AUSMIN 2022: technology collaboration for deterrence and disruption
As Australia’s foreign and defence ministers and the US secretaries of state and defence prepare to meet for the annual AUSMIN consultations, next week ASPI will release a volume of essays exploring the policy context and recommending Australian priorities for the talks. This is first of three edited extracts to be published from the volume’s technology chapter, which proposes five key science and technology areas for greater US–Australia collaboration that carry significant national security and defence risks for both countries.
There’s never been a better time for science and technology collaboration between the US and Australia. With the signing of the CHIPS and Science Act in August 2022, the US government put its money where its mouth is by injecting significant funds to counter the rise of China, as both a technological competitor for the US and an adversary seeking to undermine infrastructure and technological standards globally for domestic gain.
The US is keen to retain its leadership, but its critical dependency on semiconductors manufactured in North Asia was exposed during the Covid-19 pandemic. Supply-chain delays caused major impacts across most sectors of the economy, and it’s a challenge that can’t be met by the mighty American technology sector alone.
The act’s timing and its huge financial investment are particularly noteworthy, given that US attention is already split between what’s likely to be a prolonged Russian war in Ukraine, increasing cyber activity and missile testing from North Korea and seeking to prevent a nuclear-armed Iran. There’s plenty here to occupy US and Australian policymakers, but some of the options to address these issues and mitigate their risks could reside in entirely new areas. There are certainly important lessons to learn here as the US and its allies seek to avoid direct military and potentially nuclear conflict, and advanced technology provides some much-needed alternatives in their arsenals.
Australia is a valuable ally for the US in a secure science and technology supply chain. We’re a nation of thinkers and innovators who share the same democratic principles, and we have a long history of being a trusted defence 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 range of areas, including semiconductors; however, this will need to be prioritised, and government and commercial sector alignment will be needed to meet the demand and time frames.
There’s no division between domestic and international borders in cyberspace, and there’s increased blurring of the lines between activities for crime, national security, intelligence and defence. Enforcing 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 for the deterrence and disruption of adversarial nation-states, ahead of traditional military strikes.
One of the most effective weapons the global community has employed against Russia in its war against Ukraine has been financial sanctions and trade controls. Sanctions and Russia’s exclusion from the SWIFT system imposed significant financial costs on its economy, limited its ability to resupply and aid war efforts, and applied targeted pressure to institutions and influential political leaders, separating them from their assets outside Russia. However, the rise of cryptocurrencies and decentralised finance via blockchain technologies currently circumvents those processes. In fact, we’re now witnessing this scenario playing out with North Korea.
The North Korean economy is strongly supported by the cryptocurrency proceeds of hacker activities and cybercrime in the wake of 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 of 2022, exacerbated by the recent collapse of major crypto exchange FTX, has sent the value of that income plummeting, causing North Korea to seek to ramp up cyberattacks to make up for the shortfall.
Non-traditional finance and cryptocurrencies are a dual-use technology: they’ve been a major enabler for global support to Ukrainian war efforts and provide financial safety for people in fragile economies, but they also enable large-scale, state-supported cybercrime and cyberattacks that can undermine national security. Transactions can’t be stopped, funds usually can’t 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 ill-gotten crypto back to fiat currency are controlled by major exchanges that can enact sanctions, if the owner of the account is identifiable. Likewise, the US has also sanctioned ‘mixing’ services such as Tornado Cash, which is software used primarily by the North Korean hacking group Lazarus for laundering the proceeds of cybercrimes. Other new measures to apply the rule of law through code will be needed as investors burned by FTX move to decentralised finance, which is less vulnerable to traditional financial crimes such as fraud and embezzlement.
To date, the liquidity available in the global cryptocurrency markets isn’t sufficient to support national trade. However, last year, the market value of the cryptocurrency economy reached more than US$3 trillion, and crypto-based crime came in at around US$14 billion. Some nations, such as El Salvador, have already adopted cryptocurrencies such as bitcoin as their national currencies, and both Australia and the US are investigating developing their own central bank digital currencies.
The crypto industry should recover from the FTX collapse, if history is anything to go by: this isn’t the first crypto collapse, and it’s certainly not the first case of fraud and bankruptcy in traditional finance, particularly before the strong regulation of the banking sector. If the adoption trends then continue, it’s likely that in the near future Russia would be able to mitigate today’s sanctions and removal from SWIFT by using the cryptocurrency ecosystem.
Western allies urgently need a suite of new capabilities to impose financial costs on international adversaries via the cryptocurrency and digital finance domain, and to pair that with cyber disruption of bad actors. Current efforts are nascent and siloed, and the national security impacts are often underappreciated outside law enforcement. The US administration called for a whole-of-government approach in March 2022, but this is a major international issue in which a coalition of effort will be required.
There’s much the Australian Department of Defence could do to aid this work and grow our own cyber disruption program—the attribution of bad actors in cyberspace by their technologies and behaviours is the bread and butter of the intelligence community. Intelligence needs to be fused with blockchain analytics and real-world events to build a holistic picture of digital activities and identities. That knowledge must then be shared with the operators who can best action it in a way that’s akin to international cyber threat intelligence sharing, but where operations might be legal, economic, commercial, diplomatic or military.
FTX may in fact 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 blockchains. We should develop processes to desensitise and share this information for US and Australian government agencies to provide better options for defence activities, inform crypto regulation efforts and provide better support for existing law enforcement, homeland security and Department of Justice – Attorney-General’s Department operations.