Fighting Cybercrime with Crypto Asset Recovery Tools - Lili Infante| ATC #508

Dive into an enlightening conversation with our host Stephen Sargeant together with Lili Infante. Lili is the CEO of CAT Labs - a tech startup developing digital asset recovery and crypto cyber defense platforms to help governments scale investigations and fight crypto crime. In her previous life, she was a federal agent "crypto cop" who pioneered an early federal task force focusing exclusively on crypto and dark web crimes. She led numerous major crypto-related investigations including the takedown of Hydra - the largest crypto-powered dark web criminal organization.

Host: Stephen Sargeant

Guest: Lili Infante

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Episode Transcript

Stephen: Welcome to another edition of Around The Coin Podcast. We're here with Lili Infante. Lili's the CEO of CAT Labs. Lili, tell us a little bit about yourself and what CAT Labs is.

Lili: Hi, thank you, Stephen. So I am the CEO of CAT Labs and In my previous life, I was a special agent with DEA, Department of Justice, and I was what they called the crypto cop or a crypto cop.

Back in the day, there was a handful of us back in about a decade ago and I started one of the first task forces that I've focused exclusively on cryptocurrency enabled crime and dark web enabled crime about a decade ago. And then in late 2022, left and started CAT Labs. And at CAT Labs, we build a cryptocurrency asset recovery software and platforms for government and also cybersecurity software for the private sector and for government.

Stephen: That's awesome. You're humble now. You know, on other podcasts, I used to hear you say, yeah, you're a badass agent. And now you're like, yeah, just a little crypto cop. So, so tell me a little bit about like high school, Lily. You went to both Columbia and Harvard, which is huge accomplishments. It's actually, I've been looking at a lot of LinkedIn's lately, and that seems to be a combination there.

Tell me about your academics to get into those prestigious universities.

Lili: So I I have like a immigrant mentality situation going for me. I I immigrated to the United States when I was 12 years old. I spoke zero English and I went into seventh grade. In the middle of the school year, I was so bored with American curriculum because it was so behind from what I was used to.

I was, even though I didn't speak very good English, I was transferred to eighth grade in the middle of seventh grade. So I was applying to high schools when I was 13, when I was 12, 13 years old. So, that was interesting, and I was applying to private prep schools at the time, not speaking English. I would go to these interviews and be like Hello, my name is Lily and they were like, what are you doing?

You can't study here. It's, there's no way you don't speak English. And but I was a really good swimmer. So one amazing high school, private prep school accepted me because I was a really good swimmer. So I got a technically an athletic scholarship to go to this school. And what ended up happening is by my junior year of high school.

I learned to speak English, thankfully, and I wanted to go to an Ivy League school and One of my, actually my uncle is a professor at a, at a university, he's a quantum physics professor. Wow. I come from a long line of very academic quantum physics type of academic professors. And I told him, I said, Hey, I want to apply to some Ivy league schools.

I told him I'm applying to Columbia, I'm applying to Stanford. Stanford is not Ivy league, but you know, one, you know, one of the top schools. And, you have any suggestions for me? Cause he was a professor and he outright told me, there's no way that you're going to get into any of these schools as an immigrant and.

That, that is the best way to make me do something is to tell me I can't do it. So it was like a challenge to me. So I ended up, I ended up still getting into Columbia and just to spite my uncle, because I really did not like the fact that he told me I can't do it. And ended up getting, you know, getting into another Ivy league school.

But yeah, it was what I, what I mean by immigrant mentality, it's, it's one of those things when you're, when your parents come from another country and they drop their entire life to be, to get an opportunity here and to give you an opportunity in, in, in America, the American dream, there's so much pressure, there's so much pressure to make the best with what you have, right?

It, that includes education, professional, anything that I do, I basically have to, I put that pressure on myself. I have to be the best at it because. If I'm not, that means that they just dropped their life and moved to another country all for nothing. So that's, it's not a really healthy way to be, but that's, that's what's.

Stephen: No, I think a lot of that drives us, right. That like, not dark energy, but like a little bit of a push. And since we've lost half of our standard, our Stanford audience, who's like, you know, the alumni that are like, it is an Ivy league, technically, technically it should be an Ivy league. Tell me a little bit about.

You know, what you think about education now, especially traditional education. We see now you can take any course for 16 weeks, 18 weeks and get the exact knowledge that you need. But there's also things like access, network, connections. I'm not sure how much that played in starting your own entrepreneurial business.

Tell me a little bit about what, like, what your experience was in these Ivy League schools, and has that benefited you? And maybe what you would tell your children, like, do they, do you think they need to go the traditional route?

Lili: The, the only way that it benefited me is Signaling. It signals to whatever it is that I'm doing, whether I'm trying to raise money, whether I'm applying for a job, it's on my resume that I went to an Ivy League school, so it signals to whatever potential opportunities that I'm pursuing that I am smart and capable, essentially, right? That I'm able to get into two Ivy League schools. That is really the only benefit I'm going to tell you in our, in our day and age right now, because of what you said, because knowledge is so readily available. And the issue is. As I see it is not about the knowledge being available or not available.

It's more about how you learn. Everybody learns differently. I am really, really good at self directed learning. And I'm really, really bad at learning when people tell me show up at this time. With this teacher, read this book at this time. I am absolutely horrible at that. And as a matter of fact, I had to like, hack my brain in order to do well in school.

And in a structured environment. So, I, I'm, I'm extremely good at self directed learning. Some people are not. Some people don't have the discipline to be able to, to, to do self directed learning. And, and some people are just really, really good at showing up on time and listening and, and absorbing that information as somebody is presenting it to them.

So, so I think it, it, there's a lot of different factors to this. Is it worth spending $200, 000 because you're better at somebody teaching you? I don't know. At this point, maybe, maybe not. It depends on which profession you're going into, I think. And also, like you said, it's also network. If you go into a really prestigious school, You're going to meet a lot of people that are in the higher echelons of society.

So you're going to make that network. So that's very, very valuable. Did I make use of that? No, because I was a loner pretty much and a hermit. And I just studied when I was in school and nobody told me that the best opportunity that I'm going to get at an Ivy League school is to build a network. So if I went that...

Stephen: Going back, you vigorously flipping through the yearbook Now , see, like, I think I knew of Mark Zucker Zuckerberg.

Yeah. Let, lemme see if I can hit them up now. But you talked about working at the DOJ in, you know, the cyber crime investigation specializing in dark web. You started in 2012, which I think is when most people started hearing, you know, glimpses of Silk Road and other, you know, dark net markets. That was what crypto was associated back then.

What were some of the discussions in 2012 at the DOJ as it pertained to cryptocurrency?

Lili: So there was no mainstream DOJ discussion. The, the Silk Road stuff, this was, you know, silk Road was the largest, the first, I wouldn't say the largest, the first market, the first startup market. It was really the first real business use case for Bitcoin, right?

It was Silk Road and. It's, it was not very widely known across law enforcement, across federal law enforcement, except for the specific groups or the specific agents that were looking into this stuff. And it, I think it really wasn't as well known until probably maybe 2015, 2016, when it started getting a little bit more on the radar to mainstream DOJ and mainstream federal agencies where people started hearing more about dark web and crypto.

But when I walked into my boss's office and I told him. I want to buy drugs with Bitcoin, he said, who's Bitcoin? It was, you know, that's, that's where, that's where I started. It was, there was not a lot of, there was not a lot of precedent and I had to build a lot of the precedent. A lot of the amazing agents that I used to work with, we all together, we, we built that precedent for investigative techniques, for keeping up with the technology, understanding how this technology, crypto and dark web and Tor being used and why it's being used.

And, and how criminals are obfuscating their funds to hide from us, right? Obfuscating their identities to hide from us. So there's so many different variables in a dark web and crypto investigation that don't exist in the traditional investigation that we just have to learn a lot and we have to create a lot of the investigative techniques that are being used today and teach them.

Around The World. The last two years, a lot of my time was actually spent teaching, going around the world and teaching how to do dark web and crypto cases. So, it's That's, that's essentially how, how it started. The, I had to look for information. I had to ask my agency, Hey, how do I actually get Bitcoin so I can do undercover invest, investigation, so I can do undercover operations.

And there was really not a good process in place. Like my agency was like mining Bitcoin in headquarters. And then the lawyers came down on our agency, like, what are you doing? You can't be doing, you can be using government resources to mine Bitcoin for undercover operations, you know?

Stephen: How difficult was it to work with the lawyers, right? Cause, okay, if you're using cash to buy drugs on the street, the lawyers, evidence, everyone, you know, they're writing down the serial numbers. How tricky was it to convince them? Like, Hey, I'm buying drugs. Using internet money I just need you to, you know, fund it with cash in order for me to convert, like, how tricky was that?

Were they very much like, Hey, just relax with this a little, take your time. Or were they like, okay, like, as long as you can describe it in a, to the world. We're okay with it.

Lili: Yeah, I, I had to make my case. And making my case involved, okay, this is what's happening. Look at, you know, I have to show them the dark web market.

Look, heroin is being sold openly on this market. I can go in and buy it. I had to explain to them how the escrow system worked on the dark web.

is in undercover investigations with drugs is that you absolutely cannot, under any circumstances, front the money. Fronting the money as in give the guy money before they give you the drugs.

Right. And that's what you have to do in the dark web undercover operation. That is what, that was my first hurdle. I could show them, Hey, look, all the, all these drugs are being sold online and, oh, and there's an escrow service, but I'm still fronting the money. The drugs don't come in until, you know, a few days later in the mail.

So I'm still fronting the money. Fronting the money is a, is a huge sticking point for them. So I had to, I had to convince them and kind of go over that hurdle. So once I did, and then there's some people in headquarters that kind of already knew about, about these hurdles. So, you know, the ones that were mining Bitcoin and, and for undercover operations.

And so sometimes, and there were, there were also, because we had to create these. Investigative techniques and these policies and procedures for the agency, because they just didn't exist. We have to kind of on the fly, create a lot of this stuff. Initially it was, we just got Bitcoin from headquarters to do our undercover operations.

And then after that, when that was kind of canned, we. We now had to make relationships with centralized exchanges. We have to be like, we have to find a way to procure cryptocurrency for undercover operations, right? So there's, there's a lot of logistics involved and a lot of different entities involved in actually being able to do undercover operations with Bitcoin.

And it's, it's not just as easy as, Hey boss, can you give me some Bitcoin for undercover? Operations so I can buy some drugs on the dark web and find out who this, you know, fentanyl dealer is. No, it's, it's just a lot of bureaucracy that we had to go through. Thankfully now, it's very streamlined for the most part.

We, you know, we Do you

Stephen: feel like back then the DOJ was kind of leading this type of cutting edge investigations? Could you lean on other countries like Germany Spain? Like, was there other countries you can lean on? Or you felt like people were hoping, leading on you to kind of go through these processes and procedures?

Lili: So there, so under DOJ, there's, there's different agencies and also Treasury and there's other departments and Department of Homeland Security, there's different agencies that were actually doing these investigations and were, or there's a couple of agents that were involved in crypto investigations.

They also did not, they were also just kind of paving the way at that point. It was so early. There is no, yeah, you just, I, I would do that. I would go ask around and be like, Hey, case agent from Silk Road, what did you do here? You know, or Hey, like, you know, I, case agent from Mt. Gox, what did you do here?

Like, how did you do this? So it's, it was a lot of, a lot of advice and mentorship that you had to get if you wanted to get into these cases and actually understand. What you're doing and, and pave the way and start paving the way with in these other amazing investigators that have been doing it for a couple of months.

And at that point, a couple of months was like, wow, you're an expert. Yeah.

Stephen: That felt like dog years, right? Dog months. Now you offer training for this specific reason, right? You at Cat Labs offer this training to law enforcement. Talk to me and, you know, bring me I don't know how much you worked on the case, but Hydra Market, the biggest darknet market, I think, by volume, by complexity.

They had money mules. They had cash drop offs. They had built in mixers within, internally. How challenging was, you know, bringing down Hydra Marketplace, and how much of a victory was that internally for the department?

Lili: So, I started working on Hydra pretty late in my career. And it was probably the easiest dark web case I've ever done.

Yeah. And it's, yeah, it's the splashiest one, but it was it was so easy. And I'll tell you why. The Hydra market was mostly focused in Eastern bloc countries and. Russia was the main user, Russian, you know, Russian users are the main users. Russia, Ukraine, Russian speaking users were the main users of, of Hydra.

So. Because of that, when you have an organization that is so ingrained in Russian, with Russian law enforcement, where, where they basically let it run. I mean, that is my, it's, it's an opinion. I mean, I can't tell you, I can't prove it. I can't tell you I can prove it, so it's definitely an opinion, but based on what I've, I've uncovered when I started looking into Hydra, it was such an easy case compared to my other dark web market cases in terms of, in terms of finding out where the servers are, finding out who the administrators were.

It was literally, I could, like, I did it in my sleep. All the other cases, I was like two years, three years identifying, you know, OPSEC, all this other stuff. You know, they would exit scam and they would use it. It was so easy, Stephen. It was, and what does that tell me? That tells me that the Russians could have taken it down, but they decided not to.

And, but they claimed to the world that this is a huge problem in their country and it's the biggest problem. And I think they even had one of their detectives murdered. So they were like out for revenge, trying to take down Hydra. But because of the corruption, it was allowed to operate. That's my opinion.

Stephen: Very similar to like pig butchering now in Southeast Asia. If that's the, if you know, the scamming is the majority of the GDP in those countries, especially during the pandemic. It's either like, it's, they have no other, almost, they do have a choice, but that's the only income coming into the country.

That's how they're getting paid and feeding their families. It's one of those really interesting scenarios. Was there anything interesting about Hydra that kind of stuck out to you? Other than like, hey, the administrators are kind of like hiding in plain sight. Was there anything interesting or any other infrastructure like certain VPN companies, payment service providers that you were like, oh, this is an interesting or unique part of the case that we haven't seen in maybe other darknet take them?

Lili: Oh, there was so much that was so unique about it. Every, every other market that I investigated pretty much had a very similar structure. It wasn't, yes, they, they had kind of a higher hierarchical administrative structure where they have, you know, the main administrators, the moderators and. But it wasn't nearly as much of a well oiled machine as Hydra was on the inside, and Hydra was self contained.

You didn't have to go anywhere else in order to procure Bitcoin to buy anything on Hydra. You can buy the, you can buy, you can buy Bitcoin on the Hydra platform that wasn't available in any other markets. So they created that infrastructure with thousands of different cryptocurrency to fiat exchanges.

That use different techniques to allow you to have a seamless experience, a one stop shop, to go to Hydra. You don't have to go to like, you know, whatever Binance or any other exchange to actually buy your Bitcoin. You could go directly to Hydra, buy your Bitcoin, buy your drugs or whatever you're trying to buy.

And they even had, they even had career announcements. Literally, it was like that. It was running like A fortune 500 company. It was crazy. It was like nothing I've ever seen before. When I started getting into it, it was easy to identify. It was easy to, to take down, but in terms of the way that it was running and the infrastructure and how everything was so self contained, they had, they had, like you said, they had an in, an internal mixing service, which is, that's the one thing that was hard because.

You know, they've used, they used such a sophisticating, sophisticated mixing mechanism that was more sophisticated than other markets that I've seen, that it was difficult to kind of track and trace some of the fun, fun flows in and out of Hydra, which is why a lot of the ransomware actors and cyber criminals were using Hydra, not just.

To buy goods and services, but to actually just funnel money through, right? You do you do a hack, you just send your Bitcoin to Hydra and then nobody knows where it comes out on the other end because they have, you know, this internal mixing service and all these exchanges that you can use to actually turn it to fiat, turn it to whatever you want.

You know, it's, it was very, very sophisticated. They had, they had so they had job openings, careers. I'm assuming no

Stephen: compliance or risk management positions opening up there, maybe just strictly marketing, like money mule, money mule, minimum wage, no experience necessary.

Lili: No, yeah, exactly. But they also had a section, which is surprising to me, on preventing addiction and addiction help and all this other stuff.

They had like a helpline for that stuff. And they had an information page about the different types of drugs and the effect that they have on your body and how you can get addicted and all this stuff. It was like, it was very well thought out. And they had chemists too. They had chemists, they were hiring chemists in order to.

Test the quality of the drugs that were being sold on, on Hydra. It was just very impressive organism. I mean,

Stephen: for those listening, you said Russian based, Russian users. Where does the U. S. play in that where the DOJ has jurisdiction? Like I know you're obviously trying to fight, you know, cybercrime, but you know, for those listening to say like, Hey, where does America have jurisdiction to intervene in what they're doing, even though it's an illegal act, where's the U.S. nexus there?

Lili: Yeah, the U. S. Nexus mostly comes from actually the money laundering portion where Hydra as a platform really being used for obfuscating funds on the blockchain by a lot of different criminals and they don't have to be Russia based. They can be based in the U. S. I know, I think the Bitfinex couple that was arrested, a Bitfinex hack couple that was arrested a few years ago, they used Hydra as well for that purpose.

I mean, there's, it, there was a lot of that basically. Traditional criminals or cybercriminals just using it to to launder money essentially, right? They didn't have to use it just for buying goods and services. It was a really, really good way. To mix funds as you, as you're trying to hide them.

Stephen: Awesome. You had mentioned, and we could cut this part out.

Let me just put a marker here. We can cut out the train and the doorbell. You had mentioned actually one of the Binance, which is one of the most notable cases when it comes to fines. 4 billion. And obviously FTX, Binance gives a little bit of a black eye to the crypto industry. What are your thoughts?

Are they trying to make an example of a Binance? Do you think that, you know, these are the type of finds that should be done in order to kind of mitigate other crypto exchanges from following down the same path where obviously AML and compliance and consumer funds aren't at the top of the priority list for those exchanges?

Lili: There are so many intricacies in the way that DOJ approaches doing these cases, especially cases against Entities that sometimes could be perceived as too big to fail. And I would put Binance in that category as too big to fail. This would be if, let's say, DOJ went in and said, okay, we're just going to seize Binance servers and arrest everybody.

Or even OFAC designate Binance. They could have done that. They could have OFAC designated Binance. And then nobody can do business with Binance, right? Like they could have completely killed that company. If they wanted to, but because of the too big to fail concept, it would just have such a negative impact on the entire industry.

And, you know, people think, oh, DOJ, they're just trying to kill the industry or the government's trying to kill crypto. As a matter of fact, that's a huge consideration when you are doing a criminal case against an entity that could have an industry impact, right? And, and actually they went easy on Binance because of that.

They could have. done a lot more. They shouldn't have, obviously, because of the industry impact, but there was just so many, so many intricacies involved there when deciding how to go about prosecuting Binance or any other, you know, massive industry player. That could have such a huge effect. And I think that the fact that somebody is pleading guilty is a big win for the government because a lot of times they'll, in these kinds of cases, like against banks, for example, they'll just do a deferred prosecution, they pay a fine, they say, you know, slapping the wrist, they say, I won't do it again.

And nobody goes to jail and nobody gets, nobody pleads guilty and nobody gets criminally prosecuted. They actually did, I think they really did a good job with that, where they actually held someone accountable and not just, you know, told them, hey, pay us this money for being non compliant for all these years.

Right. So I think it was a really, really good way to go about it. And yeah, I think it was necessary. I think I think it's, I mean, the FTX situation is just absolutely crazy. Right. And FTX was a lot more blatant than, than Binance. Binance was, Binance gives a lot more nuance, especially given the fact that Binance did hire, and invest a lot into compliance in the, in the last few years where they hired a lot of compliance and, you know, analysts, investigators, directors that actually tried to implement a, an AML KYC program at Binance. But what does that teach you is that your past actions. are still going to be, you're still liable for them.

You're still accountable for what you did in the past, even if you tried to implement you know, and do better now. You're still accountable for all of that money that you made in the last whatever, however many years you were operating, not complying with the law.

Stephen: And that's how they got the market share, right?

You don't operate, you don't follow all the rules, the slowing down of processes, the legal procedures. So now you get 75 percent of the trading volume in the industry. There's going to be penal, you're going to get penalized for not doing that at some point. It's

Lili: really sad. It's really sad too that these companies, it's a, it's a strategy that they use, they know, they know the law, they know that they need to comply with the law, but they choose not to because they want to gain that market share because they say, okay, it's going to be a lot more profitable for me.

To operate and to get that network effect and to get people addicted to my platform and to get 75 percent of all users using my platform and not the other guys that are struggling to get all the certifications and all the licenses and put it, put together an AML program and invest money into that. So it's a strategy and, and unfortunately it works, it worked for Binance.

They did gain that market share and they made a crazy amount of money doing it.

Stephen: It works if you get too big, right? You have to get too big. If you're not too big and you fall short, you run into some trouble. But talk to me about CAT Labs. You're in the DOJ side, you're fighting DarkNet market. You know, web activity, you're taking down the biggest darknet markets around the world.

And you say, you know what, let me start my own tech stack, right? Let me create my own SaaS solution. And where did you see the void? Where did you see that gap where you're like, there's something missing here. I can only do so much on the public sector, but there's something missing that we need to kind of bridge the gap here at Cat Labs.

What did you see and how did you think you can fix it?

Lili: So what started happening around 2020 when the bull market started picking up is as the mainstream was picking up crypto, so were the criminals. And it wasn't just cyber criminals. It was also traditional criminal organizations, drug cartels, organized crime groups.

They were all now starting to use crypto, especially with the advent of stablecoins. That removed that volatility and that risk from cryptocurrency transactions. So now they could transfer value across borders without having to worry about, you know, their coins losing value. So what started happening is all these.

Criminal organizations started using crypto exponentially more than they used to. And I kind of predicted this a few years ago when I first started. I was like, this is going to be a really great way for these criminal organizations to launder money. Especially having learned the intricacies and the complexities of the traditional money laundering schemes.

And the risks associated with them for the bad guys, right? Crypto seemed so much easier and so much cheaper. So, that's what started happening around 2020 and leading up to, you know, 2022, end of 2022, is we had a handful of agents and analysts in different agencies in the government that knew how to do crypto cases.

And because now every case was becoming a crypto case, All of us now got a thousand cases on our desk because everybody else is saying, Hey, Lily, can you help me with this? I think my guy is using crypto. What do I do here? It was not scalable anymore. We couldn't just have a handful of people knowing how to do this.

We needed to, I started understanding that we needed to get ahead of it. And we needed to make sure that every single agent, every single analyst. It doesn't have to get a degree in cryptography in order to be a crypto cop, in order to be able to do a crypto case. So, that's where I saw the biggest gap, is Actually finding and identifying that cryptocurrencies being used in investigations and knowing what to do with that information, with that intelligence to get to a seizure, get to a recovery or, you know, give the money back to the victims, whatever it is, whatever case that you're working, or identify the money laundering routes for, for these drug cartels, for example is, it's not a scalable solution to just have a couple of agents for each agency know how to do that, right?

So we had to it. Technology is the best way to scale knowledge and technical expertise. And, and that's what I decided to do. I decided to build a platform that helps law enforcement and intel analysts actually identify that crypto is being used in their cases, know exactly what to look for, and when they find it, know exactly what to do with it in order to get to a seizure.

And the platform essentially exponentially increases your chances that you're going to find and recover cryptocurrency in your cases. And it's, I think that was the biggest gap that I saw is just having to Having to look through massive amounts of data that we gather in our investigations just to find traces that our, our criminals are using cryptocurrency.

And this is even for me, I was wounded for 10 years. And for me, it was hard for me. It was, you know, having to, if I seize a phone, for example, from my target, having to look through, you know, their 50, 000 photos in their gallery to see if they took a screenshot of their seed phrase or something like that.

That is very time consuming. That's just one small example. In Hydra, we see several petabytes of data. 62 servers that we had to comb through, right? And make sense of the data and find out, you know, how many assets and trace the assets. So, and that stuff is not on the blockchain. That stuff is there inside the hardware, inside of the digital data that you collect.

Even OSINT, right? Open, so any kind of open source intelligence that you collect, or dark web intelligence, scrapes and stuff like that. You have to look at it all manually now. And, you know, there, there was no technology that allowed me to scale that, to scale that process. And so that's what, that's what we built.

We built that technology that removes the necessity for an agent or an analyst to be an expert. What

Stephen: was your focus here more in the U. S. because I've been at conferences and speaking to countries like Chile who don't have access to any tools, they're using block explorers to do their investigation what was your focus starting in the U.S. and kind of broaden or were you like, there's countries that really, really need this, that have ambitious professionals, get them up to speed while also, you know, catering to the North American market?

Lili: So, because we're, because we were a startup, we had to kind of have a measured approach in our go to market strategy.

And because I have the network in, in US federal law enforcement, that's kind of what we're, where we're focusing initially in our go to market strategy. But yes, of course, we, we talk to other countries as well that have the same problems that we do in the United States. We are very careful about which countries we talk to.

The platform that we built is very powerful. We don't want it getting into the wrong hands. So, you know, only U. S. friendly, non adversarial type countries is what we are, we are targeting. And yeah, it's a global problem. Crypto is not just based in the U. S. And a lot of the funds end up in other places when you're doing your case.

So, it would be conducive for other And we're also working with other countries to have access to scalability platforms that allow them to do crypto cases and recover funds.

Stephen: Now the Financial Action Task Force, Interpol, other agencies that work, you know, with the broader public sector, law enforcement and regulators, lawmakers around the world.

So, hey, we need to focus on asset recovery. The numbers that come out show that, you know, really around the world, we're failing at the asset recovery space. How can, like, how do these products that you're creating simplify this process? You touched a little bit on it, but how is it simplifying, or at least empowering these law enforcement, public sector, and private sector?

To kind of up their game when it comes to asset recovery. Maybe you can say like, why are we failing? And what's this, you know, is it just a scalability issue? Is it just like human resources issue? What exactly are your thoughts around that?

Lili: Yeah, it's a, it's a scalability and a silo of knowledge issue.

And I call it, you know, it's, it's human capital. You can't, you have, you have a couple of people that know how to do this and they can't do all of the cases in the world, right? So that's the problem. And what we built, the problem that we are solving is specifically in the identification that targets are using cryptocurrency.

So that initial When you're starting a case and you're starting to gather intelligence, whether you do a search warrant on somebody's email account or cloud drive, or you have a bunch of compliance reports that you need to look through and it's 400 pages, and you need to find evidence that, that this target is using cryptocurrency.

And in order to do that now, you have to like manually look through these, these reports with your eyes, right? Or look through 50, 000 photos in someone's phone gallery after doing a search warrant on their phone, right? Or using a phone or computer or servers, whatever it is. It's a really manual process and just what ends up happening is not only agents don't, and especially local law enforcement, the ones that don't have a lot of the resources that the federal agencies have they don't know what to look for.

They don't know that a lot of their targets are using crypto. They don't know the type of information they should be gathering even in order to find. Traces of cryptocurrency used by their targets. So, what we do is we, first of all, we have the training that teaches you exactly each step of the way, the type of information that you need to be looking for and gathering in order to find crypto assets.

That's not just on chain, right? On chain, lots of awesome companies that are, that are covering that that gap, right? But off chain is a big, is a big component. I think it's the biggest gap. So, when we're gathering intelligence. We're gathering evidence, specifically digital evidence. What our tool does is it takes all of that evidence, you can plug it into our tool, and it will pull out only traces of cryptocurrencies.

So only, let's say if the person was using Binance, right? If they got a withdrawal request in their email which wallet did they withdraw to? How much money is on that wallet? So we go from start to finish. We don't just give you, hey, here's the wallet address. No, no, no. We tell you, okay, well, there's actually You know, 500, 000 sitting in this wallet in Tether or, or whatever.

Right. So we will actually go and ping the blockchain and tell you from this data set, let's say you submitted a email account from this data set. There are, there's 2 million of seizable assets that you can go. If you can drum up the probable cause, you can go and seize that money. It's sitting there right there for you.

So we take hours and hours and hours. of manual labor that the agents would have to go through. Not just the manual labor, but also knowing what to look for. And we remove that necessity to know what, to need to know what to look for. So not only are we saving them many hours of manual labor, sometimes days and months of manual labor, depending on the dataset that they're looking at, we're also removing the need to know what to look for and to know what to do with it when you find it.

So like if it's seed phrases or private keys or public addresses or emails from, you know, mining. Pools or exchanges or whatever it is, or a crypto app on your phone or crypto app in your, on your, you know, software on your computer, or you, you're going to Metamask all the time, or you attach the hardware like Trezor device to your computer.

All of that stuff our, our tool picks up on and it tells you, okay, here, here, there's, there are, you know, 2 million in seizable assets within this data set. And here's how you go and get it.

Stephen: I think that's helpful too, right? When you're thinking about victims of like pig butchering. The problem with the police is like, Hey, they don't know where to start, even if they were given.

You know, even if they don't have to break down the door and get that information, they don't know where to start with the investigation. They don't have enough information, right? They just have this address. They don't know what to do with it and who to reach out to. Do you see more of a shift now of public and private sectors working together, like, through tools like yours, where you're combining, hey, law enforcement, we're getting you to the point, but also you have connections a lot with the crypto industry, the private sector, where they can kind of, you know, not tap in or API in, but they can also say, hey, like, here's all the information we need.

They can take a look at that information really quickly. And you, as you said, if there's seizable assets, they can, you know, freeze the account, put a hold on the account. And now law enforcement has an easy way to get a subpoena or a search warrant or a seizure warrant. Do you think there's going to be a lot more collaborations now with tools like this, with the public sector, leveraging the private sector, so there's not so much onerous on them to come up with these investigations?

Lili: Yeah, I think, I hope so, because it's super important and, you know, certain, certain private sector entities are better, better than others and have more resources than others to actually be able to support a lot of these law enforcement requests. But with our tool, our tool kind of sits in the middle of a lot of different tools that law, and that law enforcement ends up using.

So blockchain analytics tools can plug into our Forensic tools can plug into our platform, like, you know, tools that actually extract data from servers and computers and stuff like that can also in the, you know, in the beginning of the workflow for a case can plug into our platform. So what we do is we increase the chances of cryptocurrency assets.

And we also give companies like Channels, TRM, and like other, you know, blockchain analytics companies a lot more intelligence to work with, right? These blockchain analytics companies are just going to be swamped with requests now because now agents and the analysts and cops are actually finding cryptocurrencies within, within these, within their cases, within the datasets that they're, and the evidence that they're collecting.

So it's, I think their recovery is just going to be exponentially more. Exponentially higher than, than it used to be because of the manual process that we have right now. For, in order for you to use like a blockchain analytics tool, you have to know your target is using crypto. You have to have the address already to plug into the blockchain analytics tool, right?

If you don't know your target is using crypto, you can't, you're not going to use Chainalysis. Because why?

Stephen: That's not going to be 90 percent The cases where the address is staring you in the face is not going to be 90 percent of your cases to your point. Exactly. The address will be

Lili: staring in your face, yeah, maybe 10 percent of the time.

And it'll be like a hack or, you know, scam or big butchering, whatever. Yeah, you'll have the addresses in that case. But in most cases, you're not going to have the address. You're not even going to know that your target is using crypto. So that's where we

Stephen: Based on your discussion, sorry to interrupt you, but I found an interesting point.

Your go to market strategies focus on North America. Based on what the DOJ has been doing since 2012, it seems like you're pretty much, you know, on the top, I would say, international expertise when it comes to doing crypto investigations. But we're seeing now, like, we produce such analysis, public key podcast, and every person that comes on that podcast says U.S. is great, but we'd rather navigate in a different country and use our innovation. So we're seeing a lot of innovative tools, DeFi tools leave the United States. What are your concerns with that? You know, working on both sides, on the public side and the private side. What are your concerns with this innovation leaving U.S.? Especially when it comes to innovative things like investigations, recovery and just altogether decentralized applications.

Lili: So are they, are they saying that they are leaving because of the regulatory framework that's, that makes it impossible for them to operate, or are they struggling to get contracts for their I think they're

Stephen: leaving because of the, I wouldn't even say the regulatory, the lack of regulatory framework.

I think the biggest concern in the US is everything's very vague. So you can start something, you can build something, and then three years later, the SEC is kind of knocking at your door and saying, Ah, you know what? This is unlicensed security offering or, you know, your tool doesn't comply with, you know, it's very vague.

And, you know, the U. S. right now, I think, has a reputation by, you know, leading with enforcement instead of leading with guidance.

Lili: Got it, yeah. So, I'm kind of in a unique position here. So I'm really excited to have an opinion about this topic because I spent the last 10 years of my life seeing all of the bad ways in which crypto can ruin our lives, you know, but I also, I'm also of the opinion that this is a very important technology that we need to grow domestically, and we need to make sure that we are not sending it overseas, we're not sending the R& D industry.

In this space overseas, and you're saying analytics companies and other companies are saying, okay, we're, we'd rather just go to Europe or rather go, go to another country that is more friendly to what we're trying to do. And it's not going to put so many obstacles in our way to actually run a business.

And yeah, it's a problem actually. It's a problem. In a sense that, actually two reasons. There's two reasons why it's a problem for the United States. And I think, I think talking to Congress and talking to our regular regulators, we need to understand what they value. So when you go to regulators and you say, power to the people, we need to save the crypto industry, don't kill it.

They don't care. They don't care about libertarian rhetoric. Congress doesn't care about that stuff, right? So it's just going to fall on deaf ears. So when you go and you talk to regulators, you have to be in their shoes. You have to understand what they care about. And what they care about most is national security.

And what they care about most, also, is retaining the United States authority within the world. And most of that is actually coming from the dollar, right? The fact that the dollar is one of the, you know, main global currencies. And and that's what kind of drives the American economy and drives America's leadership in the world.

So, what happens with Taking innovation, cryptocurrency or crypto industry innovation out of the United States and pushing it out of the United States into other countries is you do two things. You, you cause de dollarization because a lot of the cryptocurrency usage Is pegged to the US dollar, especially with stable coins and stable coins right now, like Tether Tether, USDC, all that stuff, all of that crypto usage right now, you know, massive volumes of transactions by the entire world, including Russia, by the way, Russia using Tether and Russia using USDC and DAI and all that stuff, all the stable coins all day, every day to evade sanctions.

Right. But if you are, you If you drive that innovation out of the United States, those stablecoins are not going to be pegged to the U. S. dollar. And what is going to happen is that the companies that issue the stablecoins are not going to be required to hold U. S. dollar reserves. So you're going to take U. S. dollar and you're going to break it down and you're going to make another currency like the Chinese yuan or whatever it is that they choose to peg that, you know, that stable coin to more powerful than the U. S. dollar. Do you want to do that? Probably not. Right. So that's one issue. Second issue is, is cybersecurity.

And it's actually something that a lot of people don't really talk about as much. is the, the innovation and the technical innovation in the field of cryptography specifically. So like, let's forget about crypto and to the moon and coins, whatever. Cryptography is at the base of the cryptocurrency industry.

The cryptocurrency industry is a way to monetize cryptography, cryptographic research, cryptographic technologies. So, and I'll give you an example, for example, multi party computation. If we didn't have a use case for multi party computation in the crypto industry, that technology would not be developed.

Why? It would just stay in academia and academics would just stay and pontificate about multi party computation for the next 30 years, right? Because there's no incentive, you know, to actually take it and productize it and commercialize it. That's the beauty of the United States is that we give entities and small businesses and, you know, people with a dream entrepreneurs with a dream an ability to take their idea, to take their technology, And actually sell it to someone and make money off of it, right?

And, and that is a really, really good way to produce innovating technology, innovative technology. Cutting edge technology that is above everybody else, everybody in the world. And why that's important to keep in the United States is cryptography is the field that's going to save us from quantum attacks by our, Adversarial nation states when the quantum computer comes out and they're going to start attacking our infrastructure.

Our current encryption, which is all based on cryptography, cannot withstand quantum attacks. Like literally every single piece of our encryption right now that we are using on a day to day basis, your bank account, like everything, is going to die. It's not going to withstand a quantum attack.

Stephen: Sounds like your uncle's giving you a lot of insight. Sounds like I'm just like sending you the papers.

Lili: But you need to, so that's why we need to keep that research and development and incentivize as much as possible that research and development in the United States. We cannot drive cryptographic research and development out of our country. Like we don't understand how insane that is.

If we drive it out of our country, our adversaries are going to get benefit from this research and development. Not us and we're gonna be left like, oh, you know, what do we do now when North Korea is attacking us, you know?

Stephen: They are heavily, right? They're already doing it without the quantum computing.

Before we go, I want to talk to you quickly. Today is actually the release of your founding member of the Association for Women in Crypto. They're releasing their Unmanal, the panel today. You went through you know, you had a conversation with them on their podcast where you talked about, you know, a VC basically saying to you, like, how can you be this amazing entrepreneur and, you know, be a mother as well?

And, you know, it was shocking, but I think, you know, deep down inside, you probably, like, most VCs are probably looking at me with the same questions. How do you combat that? How do you change the bias? A lot of the listeners here are entrepreneurs, women, men, or VCs themselves. How are we going to change that, you know, the way that, you know, if it's a man entrepreneur, he doesn't have to worry about kids, or, you know, house league soccer, or, you know, taking their son fishing, etc.

How do we change this perspective that a lot of VCs have about women and business and sustainability and growth?

Lili: It's not an easy feat because you have to change many years of biased perspectives based on actual data, right? There's not a lot of tech women entrepreneurs, let's be honest, right? So, so when you look at, when you look at the actual industry and you see, okay, well, There's a very small percentage of very successful entrepreneurs in tech that are female.

So when you're an investor and you're making an investment decision, you are going to look at those statistics and you're going to think, okay, why is that? Is it because women don't want to do this? Is this because women are not wanting to play in this toxic environment? Is it because Women are being biased against, maybe women are not getting the funding because there's biases against women and not being able to be mothers and entrepreneurs at the same time.

So what is it, like, what is it, what is it that's causing these statistics? Because it's not, I don't think it's all about women not having the opportunity. I think, I, you know, I was probably the most unlikely person to get funding. I had zero experience in business. I spent my entire life in public sector.

And I was a solo founder and a female, right? It's, it's like everything against me, everything against me.

Stephen: So you raised, you raised quite a bit of money, 4. 3 million last year, 2023 during what would say is like, it's, it was spring, but it definitely felt like crypto winter.

Lili: Yeah, and I think, I think women need a lot more mentorship as well in order to understand the game and understand what, let's say, investors are looking for when they're investing and evaluating opportunities.

And a lot of the, like the, the female qualities and the way that women don't like to, you know, toot their own horn, for example, and it's, it goes against them because the men do like to toot their own horn, you know, they will give you these crazy projections about how my, how their business will be a unicorn.

And the women are more likely to be like reasonable, you know, but the VCs don't want reasonable. They want. What is like the most amazing thing that can happen to your business, and how are you going to get there? Right? They don't want to say, okay, well, what is reasonable? So that's, that's, that's one of the things I think just women should get more mentorship in order to be more marketable to investors, right?

And not be perceived as as someone that is less likely to make investors money than a male, because women are not less likely. It's actually women. Are more likely to make investors money. The statistics that back this up, you know, in terms of return on investment for, for female entrepreneurs versus male entrepreneurs.

Stephen: That's amazing. Some great insights there. Tell us, you know, we have a couple minutes left. Tell us 2024, what's big for Cat Labs? Features, products, services, or you just, you know, right now you're focused on the release of Cat Recovery. Like what's the focus for you in 2024?

Lili: Yeah, so we just launched our product, Recovery Cat, which is a cryptocurrency asset recovery platform.

And where our main focus is to grow that, add more features make it even more awesome than it is now, which right now it's already awesome. I play with it every day myself because I'm like, I can't believe. We built this, this is, I would die for this when I was in the, when I was in the government doing crypto cases, you know, like give my left arm to have this platform.

So like, I'm, I'm always playing with it. I, I enjoy really talking to customers and getting their feedback about using the tool and getting value out of it. So I'm going to really focus in on that and making sure that we're adding value as much as possible to our customers. Making sure that we are on top of emerging technology as it comes up and emerging technologies in terms of how bad guys are using cryptocurrency, right?

Because they always come up with new techniques. So we have to stay on top of that and we have to integrate that into our tool sets. And then also we have a second vertical where we were talking about cryptography and the importance of working on cryptographic technologies. So we have another product that we're working on, which is in key management and key backup and recovery, which is one of the main.

Vulnerabilities within the crypto industry in terms of how people actually end up getting hacked and losing money. So that platform, we're doing a lot of research and development on that using fully homomorphic encryption. So we're using a cutting edge cryptographic technology to secure private keys, to secure cryptographic assets.

And we're super excited about that, so we're going to put a little bit more focus on that as well going forward.

Stephen: Your uncle's probably getting his resume all ready to join Cat Labs now, eh?

Lili: Oh no, I think he loves his professor job. He's, he's got a very cushy job.

Stephen: Lily, it's been amazing. Thank you so much.

We're going to put all the details in the show notes. And we're going to hope to have you back. We have a ton more to cover. So we're going to hope to have you back on the Around The Coin podcast, maybe in the year and see where you've been, what you've done and how you've grown. Thank you so much for joining us today.

Lili: Thanks so much, Stephen. It's my pleasure.