans were using some of these tools and might use some of these tools to advance their programs, not to mention get access to, The international financial system.

We were worried about the Russians collusion with organized criminal groups and cyber groups, uh, for their purposes. We were worried about the Chinese use of, uh, front companies and state owned enterprises to acquire intellectual property and technology that was clearly going to be used by the state for national security purposes.

Uh, and we were obviously watching the Iranians as, uh, they were using proxies. Whether it was Hezbollah or Hamas or Palestinian Islamic Jihad or the Houthis, uh, to spread their influence or their revolutionary program. So all of that was happening. The other thing, Nick, that we noted, and I think it's important for what we're facing today, was the fact that you started to see these strange bedfellows begin to work together.

In the book Treasury's War, I call this the alliance of financial rogues, where those that were being sanctioned. We're starting to support each other or trying to find ways to work around the sanctions. Um, and so those alliances of convenience, uh, had some strategic import at the time. And we were forecasting these were only going to grow stronger as the U.S. and Europe and other banking centers. Again, to isolate those actors from the international financial system.

Nicholas Brathwaite: But is it, is it fair to say that, you know, the U S has been using its economic strength and the strength of the dollar as a competitive weapon to some extent. And so some of what you're seeing is, is other countries adopting the U S is playbook.

Would you agree with that?

Juan Zarate: Yes, no, absolutely. I, I think what the U S did and what we did in the post 9 11 period was to. Amplify the use of financial and economic tools, uh, in order to isolate what we called rogue financial and commercial activities, uh, certainly starting first with terrorist groups, but moving to other, uh, issues and networks of concern.

For example, proliferation of weapons of mass destruction, um, we were looking at broader corruption issues and organized crime. In the Obama administration, they started to look at Networks of cyber malicious actors and activities in part driven by the Chinese. And so the use of these tools of financial isolation sanctions and other financial measures is really a tool of, of great economic power and influence.

And the U S has, has done that and driven that in many ways in concert with international norms, but, but obviously for national security reasons. And so there's been, there's been not only a playbook in terms of using that kind of pressure. And we've seen it with the Chinese pressuring on their export of rare earth minerals, or, uh, or denying certain imports, or, uh, deciding they're going to restrict access to their market, or even sanctioning directly U.

S. companies that are selling weapons to Taiwan, for example. All of that is part of a similar playbook. Same thing with the Russians, using their energy sector as a sword and a shield against sanctions and really using that as a cudgel. Uh, to influence in Europe in particular. Um, this is all part of a broader economic and financial conflict that's underway.

Um, and it's something I talk about in the book. I forecasted a bit of it, and I think we're seeing it play out. I think for the United States, the question is, how do you use these tools in ways that are, um, that are understood, that are reasonable, that are, are driving risk calculus and international norms that make sense?

Without over politicizing and without weaponizing the dollar, if you will. And that balance is really a tricky one because China and Russia and others will make the argument that the U. S. has, has gone overboard and that as a result, you need to find alternatives, alternatives to the dollar, alternatives to U.S. backed payment systems, uh, alternatives to reliance on the American, uh, economy itself. And so there is this tipping point question about how far do you go before others react, and you start diminishing. The power and use of those economic tools.

Nicholas Brathwaite: I'm glad you mentioned that because I want to expand on that a little bit because I think obviously, as a technologist, we can't help but realize that technological advancements have become a focal point with geopolitics and national security, you know, interconnect, you can look at things like cyber threats that we just talked about, semiconductor supply chain, cryptocurrency, those are examples.

of where technology, geopolitics, and national security do interconnect. What's your thought about cryptocurrency and the potential impact that that can have on the U. S. economic strength? There are some people who believe that cryptocurrency could, um, have more negative impact on U. S. predominance, economic and, and, you know, the dollar's predominance, um, than anything else that we've seen so far.

Juan Zarate: Nick, I'm going to answer that question. Then I'm going to answer the, uh, the broader national economic security argument, because what you said is so important and profound, because what you, I think what we're facing is this grand nexus between economic security, um, technology, um, and broader national security issues, all, all converging in the examples you gave with respect to cryptocurrency, um, and in, in full disclosure, I've been a longtime advisor to Coinbase.

Uh, I was their first advisor since 2014. So full disclosure on that, but I've been of, of the view that cryptocurrency presents risks. There's no question. Um, States, non state actors can get access to capital in ways that they can't through the traditional financial system. And that's a lot of the anti money laundering risks.

We've seen a lot of the crypto heist we've seen from North Korea. Um, the, the concern of Russia using crypto to evade sanction, all of those are the risks that We've all talked a lot about in recent years, but I'm of the belief that this is a technology, um, that can not only enhance financial inclusion, but can strengthen the role of the U.S. financial system and even the dollar. There's no question that technology is going to continue to evolve. Most countries around the world have central bank digital currency pilots or projects thinking about the digital representation of their fiat currency. Stable coins have gained greater and greater purchase.

Those are the cryptocurrencies that are backed by a fiat currency or an equivalent. Think about USDC. Think of the tether. Those are examples. And then, of course, you have Bitcoin, which is the decentralized, um, uh, cryptocurrency. I think to the extent that the U. S. continues to innovate and drive the use of those technologies, figuring out how to manage the risks, There's fraud risk, there's money laundering risk, there's, uh, consumer risk, there's systemic risk.

Right? So you can manage all that and integrate it. It then becomes quite powerful as an alternate way of getting resources into the hands of individuals, having individuals own digital property, if you will, in the context of, of cryptocurrency and in the context of the dollar itself, having the dollar reinforced first as the chief.

In a sense, reserve and trading currency for the world, most of the stable coins, uh, that are viable, uh, in the marketplace now are backed by dollars, uh, you know, over 90 some percent of the stable coin transactions are dollar backed or dollar denominated, uh, stable coin transactions. So all of this redounds to the benefit of the U.

S. If in fact the dollar in the U S economy and investment and innovation are happening in the, in a U S context. And oh, by the way, we are then driving the rules and the norms of behavior. The more that I think this is offshore, the more that rogues are able to define the rules of the road, um, the harder it is to then manage the risks.

Uh, and so I've been a proponent of the U S being proactive with how, uh, this technology evolves in concert. With the formal financial system.

Nicholas Brathwaite: So I take it that you don't necessarily share the opinion of some that, that say that the, the us, um, economic predominance has a shelf life and cryptocurrency is likely to, to, um, significantly reduce the length of that shelf life.

Juan Zarate: I don't, I don't think so. I think, um, this depends on other factors. The, the, the us economic predominance deals with the health of the economy, Openness and fluidity of the capital markets, the innovation that's happening here, uh, rule of law, the perception of us debt. Those are the fundamental pillars of us economic predominance.

I think to the extent that cryptocurrency is out there and the us is a part of adoption and defining how it's used, I think it potentially redounds to the us benefit, uh, because of. Of the way, uh, the technology works, a fundamental challenge of the technology to the traditional financial system is it's decentralized, right?

So it's not controlled by central banks. Uh, potentially it's not, um, it's not subject to central regulatory framework that we currently have. So it's a, it's an interesting question. How do you then manage it? How do you regulate it? But many ways, this is the, the predominant tool of democratization. Okay.

Right. If you're able to put the control of assets, at least a certain degree of assets in the hands of individuals or groups, sit outside authoritarian control or regime control in places like, let's say Afghanistan or Venezuela, or even getting into places like Ukraine. This becomes a very interesting tool of not just economic.

Opportunity, but also statecraft. And so I, I really think we have to think long and hard the way we have with the internet, maybe have lost that battle with how these tools are used for the furtherance of democratization, economic freedom, financial inclusion, uh, and not be too afraid of the shadow of cryptocurrency as a result of what it represents.

Nicholas Brathwaite: The other topic I mentioned that. That are impacted by this nexus around technology advancement is semiconductor supply chain. Do you have an opinion on that?

Juan Zarate: Yes, and again, this now allows me to return to your broader thematic point, which is really important. I think we've been touching various parts of the elephant.

And the elephant here is the, the element of national economic security. Your point about semiconductors. It's kind of right in the heart of this issue of how we think about critical supplies that are important for technological innovation, critical for our economy. And also critical for our national security.

And the recognition over the last few years is we are incredibly vulnerable when it comes to semiconductor supplies and, and, uh, manufacturing, and then all of the downstream and upstream elements of the supply ecosystem. Um, the fact that you have, uh, the choke point in Taiwan for 90 percent plus of the most advanced, uh, semiconductors is a real problem in light of.

What appear to be Chinese designs to retake Taiwan. And so, what is seen as a geopolitical or even a military problem suddenly becomes a core national economic security issue if you're talking about the takeover of Taiwan's, uh, semiconductor, um, industry. And so This is why you've seen the drive with the CHIPS Act to reinvigorate the ability for the US to produce semiconductors in the US to resurrect the manufacturing and other elements of foundries that, that need to happen to create that resilience of supply in the US.

It's why you've seen greater, uh, attention to ASML in, in the Netherlands and, and, and greater discussion about how to secure. Not just the manufacturing, but the, uh, rare earth minerals and other key supplies that go into the manufacturing of the semiconductors. So, that is a, is a quintessential example of where you have this nexus of national security, economic well being, and technology.

That is now right in the center of potential conflict.

Nicholas Brathwaite: Well, as you know, I'm a big fan of the CHIPS Act. And my only concern is that it needs to go further. It's a good start, but we need to go further. We need to, we need to make sure that we are continuing to invest in and encourage our technologists. To develop not just the chips, the semiconductor devices where I still think we have a significant dominance, but also the manufacturing and metrology and other types of equipment that you need to continue to drive advancements on the processes so that we can go back to dominating, um, the process technology as well.

I remember when I was an engineer at Intel working in technology development, not only was Intel the best semiconductor company on the planet, arguably. But we were probably had the, we probably had the best manufacturing technology on the planet as well. And we've lost that dominance. And I think we need to get back to having certainly much better technologies around manufacturing inspection, um, and engineering tools that we need.

Juan Zarate: You know, I follow you religiously, so I'd encourage the listeners to read everything you've written on this. Cause I, I couldn't agree with you more. And it goes, it goes to the manufacturing ecosystem to your point and capabilities. It goes to the human capital, which we, you know, we've lost a degree of that.

And then it goes to the, to the actual, you know, companies and foundries that, that, that have to put this all together. So it's, it's the entire ecosystem and it's not just then for semiconductors, right? It's for other industries that are either related or dependent on that. So AI comes. Into the debate with DeepSeek now coming out, uh, and kind of shocking the AI world and raising the question as to whether or not, uh, China can compete at, at, um, with lower costs and with less access to the NVIDIA trip chips that they need, you know, that that's an interesting question.

The question of where we're going on quantum computing, um, and whether or not we're prepared again with the, the exquisite manufacturing that has to go into it, plus the human capital. Plus the companies and investment that we need to make sure that the United States and, and Western Europe and allies are not being overtaken and surprised, uh, by a Chinese Sputnik moment on quantum, right?

Which we saw the glimmers of in 2016 with their quantum satellite, uh, communication, but you know, that's a, that's going to be a key question. So the same debate we've had with semiconductors, I think we're going to have. on quantum computing.

Nicholas Brathwaite: So, you know, we've, we've done a good job over the years with leveraging DARPA, um, as a funding agency for advanced technologies, and we've had some major successes.

What do you think about the U. S. having a sovereign fund that can help spur more entrepreneurial type activities to, to help address some of these, some of these issues?

Juan Zarate: I think it's a fascinating idea and, um, we're, we're speaking right in the wake of the president having signed, uh, the executive order to, to create it.

Well, you have to see what role Congress has to play in doing this, but the, um, the direction of travel, I think is the right direction of travel, um, because the US government has had a hard time determining how to leverage capital for longer term investments and infrastructure, and especially on the technology side.

Again, I think quantum is a great example of this. I think there are certain things that, um, that VC capital and, and the, the normal Silicon Valley development cycle just can't answer and you need the government, uh, to be, uh, weighing in and investing, not to mention Nick, um, other strategic investments where it might be too risky for the private sector to engage in, but we know That we want to have the U.S. government investing, or, or U. S. and allied capital investing. And so, I actually like this idea quite a bit. I, I think we've been applying a, a 20th century model for how to do that. I think we're starting to think through, how do we use The mechanisms of, of investment in capital and what the U. S. government can bring to the table, especially with assurance, um, uh, to, to drive in, uh, investment in, in the kinds of technologies and capabilities we want. If not also to counter what China is doing with some of its investment.

Nicholas Brathwaite: Yeah, I'm excited about the fact that people are talking about this and looking forward to see what, what exactly we're going to, we're going to do because in deep tech investing, which is where we, we play the amount of money it takes up front could be significant. It's very difficult to do seed funding, the typical seed funding in deep tech investment because you, you can't give somebody a small amount of money to prove out a concept of a new semiconductor device. It takes tens of millions of dollars, maybe as much as a hundred million dollars or more for, for the very advanced types of technologies.

And so the government having a sovereign fund. That can help reduce the risk to investors such as us would be very helpful and would help, I think, to accelerate some of the, the innovative ideas that you see around Silicon Valley and elsewhere. You know what, I want to go back to your book a little bit because the last chapter of your book, I found to be probably one of the most interesting.

I found the book to be interesting in many areas, even little things like how you guys were able to find out. Bin Laden's accounts and get access to them and those things are fascinating. But, but the last chapter of the book was almost prophetic in that you were able to predict or anticipate some things that we see happening today.

In fact, one of the things you said in the last chapter was the conflicts of this coming age were likely to be fought with markets and in boardrooms and not just on the battlefield. You also spoke about how increasingly difficult it is for regulators to control these vulnerabilities, given the growing pace of speed, the level of anonymity, and the volume of transactions in our global financial systems today.

And you, in the last chapter, you talked about cyber security and crypto and, and, Things like that. You talked about this, you know, some electronic supply chain challenges, a lot of these things that we've seen today, and I'm interested in understanding, um, what do you think of the use of tariffs as an economic, I'll call it an economic weapon, and you may call it something else, but you didn't talk much about that in the book, but, you know, we started to see this being implemented with these recent executive policy What are your thoughts on tariffs?

Juan Zarate: Thank you, Hank. It's, it's a great question. I think that my assumption at the time was that tariffs really were not a central tool anymore in the, in the trade wars or in the economic warfare of the future, right? In some ways, those are tools of. Uh, of the 20th century is to in blunt fashion to affect trade and to really wrestle countries to the ground on particular trade related issues.

You know, you could see, and certainly tariffs were relevant. We're going to be relevant with China, especially with a lot of the IP theft. So that was, you could see that that debate was there, it was coming, but I didn't imagine. And certainly I think one of the convulsions that we're seeing today is, um, the use of tariff against allies, um, and in some ways that use of tariffs, let's say against Canada and Mexico in the first instance, not to mention China, um, runs a bit counter to the theory of, of my book, which is, you're, you're going to start to see these alliances, alliances forming and what will have to happen is alliance of tariff.

Capital, alliance of supply chains, alliance of financial systems, payment systems, technology, um, among trusted actors. The real challenge then would be the, the isolation of China and Russia and Iran, North Korea, all of which we're going to start to collude together. I called them the alliance of financial rogues, right?

And so in some ways, the tariffs as they're being applied today, or at least being talked about, Really run counter to this idea that you have two blocks forming and you want to use economic and financial tools to isolate the rogue actors and behavior and to strengthen, uh, the allied, uh, economies, if you will.

And so in that regard, the tariffs don't really fit, but they certainly, the one thing I would say is they form part of this broader economic security picture, which, uh, the new administration is not shy about. And in fact, Some ways they're starting to coalesce all of the elements of national economic security that have been at play.

The use of sanctions, anti money laundering tools, export controls, uh, investment security, inbound, outbound, um, the use of development finance core and positive investment, uh, use of trade restrictions, right? All of that is part of this accordion of national economic security. Now, you see the new administration really amplifying elements of it.

To the tune of creating a new sovereign wealth fund to the tune of using tariffs aggressively. Uh, the, uh, president threatening the BRICS countries if they move away from the use of the dollar. Um, you know, uh, the, the heavy reliance on, uh, the defense of the U S uh, technical base, which I think is part of the, uh, the zeitgeist now, uh, with, with tech and Washington combining, uh, the threat from deep seek and So all of this is now part of an amplified national economic security environment.

Nicholas Brathwaite: I have a couple of quick questions. What would you say China as an example has done well, or maybe even better than the United States over the last couple of decades,

Juan Zarate: I think China is in a position where they can concentrate their strategy and their capital and their investment in ways that, that we can't, uh, our system is not designed.

Um, to leverage all elements of national power to include private sector, to include private capital, to include all the tech companies. So I think, you know, China has been very clever about how they've used their state owned enterprises, how they've aggregated a capacity, frankly, how they've gone after tech entrepreneurs that have grown too independent, how they've consolidated control, for example, in the quantum industry, uh, now under the control of.

State governed universities and research centers. So in that regard, they've been very savvy about being strategic about the technologies of the future, how they're going to invest and what that means for not just their economy, but their military. And so, you know, you have to credit them for that. And in some ways, what you see is the U S government trying to react to that now at a time when you have a near, uh, near peer competitor, economically, militarily, diplomatically.

And the question is, how do you. Unwind or de risk, whatever the terminology is in a way that allows you to isolate China and not give them the advantage of our technology or capital. And that's defined, I think, the policies over the last few years.

Nicholas Brathwaite: One of the things that I think they've done a good job of is the attention they've paid to the needs and, and challenges of the developing economies and how they've tried to, um, befriend those economies and, and rally support.

Among a region or a group that, that are becoming more important. I would say global and the global economy, any thoughts on that?

Juan Zarate: Yeah, Nick, you, you're absolutely right. They've done a pretty masterful job of using their capital, using their technology to embed, uh, around the world, including on infrastructure, right In infrastructure through BRI has been a key part of the expansion of their influence. Their ability to access ports, their, their goodwill that they create. You've seen this obviously in the Caribbean, you've seen it in Latin America, seen it in Southeast Asia, Central Asia. And so it's something they've done well, not without, you know, controversy or vulnerabilities.

Obviously there's been, you know, the controversies of debt diplomacy projects that have not gone well, suspicions as to what China's doing with data that they're acquiring all around the world, right. These are serious questions and they've seen pushback. And I think that's been one effect of, uh, to a certain degree, Chinese overreach where they've been too aggressive, they've created too many dependencies.

And I think that's why not just the US, but Australia, Japan, even Europe has pushed back on some of these dependencies.

Nicholas Brathwaite: So what I want to give you a chance to talk about Conciliant because amongst all of the work you're doing, you have found time to be an entrepreneur as well. You are the co founder of the technology startup Conciliant, which is positioned as the first federated learning technology for financial crime detection.

Juan Zarate: Nick, thank you for asking about this. This is a passion of mine. We started Consilient, I co founded it with Dr. Gary Schiffman, a longtime friend of mine and a behavioral economist who've been working on machine learning models and started a company called Giant Oak. What we determined was nobody was solving the problem of actually discovering and preventing financial crime risk.

And nobody was doing it systemically and in a way that accounted for the fact that it was going to get harder and harder to move, share, and extract data. Uh, and so we set out through the creation of Conciliant to be the first company to apply federated AI, federated learning for the discovery of financial crime risk and the prevention of financial crime and fraud risk.

The reason that's important, Nick, is the current model for how we prevent money laundering or detect it is a 1970s, 80s analog system where we ask every financial institution to apply rules based models on their customers and transactions And file suspicious activity reports to financial intelligence units 90 days after the fact.

And Nick, these are systems that on their best day are spewing out 95, 96 percent false positives. So, these are highly inefficient, highly ineffective systems. And it's something I saw when I was at the Treasury. And when I left government in 2009 from the White House, I was shocked that more had not been done.

And the reality was, um, I talked to technology companies. Uh, in the United States and around the world, and nobody was solving for this problem, really. Um, and I came across, uh, this technology working with Gary Shiffman. We started to talk to Intel, which had done a lot of work on federated learning in the healthcare context.

And we decided to start Consilient because nobody was thinking about the use of this technology to solve the systemic and policy issues that were bedeviling and continue to bedevil the industry. How do you create more efficiency in the discovery of financial crime risk? How do you create more effectiveness?

How do you do so by preserving privacy, preserving data security, preserving data sovereignty? And how do you do it at a time when there's more and more decentralization of payment chains? You have to apply federated AI. And so that's what Conciliant's about, and that's why we set out to build that capability.

Nicholas Brathwaite: So are your customers banks?

Juan Zarate: They are banks, but more and more, Nick, where this is really interesting is where you have consortia, consortia, banking associations, uh, or exchange houses or insurance companies. So we're working with various use cases in that regard. Regulators are very interested in this because this begins to reshape the way that a regulator or an auditor or central bank, um, can not only train models to look for risk, but can then involve the private sector.

By sharing the models. And so, we're beginning to shift the orthodoxy from this idea of sharing information after the fact, to sharing insights preventatively uh, and proactively. And allowing that to happen across institutions, across sectors, even across borders, without ever moving or extracting data.

Which to us is incredibly important because you have to access data for the models to make sense. But you're not going to be able to get access to all the data that you need to find the systemic risk. That's why conciliant is so important.

Nicholas Brathwaite: So how have you found the tech entrepreneurial experience so far?

Juan Zarate: Exciting, exhilarating at times, frustrating at other times. And I think the thing I've learned, Nick, and I've learned this from you and others who are so expert in the space, is there has to be patience, especially when you're trying to do something new. Um, when you're trying to break orthodoxies, uh, this doesn't happen overnight.

Um, and you can't get too frustrated with the market not recognizing what you're seeing. Um, you know, this is, this is the advantage and also the disadvantage of being the first, first in the space. Um, and we're going to make it work. And, uh, you know, God willing, that's our intent to make this work. And I'm most interested, you know, you know, the commercial, you know, uh, Consequences are obviously important.

They're important to the investors and important to all of us. But I want the idea to win because this, I think, technology in our approach has the ability to redesign the way that we prevent financial crime. Redesign the AML system itself. And I think that message is getting through.

Nicholas Brathwaite: Well, you certainly bring the deep domain expertise required to make sure you develop a successful business.

And I know you've added a lot of the technology domain expertise as well. So I'm excited for you and I look forward to great success.

Juan Zarate: Thank you, Nick. I appreciate it very much. Um, I'm always going to need your help and we'll always need to learn from you. So thank you. You can always count on it.

Nicholas Brathwaite: Thank you, Juan. This has been fascinating. Thank you so much for joining us.

Juan Zarate: Thank you, Nick. It's been a pleasure.

Nicholas Brathwaite: Well, thank you all for tuning in to TechSurge Podcast from Celesta. If you enjoyed this episode, feel free to share it, subscribe, or leave us a review on your favorite podcast platform. We'll be back every two weeks with more insights and discussions of all things Deep Tech. Bye for now.