As Australia’s foreign and defense ministers and the US secretaries of state and defense prepare to meet at AUSMIN’s annual consultations, next week ASPI will publish a volume of essays exploring the political context and recommending Australian priorities for the talks. This is an edited excerpt from the technology chapter of the collection, which proposes five key science and technology areas for further US-Australia collaboration that carry significant defense and national security risks for both countries.
There has never been a better time for science and technology collaboration between the US and Australia. With the signing of the Science and CHIPS Act in August 2022, the US government put its money where its mouth is by injecting significant funds to counter the rise of China, both as a technology competitor to the US and as a technology competitor to the US. US as an adversary seeking to undermine global technology infrastructure and standards for domestic gain.
The United States wants to retain its leadership, but its critical reliance on semiconductors made in North Asia has been exposed during the Covid-19 pandemic. Supply chain delays have had major impacts on most sectors of the economy, and it is a challenge that the mighty American tech sector cannot meet alone.
The timing of the act and its massive financial investment are particularly noteworthy given that US attention is already torn between what is likely to be a protracted Russian war in Ukraine, increased cyber activity and missile tests. of North Korea and the quest to prevent a nuclear-armed Iran. There is plenty here to occupy US and Australian policymakers, but some of the options for addressing these issues and mitigating their risks could 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 potentially nuclear conflict, and advanced technology provides some much-needed alternatives to their arsenals.
Australia is a valued ally to 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 of being a trusted defense partner providing unique capabilities and services through the Five Eyes partnership. Australia also possesses the rare earth minerals and raw materials needed to support technological development in a variety of areas, including semiconductors; however, this will need to be prioritized, and government and commercial sector alignment will be necessary to meet demand and timelines.
There is no division between national and international borders in cyberspace, and the lines between activities related to crime, national security, intelligence and defense are increasingly blurred. Imposing artificial divisions that dilute our own approach to transnational tech ecosystems only helps our adversaries.
Avoiding Kinetic Warfare: Sanctions, Cryptocurrency, and Disruption via Blockchain
Financial levers are increasingly effective tools for deterrence and disruption of adversary nation-states, prior to traditional military strikes.
One of the most effective weapons the global community has used against Russia in its war against Ukraine has been financial sanctions and trade controls. The sanctions and Russia’s exclusion from the SWIFT system imposed significant financial costs on its economy, limited its ability to resupply and assist in the war efforts, and applied targeted pressure to influential political leaders and institutions, cutting them off from their assets outside of Russia. However, the rise of cryptocurrencies and decentralized finance through blockchain technologies currently eludes those processes. In fact, we are now witnessing this scenario with North Korea.
North Korea’s economy is heavily supported by cryptocurrency revenues from hacker activities and cybercrime in the wake of years of US-led economic sanctions and Pyongyang’s failure to get more money from negotiations over its missile test program. The ‘crypto winter’ market downturn of 2022, exacerbated by the recent collapse of major cryptocurrency exchange FTX, has caused the value of those revenues to plummet, prompting North Korea to try to increase cyberattacks to offset the deficit.
Nontraditional finance and cryptocurrency are a dual-use technology: they have been a major enabler for global support for Ukraine’s war efforts and provide financial security for people in fragile economies, but also enable large-scale cybercrime. state-backed security and cyberattacks that can undermine national security. Transactions cannot be stopped, funds generally cannot be recovered, 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 illicitly obtained cryptocurrency into fiat currency are controlled by major exchanges that can impose penalties if the account owner can be identified. Similarly, the US has also sanctioned ‘scrambling’ services such as Tornado Cash, which is software used primarily by the North Korean hacking group Lazarus to launder the proceeds of cybercrime. Other new measures to enforce the rule of law through code will be needed as investors burned by FTX move towards decentralized finance, which is less vulnerable to traditional financial crimes such as fraud and embezzlement.
To date, the liquidity available in the global cryptocurrency markets is not sufficient to support domestic trade. However, last year, the market value of the cryptocurrency economy reached more than US$3 trillion, and cryptocurrency-based crime amounted to around US$14 billion. Some nations, such as El Salvador, have already adopted cryptocurrencies like bitcoin as their national currencies, and both Australia and the US are looking into developing their own central bank digital currencies.
The cryptocurrency industry should recover from the FTX crash, if history is any guide: this is not the first cryptocurrency crash, and certainly not the first case of fraud and bankruptcy in traditional finance, particularly before the strong banking regulation. sector. If adoption trends continue, it is likely that in the near future Russia will be able to mitigate the current sanctions and removal of SWIFT by using the cryptocurrency ecosystem.
Western allies urgently need a set of new capabilities to impose financial costs on international adversaries through the dominance of cryptocurrency and digital finance, and combine that with cyber disruption from bad actors. Current efforts are nascent and isolated, and the national security impacts are often underestimated outside of law enforcement. The US administration called for a whole-of-government approach in March 2022, but this is a major international issue that will require a coalition of efforts.
There is much that the Australian Department of Defense could do to assist in this work and to grow our own cyber disruption programme: attribution of bad actors in cyberspace for their technologies and behaviors is the bread and butter of the intelligence community. . Intelligence must be merged with blockchain analytics and real world events to create a holistic picture of digital identities and activities. That knowledge must then be shared with operators who may best act in a manner similar to international cyber threat intelligence sharing, but where the operations may be legal, economic, commercial, diplomatic, or military.
FTX, in fact, may have given us a golden opportunity to reshape the blockchain ecosystem.
Recommendations: Australia should propose a collaborative initiative to build and share intelligence to support operations to identify bad actors and block and disrupt their financial activities through blockchain. We should develop processes to desensitize and share this information for US and Australian government agencies to provide better options for defense activities, inform crypto-regulatory efforts, and better support existing law enforcement operations, homeland security and Department of Justice – Department of the Attorney General.