Welcome to season 3 of the Public Key podcast! New Season, New Hosts, New Look. Have you heard terms like Economic Statecraft, Jurisdictional Arbitrage or Axis of Evasion and wondered what they meant or how they applied to cryptocurrency and sanctions? Well, in this episode, Eitan Danon (Content Marketing Manager Chainalysis) demystifies these terms and their impact on the global economy with guest Kimberly Donovan (Director, Economic Statecraft Initiative, Atlantic Council).
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Public Key Episode 154: Unmasking the Axis of Evasion: Crypto, Sanctions, and Global Trade
Have you heard terms like Economic Statecraft, Jurisdictional Arbitrage or Axis of Evasion and wondered what they meant or how they applied to cryptocurrency and sanctions?
Well, in this episode, Eitan Danon (Content Marketing Manager Chainalysis) demystifies these terms and their impact on the global economy with guest Kimberly Donovan (Director, Economic Statecraft Initiative, Atlantic Council).
She examines the evolving landscape of blockchain, sanctions, and global finance and explains her journey from the federal government to becoming a leading voice in national security and digital currencies.
She explains how cryptocurrency is being used at a global scale, particularly among countries under sanction and dives deep into the research behind the “axis of evasion,” highlighting the increasing use of blockchain to circumvent international sanctions.
Kim also underscores the importance of AML and CFT to deter illicit actors from utilizing jurisdictional arbitrage and connecting their financial networks, which has been leading to weakened USA oversight and economic sanctioning powers.
Quote of the episode
”What we think is happening is that there is an axis of evasion, where China, Iran, Russia, as well as North Korea are all working together, you know, to prop up their own economies…. Whether it’s traditional finance or on the blockchain with crypto, we need to start looking at these problems as a network.” – Kimberly Donovan (Director, Economic Statecraft Initiative, Atlantic Council)
Minute-by-minute episode breakdown
2 | Kim Donovan’s journey From government to crypto regulation
4 | The Axis of Evasion: Crypto’s role in sanctions evasion by Russia
9 | Crypto’s impact on global trade and sanctions
15 | Blockchain analytics and the need for accessible compliance tools
20 | Sanctions, alliances and global economic risks
23 | Cash is still king for terrorist financiers and illicit financial activities
27 | The Economic Statecraft Initiative and global financial inclusion
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Transcript
Eitan
Welcome to another episode of public key. I’m Eitan Danon, content marketing manager at Chainalysis. I’m here with my friend Kim Donovan, director of the Atlantic Council’s economic statecraft initiative. Welcome to the pod, Kim.
Kim
Hi Eitan, thanks for having me. Absolutely
Eitan
so before we before we jump in, can you tell our listeners, how did you get your start in crypto? What kind of brought you to the wild world of digital assets? Sure.
Kim
So even if I could take a step back behind that and talk a little bit about the work that we do at the Atlantic Council, just to provide some context. So as you mentioned, I lead our economic statecraft initiative, and so my team, we look at all the sources of economic power that governments use to advance national security objectives, we measure their effectiveness, and then we also look at the kind of underpinnings of what creates sanctions, evasion and money laundering, things like that. And our team is part of a broader center called the geo economic center, which looks at the nexus of finance, economics and foreign policy. So that’s where we also have teams that look at the future of capitalism and what direction Brent Woods institutions are going in, as well as future payments and such as blockchain technology, and just how this can be kind of this innovation can move forward in the future. So for me, where I got started in crypto, before I joined the Atlantic Council, I worked in the federal government for 15 years in the intel community, as well as National Security Council Treasury, and my last role was head of intelligence at FinCEN. And so my the entirety of my career, I’ve really been following the money of illicit actors and trying to better understand where we can impact them to disrupt their activities and just kind of protect American population from harm. So when I was at FinCEN, I first was there in as Chief of Staff from 2019 to 2020, and this was during Trump’s first administration. And at that time, they really had a different perspective on crypto, and really want to try to regulate this space pretty heavily. So as Chief of Staff, I worked very closely across FinCEN as well as the regulatory community and with the Treasury Department to identify different intelligence requirements that we needed in this space, as well as kind of policy directions, enforcement actions and the regulatory environment. And then when I moved over to the intelligence division where I was first the Deputy Associate Director and eventually Acting Associate Director, I really felt that there was a need to better understand this space. So within the authorities that I had, I worked with my team to develop an entire office of cyber and technology innovation. And the whole purpose of this office was to kind of train up and recruit different people that understood how the blockchain worked, how crypto worked in general, so that we could inform law enforcement investigations or OFAC actions, and just kind of better understand this space, and also to inform and the policy and regulatory side of the house, so they could make better regulations as it relates to this space.
Eitan
Excellent. So that’s kind of how you know throughout the long journey of stuff that you’ve done in service of the US government and of national security, you kind of made your way to technology and the cyber realm. You mentioned sanctions evasion, and that’s a topic that I think is near and dear to both of our hearts. You have done a lot of research and work lately on something that you call the axis of evasion. Here at chainalysis, we’re seeing more countries use crypto and come up with clever ways to evade international sanctions, and we see that quite a bit from the from the parts of Russia and North Korea and others. It would be great for our listeners to get a little bit of color from you on your research and what you think is happening and how you think the international community should respond to this trend. That’s
Kim
a great question. Yeah, so the access of evasion is something that my colleague Maya Nicolas a and I developed. Actually around a year ago, we were doing a lot of research trying to better understand the effectiveness of sanctions targeting Russia and how Russia was trying to evade them. And that’s where we uncovered the fact that China was working very closely with Russia, as well as Iran, to import both of these countries’ oil. And then so we kind of took another step and layer below that and start looking at the different financial connections. And that’s where we really uncover the fact that what we think is happening is that there is an axis of evasion where China, Iran, Russia, as well as North Korea, are all working together whether to prop up their own economies. So they’re through trade, through financial connectivity. There’s even like a barter system at play, and all of this. And it’s a pretty sophisticated money laundering scheme going on. So within this axis of evasion, I mean, one of our kind of main points is that, whether it’s traditional finance or on the blockchain, with crypto, we need to start. Looking at these problems as a network, right? So I think historically, from a especially US government perspective, whether on the policy side or enforcement side, we’ve been looking at these issues in silos. We have one policy towards China, we have one towards Russia, one for Iran, one for North Korea, and we’ve been advocating for it’s time to start looking at this as a network of actors, so we can better unpack and understand how they’re working together, what those financial connections are, and then be able to identify different nodes and vulnerabilities to either counter or address or just kind of mitigate some of the this connection that is helping them evade the US, as well as broader Western sanctions. Unfortunately, in order to do that, we really do need to be working with our foreign partners, and again, on the traditional finance side, as well as in the crypto space. Because, you know, we’re kind of, we’re stronger together, as some folks like to say. But I think a great example of this was the, you know, recent Treasury designation that came out last week. Things kind of blend together right now, but it was on the on the z servers designation. So put a blog out on that, yeah, yeah, that was great, by the way. So it was, you know, the Russia based Bulletproof Hosting service provider. And so I thought that was a fantastic example of where this multilateral action could really come into play to have an effect. So this is where the US, UK, as well as Australia, designated this activity. And then what we saw was that within days after that sanctions announcement, the Dutch police just took off 127 servers offline that were associated to this not to be outdone, right? Exactly. So I think you know that, for me, the big points here that we need to start looking at this activity as a network. But then also we need to, you know, be working with our foreign partners to counter this activity, because this is cross border activity. And you know, if the US kind of goes it alone, we might be missing the ball on a few things. And that kind of leads me to my third point on jurisdictional arbitrage. That’s kind of a it’s always a talking point everywhere, especially when you get into the crypto space. But I think right now, jurisdictional arbitrage is a pretty big deal in that we need to be again, working with our partners, but developing consistent regulations, because as soon as you get into that arbitrage space where the US has a different kind of regulatory environment and rules and laws governing a space versus our foreign partners, that’s where the bad guys can take advantage of it. And so, you know, I think we need to continue to work with our foreign partners, whether it’s through fat if, or other kind of multi lateral standard setting bodies to make sure that we’re on the same page when it comes to ml, CFT in this space, but then also just making sure that our regulations are consistent, so that, again, these illicit actors and bad guys just can’t take advantage of this system.
Eitan
Definitely, I think, you know, rules and laws and norms matter greatly. And it might not be the sexiest talking point, but I think we ignore it at our own peril. A lot of attention is paid to how crypto can undermine the effectiveness of sanctions. It would be great to get your take on how you see crypto strengthening. You know, you’ve had various Enforcement and Investigations and Intel centric roles, kind of, you know, we pay a lot of attention to the fact that the blockchain is unclassified. It can facilitate international collaboration. You know, specifically, you know, one, one concrete example to throw out, I’d love your take is Russia’s recent about face in the fall on crypto. So for a while they were, you could call it ambivalent at best. They’ve kind of done something of an about face. We put, we put in a blog out it, about it too, that I’d encourage our listeners to go read, legalizing crypto for mining and cross border payments. So how do you see, kind of these pieces coming together vis a vis effectiveness of Western sanctions in particular? Yeah, I
Kim
think that there are so many features of the blockchain that are actually very helpful for investigations. I mean, it’s one of the few kind of technologies out there where you can see it go step to step. But in order for that to really happen, I think that’s where the crypto industry needs to continue to work with governments to ensure that AML CFT is, you know, that there’s compliance there, and that it is kind of a real focus and priority. But that’s also where, you know, I think there’s probably maybe greater engagement between the traditional financial system and crypto and government, right? All kind of three pillars that need to come together on these issues, because sometimes it’s very difficult to figure out who owns a wallet, and some of the technology within the crypto space, like mixers or anonymous tokens, that becomes a really big problem for Enforcement and Investigations. So the more kind of collaboration that there can be between, like the banks that are on ramping and off ramping, as well as kind of this crypto space, and think you can better kind of track what’s going on and then weed out the bad activity and separate it from the regular people doing their thing on the chain. So I’m glad that you brought up the Russia kind of about phase, because I think that’s been a really interesting dynamic to this situation, because, as you mentioned, I mean, Russia was historically very anti crypto. They didn’t want anything to do with this. But what we’ve been seeing is that with the onset of sanctions and how heavily, especially Russia has been cut out from the international financial system. They’re seeking alternatives, right? So they’re looking at everything. They’ve been using national currencies, right? They’re training in rupees and Ylan and kind of anything that they can do. So they’re also looking at crypto, right? So I think that they’re this change in their policy is a direct result of desperation and needing to figure out how else can they transact in a cross border way. But that said, it’s going to be interesting, because even though, like Russia’s fully embraced Bitcoin or whichever coin you know they’re using, it doesn’t necessarily mean that their trading partners are keen to use that for trade. So I think it’s, this is a it’s an interesting development and step forward. I think it is a direct result of the sanctions that have been placed on them and how they’ve been kind of cut out from traditional finance. But it’s, there’s also some dependencies here, because, you know, whoever they’re trading with, they may not want to to trade in Bitcoin. And this is kind of a case in point, like with China, that’s, there’s a lot to impact with China, but, but, you know, they historically have been very anti kind of crypto, and in preference of using their own cbdc, right, ecny and kind of the there are other payment systems that they developed within China. So I don’t really see a situation where China is going to be like trading with Russia using Bitcoin, but they we are seeing where there is a lot of trade between China and Russia in national currencies,
Eitan
absolutely, and in our this past year, in our geography of cryptocurrency report, on the one hand, you have the Chinese authorities saying no, no, no to permissionless crypto. And yet, from an adoption perspective, lots of different use cases that are listed illicit and kind of in between. So we frequently say that the fastest way to increase adoption is to ban something, certainly in advanced and tech literate societies. I want to pick apart a thread that you just mentioned, so going to the relationship of crypto to global trade. So our our annual crypto crime report, which came out recently, the sanctions section, had a huge geopolitical Nexus. And what our our researchers, what our geniuses, found, was that at moments, at flash points and kind of key inflection points in the past year of the Iran, Israel shadow war and kind of tensions in the Middle East, we saw a spike on chain of activity and lots of interesting patterns. Definitely download the section and read it if you have not already, or the report in its entirety. So you know, beyond Iran, even we’ve seen Venezuela use crypto to conduct trade outside of the Swift architecture. So. So, I guess my question for you, and I know crypto is not everything you do. I know it fits into the ESI, into into the geo economic center, but how does, how does this shift challenge the international trade system as we know it? And do you see it? You know, we have one example that’s specific to around. But do you see it kind of destabilizing international trade itself are kind of the way we conceptualize economic blocs in the world.
Kim
That’s a really good question. So I think the United States derives a lot of its economic power from the strength of the US dollar. That’s why sanctions and other economic tools are so impactful, so and that. But that’s also why I think you’ve seen this interest in moving towards alternative currencies, and I would include crypto as one of those alternative currencies. So from a trading standpoint, I think that there’s a few things in the mix here, right? We. You know, I know we just previously mentioned Russia, but I neglected to note too, that, you know, that was really interesting, that the EU is part of their latest Russia sanctions package. They went after grant tax, right, right. So, so even though, again, there’s huge push to try to use crypto for cross border payments with Russia. Well, if the EU as well as the US continue their enforcement and sanctions of different exchanges, that’s going to limit Russia’s ability to do what it wants. So there’s that kind of component of it, of where sanctions can also impact this global trade and cross border payment system in the crypto space, I am really interested in looking at kind of where China is moving in this space, because, again, we’re really focused on this axis of evasion, so where China is making big moves, where then it could potentially maybe enable these other sanctioned regimes like Iran and Russia and North Korea, If they gain access to these systems, help them evade sanctions. But that’s where China, with their again, their cbdc, the ecny, as well as these different projects like Enbridge that they work on with the UAE. I think Saudi Arabia is now part of Enbridge, as well as, you know, Hong Kong and Thailand. The whole purpose of that is to figure out, how do we do cross border payments using CBDCs, and you don’t necessarily need to use ecny. You can use the digital Durham. You can use whatever your kind of central bank digital currency is. But the fact that there’s a platform out there to encourage and enable trade using a central bank digital currency that is outside the US dollar system. So outside US jurisdiction. I think in the long run, that’s gonna be a very interesting thing, right?
Eitan
I think a lot of people are like, yeah, Enbridge, I’m familiar with that, but it doesn’t necessarily set in. You know what the implications are, or maybe the second or third order effects of normalizing that activity, certainly, you know, not to get sucked into a political vortex in the US that that the idea of a cbdc in the US has been hotly debated for a long time. But I think putting that aside, if we can the example of Enbridge and kind of other things that are happening in and around the BIS ecosystem, central bank to Central Bank beg, certainly additional attention and analysis. So I’m glad someone’s doing it. Yeah, no. I
Kim
mean, absolutely right, because it’s, you know, we do a lot of research on the dominance of the US dollar, especially in international trade. And if, for right now, you know, dollar still very strong. It’s 88% of world reserve currency. But if these different developments continue to move forward, and the US is not part of the conversation, I you know, how strong will the dollar be going forward?
Eitan
I want to switch gears just for a second so you, you know, you’re an expert, you worked at FinCEN, you worked on the NSC are now in the think tank space, a chain analysis, you know, and blockchain analytics in particular, we see ourselves as playing a critical role in shedding light on very opaque and sometimes inaccessible problems. You know, if something is a denied area, there’s no embassy, there’s no presence, there’s no way for a government or private sector partner to get information, we can shed light as someone who has worn many different hats. You know, public now well, private adjacent, but in between public and private. How effective do you think the current data toolkit is? And you know, Kim in 2025 talking to Kim in 2019 what would you say? You know, hang tight. Something really cool is on your is on its way to you. Or you should focus on this, because industry is not paying any attention to it, and there are solutions that need to be developed. Where do you see the need? Yeah,
Kim
yeah. If I had any advice for, you know, myself 510, years ago, you’d be
Eitan
like, watch out. There’s something called the Coronavirus that’s everyone’s gonna laugh at you, but you won’t leave your house for two years.
Kim
Buy as many masks as you possibly can, right, right, toilet paper, right? No, I think the I would have really paid more attention to the crypto space, honestly. I mean, I think even though I got involved in 2019 I became more entrenched in it. I there was so much going on at that point, I shouldn’t start paying attention years before and learning how to use, you know, the on chain kind of tracking and tracing systems like chain reactor. But no, I think that it’s interesting, because what I’ve seen is a huge proliferation of commercial data over the past several years. So whether it’s blockchain, kind of tracing technology and platforms, risk intelligence platforms, platforms that can just compile different sanctions data, it’s all out there. And I. I see that as a pretty clear sign that it’s it’s needed, like it’s filling a gap, right? The governments continue to emphasize and increase the use of sanctions and export controls and every other kind of economic tool that we have available, and we’re relying on the commercial and private sector to kind of be the tip of the spear for in compliance, and really like enforcing these different sanction measures, but they may not have all the information that they need to do that well, and so that’s where I think all this commercial data and these different tool sets have come online and been incredibly helpful. But it’s also, I get a little concerned, honestly, because, you know, it’s you have to pay for these services, and there’s, you know, maybe some smaller companies that have major compliance requirements, but they just don’t have the ability to buy the different tool kits that they need, right? So again, I think it’s incredibly important that this space has kind of filled that gap for the government, but I think that the government could do more to to offer different types of information so that, you know, to strong, more strongly encourage compliance of their actions going forward. But I’m not, I don’t really see that happening anytime soon.
Eitan
I think a lot a lot of integration of technology too. I mean that a lot of those decisions tend to be, you know, historically, have been above our pay grades, and it’s, you know, having both been on the inside in that sec, in the US, a lot of times it’s more Dunder Mifflin than it is Jack Ryan. And so fighting a bureaucracy that can at times seem, at times it can seem East German, is also part of the battle. I want to, I want to go back to something you were discussing. So going back to the axis of evasion, could you unpack we had Tom Keating on the show from Rusi, Matt pines from Sentinel one. This kind of recurring theme comes up of Krynn, right? China, Russia, around North Korea. Cringe. If you add global extremism, do you certainly you know whether it’s a formal Alliance or not. You know it’s there is some kind of block. Do you see this as a group of equals? Do you see one or several more as a vassal state of China, as some have argued in the pages of foreign affairs, do you see this as an in between? Is it more of a You scratch my back? I’ll scratch yours. I think the naysayers have pointed to history. The Safavids and the Romanovs were not friends, and Persia as a civilization, Russia, China, these are not natural allies. So how do you see the power dynamic internal to the axis that you describe? And perhaps, what are the points of leverage, or ways that policy makers and folks in industry can kind of protect their assets, and you could define assets however you like. Now
Kim
I see this as a marriage of convenience. I mean, the one or one of the few things that all of these countries have in common is that they’re heavily sanctioned. So, you know, we’ve kind of used in maybe inadvertently, but we’ve kind of pushed all these countries to kind of figure out, how can they continue to do business, get the money that they need transact, get, get the technology that they need, and then so they’re looking inward and looking at each other. And so you where there may be opportunity, I think, really depends on our understanding of how these actors are working together, right? And, you know, I let some people use like access of autocracies, access of right, access of upheaval, like access of anything, right. What I like about our axis of evasion is that the axis that we’re talking about is actually the financial connectivity, right, right? So it just so happens that China and Russia and Iran and North Korea, they’re all working together out of necessity and then, but as a result of that, they are sharing, you know, techniques, tactics, procedures, right? But the really critical thing here is that they’re connecting their financial systems, and that is all happening outside of us, jurisdiction. US monitoring authority like we have no visibility into a lot of this, and so at a certain point it can weaken the strength of our sanctions and other economic tools if we can’t see what’s going on, right? Right? So that’s where, you know, I think the best thing that we can do as a government is to, again, start looking at these actors as a network, and not kind of considering different policy approaches within silos, right? So again, I just as we consider lifting sanctions on different regimes while placing heavier sanctions on others, we need to be looking at this holistically, because if we lift sanctions on one, we enable them all right, so
Eitan
sustained pressure is the order du jour. Then, yeah, that would be my recommend.
Kim
Foundation, right, right? But I think that’s where it’s also for, like the private sector, where they need to also be thinking and considering is looking at all of these states as, again, as a network, so that they can then also mitigate their own risk of Who are they doing business with, just so that they don’t end up in a heap of trouble right down the line,
Eitan
right? Do you perhaps China? You know, they’re all facing us and international sanctions, perhaps the Chinese a bit less. However, if the you know, with with the threat of a crisis in the Taiwan Strait looming, is that something that you see intensifying, if you know, if the if the foreign policy tool, you know, of choice remains economic sanctions, at least in the US. And do you see that cooperation intensifying?
Kim
I think it’s kind of to be seen what direction things go. I think at least we’ve seen of late, which we’re all still trying to figure out the direction that we’re going from a foreign policy perspective, but it seems like President Trump is more keen to use tariffs over sanctions. So that’s something that we’re at least on the lookout for. Our team within the last couple years did do some research and analysis to look at, like, what would it actually cost the global economy if we did sanction China in a Taiwan crisis? And, like, with, similar to what we did with with Russia, and we found that an
Eitan
economic war game, yes, it’s basically, yeah, right, right.
Kim
But I thought it was interesting, because, you know, when we ran the numbers, just somewhat sanctioning, I think it was four of China’s largest banks, we would be putting $3 trillion of the global economy at risk immediately, right? So, you know, there’s some things like, it’s not to say it’s impossible. We just have to kind of mitigate a few different critically, right? Think Critically, think comprehensively, so that we don’t inadvertently, kind of hurt ourselves with our own actions. But no, I think that you we just need to again, just need to be looking at these issues comprehensively and as a network.
Eitan
Excellent. Well, I want to, if I can switch gears a little bit. We’ve been doing a lot of access, of upheaval, Russia, China. I want to talk about terrorism. You have long experience in the counter terrorism space. You know a thing or two. It takes one to know one. So sorry for outing you there. How could, how concerned should you, should governments be in your mind about terrorist organizations using crypto, we put out a bunch of blogs and content, kind of, you know, there was a lot of hysteria. There was misinformation. A lot of, you know, incorrect analysis in the past year of not only Hamas, Hezbollah, Islamist and Iran affiliated groups, how they engage with technology writ large and use the blockchain in particular, it’d be great to get your take on that. And then beyond kind of Islamist terrorism, how do you see how do you look at something like Neo Nazis and the alt right? In our crypto crime report this year, we put a section out on extremism, and so it’s a diverse playing field, and there’s no shortage of actors who are using all manner of coins and tokens and ways of transferring value. So how do you kind of see the landscape, especially in places where there might be limited oversight, or just some of the challenges enforcement wise that you’ve seen in your public sector career?
Kim
Sure, so I think it’s a Bruce Lee quote. But like water, it’ll find a way. So you know bad guys, whether they’re terrorists, drug dealers, you know illicit actors, if they’re gonna find a way to move money. And so crypto is one option. I think, you know, we continue to see in the traditional financial space, where we’re talking trillions of dollars of listed financial activity a year. I think, you know, NASDAQ has report I like to quote often, because it has a big number. But they did research in 2023, indicating that there was three, over $3 trillion illicit finance went through the traditional financial system in that year. Mind boggling. Yeah, it’s a lot of money, right? And then within that report, too, I think there’s over $450 billion of fraud that was lost. So this is a lot of money that is kind of also going through traditional financial system. So while terrorists or other illicit actors or do use crypto because it is a another mechanism to move and transfer funds or assets, they still continue to launder money through traditional finance. And cash is still king, right? Cash is not traceable. So everybody wants cash, right? So, you know, I think it’s us. We need to continue to emphasize the importance of animal CFT, and making sure that whether it is in the crypto space or banks or, you know, exchanges like that, those standards of AML, CFT, and the compliance is is happening, and then when it’s not, let’s use our enforcement tools to try to enforce the this, this different sanctions or other types of compliance measures, so that it also can send a clear message that that this activity is not being tolerated. But then also, maybe there’s some lessons learned, of like what happened and what went wrong in one investigate like in one situation where an enforcement case was was pushed forward, so that others can kind of learn from that and try to shore up their own compliance. But I think on the government side, crypto is it’s new. It’s innovation. I don’t see this going away anytime soon. I think it’s something that we’re embracing, and it can be the future of how kind of payment systems work, or at least as another means of how it works. But if that’s the case, then we also need to be resourcing the government to be able to do this type of analysis and investigations, right? Like the team that I helped form at FinCEN, I think I’m biased, but they’re the best in the business, but they’re really small, right? They’re super small, right? So we need more crypto analysts and investigators across law enforcement, across all the regulatory agencies, not only to kind of investigate when bad activity is happening, but to better understand how these systems work, so that we can inform when law enforcement investigations should kick in versus like, how do we improve regulation to make sure that this space is appropriately regulated and not kind of cut off at the knees? And sorry, my last point on this too, and I know I mentioned it before, but I always am concerned about jurisdictional arbitrage, if the US goes in one direction, and our partners going in their own directions, which especially like right now, when you look at the regulatory environment when it comes to the crypto space, at least from my perspective, it appears that a lot of it is domestically focused, but crypto is inherently cross border,
Eitan
right? The blockchain is international and 24/7 right?
Kim
So, like, if you have all of these different domestic regulators, like regulations that creates a really complicated environment from a enforcement and compliance standpoint, but also an amazing environment for illicit actors to take advantage of where there is jurisdictional arbitrage and kind of make the system work for them.
Eitan
Excellent. Well, that’s kind of something of a bridge to my, my next, and perhaps my final question for you, or is around So, So tying this all together. I mean, the economic statecraft Initiative, a lot of statecraft focuses on do not we will sanction you. We will levy tariffs against you. Who kind of threat based and negative actions? Can you talk us through a little bit, some carrots instead of sticks? I mean, a lot of our research. If you read the GEOS report, you will learn a lot beyond China and Russia and the rest you will, you will learn a lot about adoption in those countries and in emerging markets too, in Latin America and Sub Saharan Africa, where there is incredible adoption and growth of technology, writ large, of mobile payments, and specifically of cryptocurrency. We focus on remittances and cross border payments and all kinds of clever financing schemes, and not schemes, but, you know, financial empowerment stories. So how do you perhaps, for us to end on a happy note or an optimistic one? How do you see cryptocurrency as a tool, you know, to help, and I’m sure that ties in a little bit, because a lot of the a lot of the great power competition, power competition unfolds in these other parts of the world. So how do you see crypto kind of helping some of these emerging markets transform their economies and, like resist perhaps some of the jurisdictional arbitrage that you’ve that you’ve discussed on this pod.
Kim
I love ending on a positive note. So
Eitan
question for the Oxford Union?
Kim
No, I’m glad you raised this, because one of the things I didn’t get into, but another area that my team really focuses on is what we call positive economic statecraft. So it’s also the carrots, right? You can’t just have a stick. You got to have some carrots. And so we consider that to be, you know, the the affirmative actions, the inducement developments, investments that we can kind of work with other countries on. And, you know, it’s a bit of soft power. So, you know, I think that there’s a lot of room in the crypto space for this, as you’ve described, there’s a ton of opportunity for financial inclusion, and especially in these communities where they have not had much access to the traditional financial system, or they just can’t get into it. So I think that there is a lot to be said of how crypto can inform this space. And you know, not to keep harping on it, but I just think that that’s where the US could really come in, and again, from, like a soft power standpoint of when we are not somewhere China or other adversaries are. So whatever we can do now to encourage kind of adoption of kind of us, kind of based platforms, coins, genes, I think that would be in our best interest
Eitan
USD pegged stable coins would be an example. Would be
Kim
an example, right? Because then it’s also, it’s something where the technology is, hopefully, you know, built on kind of our standards of what we expect from this, AML, CFT, kind of compliance versus, you know, China, or maybe some of the other actors in this space, they may be less concerned. So I think that there’s a way that we can encourage adoption of crypto to enable different third countries to kind of beef up their economies and strengthen their financial systems, but I would hope that it would be within kind of the guidelines of what at least the United States considered to Be a sound and secure AML CFT compliance regime.
Eitan
Time will tell, I guess, in the you know, in the months and years ahead to how, not only what happens on the US front, but the international reverberations. Thank you very much for the conversation. You are very cool. The economic statecraft initiative is very cool for folks who want to get in touch with you? How do you recommend they do
Kim
that? Check out our website, Atlantic council.org, and look for the economic statecraft initiative.
Eitan
Excellent. Thanks so much, and I’ll see you soon. Kim,
Kim
thanks. Ethan.
