AUSMIN 2022: Technology Cooperation for Deterrence and Disruption

As Australia’s Foreign and Defense Ministers and the US Secretary of State and Defense prepare to meet for the annual AUSMIN consultations, ASPI will next week publish a volume of essays examining the policy context and recommending Australian priorities for the talks . This is an edited excerpt from the collection’s technology chapter, which proposes five key science and technology areas for greater US-Australia cooperation that pose significant national security and defense risks to both countries.

There has never been a better time for US-Australia science and technology collaboration. With the signing of the CHIPS and Science Act in August 2022, the US government threw its money in, injecting significant funds to counter the rise of China, which is both a technological competitor to the US and an adversary trying infrastructure subverting technological standards worldwide for domestic gain.

The US is keen to maintain leadership, but its critical reliance on semiconductors made in North Asia has been exposed during the Covid-19 pandemic. Supply chain delays have had a major impact across most sectors of the economy, and it’s a challenge America’s powerful tech sector cannot handle alone.

The timing of the law and its huge financial investment are particularly noteworthy given that US attention is already split between a likely ongoing Russian war in Ukraine, increased cyber activity and missile testing from North Korea, and attempts to create a nuclear-armed Iran impede. There is much work to do here to keep policymakers in the US and Australia busy, but some of the ways to address these issues and mitigate their risks may lie in entirely new areas. There are certainly important lessons to be learned here, as the US and its allies seek to avoid direct military and possibly nuclear conflict, and advanced technology offers some much-needed alternatives in their arsenals.

Australia is a valuable ally for the US in a secure science and technology supply chain. We are a nation of thinkers and innovators who share the same democratic principles, and we have a long history as a trusted defense partner, contributing unique capabilities and services through the Five Eyes partnership. Australia also possesses the raw materials and rare earth minerals needed to support technology development in a number of areas including semiconductors; However, this needs to be prioritized and will require coordination between government and the commercial sector to meet demand and the timeframe.

In cyberspace, there is no separation between national and international borders, and the boundaries between crime, national security, intelligence and defense activities are increasingly blurred. Forcing artificial divisions that dilute our own approach to transnational technology ecosystems only aids our adversaries.

Avoiding Kinetic Warfare: Sanctions, Cryptocurrencies and Disruption via Blockchain

Financial levers are increasingly effective tools to deter and crush opposing nation-states from traditional military strikes.

One of the most effective weapons used by the world community against Russia in its war against Ukraine has been financial sanctions and trade controls. Sanctions and Russia’s exclusion from the SWIFT system resulted in significant financial costs to its economy, limited its ability to supply and support the war effort, and targeted pressure on institutions and influential political leaders, cutting them off from their assets outside Russia . However, the rise of cryptocurrencies and decentralized finance via blockchain technologies currently circumvents these processes. In fact, we are now witnessing this scenario with North Korea.

North Korea’s economy is heavily supported by cryptocurrency proceeds from hacking activities and cybercrime after years of US-led economic sanctions and Pyongyang’s failure to extort more money from negotiations over its missile testing program. The “crypto winter” market downturn in 2022, exacerbated by the recent collapse of major crypto exchange FTX, has sent the value of those earnings plummeting, prompting North Korea to step up cyberattacks to make up the deficit .

Non-traditional finance and cryptocurrencies are a dual-use technology: they have been a major factor in supporting Ukraine’s war effort globally and provide financial security to people in fragile economies, but they also enable large-scale, state-sponsored cybercrime and cyberattacks affecting the national can undermine security. Transactions cannot be stopped, funds typically cannot be withdrawn, and despite the transparency of the blockchain, it can be extremely difficult to identify and disrupt bad actors.

However, many of the gateways for converting illicit crypto back to fiat are controlled by major exchanges, which can impose sanctions if the account holder is identifiable. Likewise, the US has sanctioned “mixing” services like Tornado Cash, software used primarily by North Korean hacking group Lazarus to launder cybercrime proceeds. More new measures to apply the rule of law through codes will be needed as investors burned by FTX move to decentralized finance that is less vulnerable to traditional financial crimes like fraud and embezzlement.

To date, the liquidity available in the global cryptocurrency markets is insufficient to support national trading. However, over the past year, the market value of the cryptocurrency economy reached more than $3 trillion, and crypto-based crime totaled around $14 billion. Some nations like El Salvador have already adopted cryptocurrencies like Bitcoin as their national currency, and both Australia and the US are exploring developing their own central bank digital currencies.

The crypto industry should bounce back from the FTX meltdown, considering history: this isn’t the first crypto meltdown, and it’s certainly not the first case of fraud and bankruptcy in traditional finance, especially before the heavy regulation of the banking sector. If adoption trends then continue, it is likely that in the near future Russia will be able to mitigate today’s sanctions and removal from SWIFT by leveraging the cryptocurrency ecosystem.

Western allies desperately need a new set of capabilities to impose financial costs on international adversaries via cryptocurrency and digital finance, coupled with cyber disruption from bad actors. Current efforts are nascent and isolated, and the national security implications are often underestimated outside of law enforcement. The US government called for a whole-of-government approach in March 2022, but this is a major international issue that will require a concerted effort.

Much could be done by the Australian Department of Defense to support this work and build our own cyber disruption program – attribution of bad actors in cyberspace based on their technology and behavior is the be-all and end-all of intelligence agencies. Intelligence must be fused with blockchain analytics and real-world events to create a holistic picture of digital activity and identities. This knowledge must then be shared with the operators who can best implement it in a way that is similar to the international exchange of information on cyber threats, but in operations that can be legal, economic, commercial, diplomatic or military.

Indeed, FTX may have given us a golden opportunity to reshape the blockchain ecosystem.

Recommendations: Australia should propose a cooperative initiative to collect and share information to support operations to identify bad actors and block and disrupt their financial activities through blockchains. We should develop processes to desensitize and share this information with US and Australian government agencies to provide better options for defense activities, inform crypto regulatory efforts, and better support existing operations of law enforcement, homeland security, and the Department of Justice – the Attorney General’s Office .

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