Dismantling the Silk Road Drug Ring (w/ Kyle Bass and Kathryn Haun)
KYLE BASS: Well, this one's going to be a fun one, Katie, it's a pleasure to sit down with you in a more formal sense, since we're mostly informal. KATHRYN HAUN: Likewise, Kyle. Thanks for inviting. KYLE BASS: So, for those of you that don't know Katie, she is one of the partners at Andreessen Horowitz. But more importantly, the former US attorney here in San Francisco who prosecuted the Bitcoin Silk Road case. We're going to talk about a lot of interesting things today. And for the Real Vision crowd, I think talking a lot about crypto digital assets will come more at the end. But let's go back to your law school days. And talk about which Supreme Court Justice you clerked for and why, and then how that brought you into working in the US Attorney's office? KATHRYN HAUN: Well, it's funny, Kyle. I wasn't actually planning to be a prosecutor, some people think I'm going to go to law school and go be a corporate M&A lawyer or go into international business or go be a public defender. I didn't really know what I wanted to do. But I knew I wanted to go to law school. And that's something that I had always wanted to do even from the early days. And so, I went to Stanford. And there, I really was focused on going to New York City. And so, I signed up, I took the New York bar. And I was planning to go work at Kravets, which is a big Wall Street firm. And one of the things I realized, though, was that what was really interesting me in law were the human stories and the human element, whether you're talking about things like employment law, or especially criminal law. And ironically, my best grades, were not from the transactional classes, like the corporate law, or the securities and capital markets classes, but from the criminal law, or the constitutional law side of things. So, maybe that was an early sign. KYLE BASS: It was and clearly it's what drew me to you as we developed our friends over time is this you're one of the coolest ladies that I know. You're one of the few people in San Francisco that can carry a gun. You've prosecuted some of the worst MS13 cases as well as, again, the Bitcoin Silk Road case, which I'd love to get into a little bit next. I know that there are movies being made about this and things like that. But if you would, I think this talk, what people are going to find to be most interesting about our conversation is, is how you came from law enforcement on the criminal side into the investment universe into being a partner at one of the most prestigious venture capital firms in the world. KATHRYN HAUN: I was fortunate to clerk for Justice Kennedy. And I remember that he asked me in my interview- I'll never forget, he asked me, what do you want to do when you leave here? What's your fiveyear or 10-year career plan? And I told him, I want to go be a prosecutor. And I knew by that point that I really felt strongly that I wanted to be involved in the criminal justice system in some way. And that was quite a shift from the early days of when I thought I was going to be a corporate lawyer in New York City. And I went to work for a big law firm in Washington, DC. And I told the partner very candidly, my goal here, the partner who hired me, my goal is to really go into the US Attorney's Office. And fortunately, that was a firm called Sidley Austin, they appreciated the transparency and said that it's a tough nut to crack. But if you can get into that office, good for you. And 10 months later, I found myself there. And that was out in the Washington DC area, it was in the Eastern District of Virginia called the Rocket Docket. Because the Rocket Docket, so named because of the pace with which cases go through. And we were doing cartel cases there, a lot of the international work that the DEA was doing. So, that's where I cut my teeth as a baby prosecutor, was in this Rocket Docket. And then I was out, also in headquarters working on some national security cases, and also working in the attorney general's office. But in 2008, so they call it back to the line back, to the line being a prosecutor. So, I had been in some senior roles in headquarters working on national security, and things implicating national policy, and went back to the line of prosecuting cases, which is what I loved. KYLE BASS: And that's when they sent you to San Francisco? KATHRYN HAUN: I actually chose to move out here, mostly for family reasons. And I had been in DC by that point for eight years. Which was a nice long time. KYLE BASS: But you got involved in some really interesting cases really quickly. Somewhere gang-related and somewhere, again, then the Bitcoin case came. And that was a big one. So, if you would take us right into the Bitcoin case. KATHRYN HAUN: Sure. Well, so it was around 2012, late 2012 I think it was, and my boss came into the office. I had been doing murder cases and organized crime and Rico gang murders up until then. Had done a few trials, I did a two-month biker murder case and was felt like I had been there and done that with a lot of violent crime cases. And my boss knew that I really was looking for a change, but I still wanted to stay in the office. And they proposed, why don't you work on this new case that we have in the office? And that's a case against Bitcoin. Here we were in 2012-2013. And we quickly learned there's no such thing as prosecuting Bitcoin, that would be like prosecuting cash, it's not possible. We also quickly discovered it's not desirable. There were some really good things about this new technology also. Instead, what we did was we focused on- we said, let's- just like we do with cash or wires or any medium of exchange, let's focus on the bad uses of this. And that same thing happened in the early days of tech and in the early days of the internet. It wasn't let's prosecute technology, it was like, let's stand up a computer crimes unit within the Justice Department and go after the nefarious cases using this technology. So, that's how we were approaching Bitcoin in those early days. And there were a lot of bad, nefarious uses involving crypto. And in those days, when I say crypto now, I mean crypto assets are there are more than 1500 of them. Back in those days, we're talking really just about Bitcoin. We're talking about Bitcoin, this is pre-TOR. KYLE BASS: And in your mind, what percentage of the transactions that were going on in let's just say Bitcoin early on were done, say, for dark reasons, as opposed to for reasons of commerce? KATHRYN HAUN: In those early days? KYLE BASS: Yeah. KATHRYN HAUN: Well, in the early days, the number of the percentages were way higher. Because the thing we know about criminals is that they're often the earliest adopters of new technology. And we saw this in the internet. KYLE BASS: And they love the anonymity of this one. Yeah. KATHRYN HAUN: They love the anonymity. But it turns out, it's not anonymous, which I'll get into. It's pseudo anonymous, and there's an important distinction there. Because Bitcoin is far from anonymous, if anything, it's like digital breadcrumbs. Speaking as a former investigator and prosecutor, we actually loved cases that involve Bitcoin, way more than cash. And sometimes even more than wires because turns out Bitcoin is highly traceable, which I'll get into, as I tell you a little bit about this story. KYLE BASS: Great. So, what happened? KATHRYN HAUN: So, we're prosecuting some early cases involving criminal uses of Bitcoin. And my colleagues out in New York were prosecuting a case known as the Silk Road. And at that time, no one really knew who was running the Silk Road. The government was really trying to find out who was running the Silk Road, where were the people or person, he or she, it was unknown at the time who it was, was running the Silk Road, and where were they doing it from? Little did they know they were doing it right here from San Francisco. At that time, the mastermind of the Silk Road could have been anywhere in the world. And so, the US government was really trying to find out who was running this criminal enterprise, or depending on your perspective, libertarian paradise. KYLE BASS: So, the Silk Road was essentially a marketplace from the way I understand it. And again, correct me. I'm not an expert in these things. And the marketplace had various nefarious items on it. So, what were some of the things that the Silk Road was purveying? KATHRYN HAUN: Sure, well, you're exactly right, Kyle. It was a marketplace. It was an online marketplace, like an eBay, or an Amazon. But more akin to an eBay. So, there were vendors on this marketplace. And Silk Road was an online platform, and you could access it using TOR, which do you know what TOR is? KYLE BASS: No. KATHRYN HAUN: It stands for The Onion Router, okay. And it's basically a way to anonymously browse online. KYLE BASS: This is the dark web? KATHRYN HAUN: Well, actually, you access parts of the dark web with TOR. TOR is the browser. KYLE BASS: Got it. KATHRYN HAUN: So, think of TOR as the Chrome or Internet Explorer. KYLE BASS: I see, for the dark web? KATHRYN HAUN: For the dark web. Not just for the dark web, like anything with technology, people are also using the TOR browser and places like Iran or China. KYLE BASS: So, dark web? KATHRYN HAUN: Well, there are there are good uses for- all I'm saying is there are good uses for the TOR Browser. There are also a lot of bad uses for the TOR browser. So, like anything with technology, there are good and bad uses. But absolutely, people who are accessing the dark web, which I grant you, are people that are up to no good typically, are accessing the dark websites using TOR browsers. Or a TOR browser. And so, Silk Road was one such online marketplace. And like I say, I always say, was it a criminal enterprise? Being a former prosecutor, I sure think so. Or was it a libertarian paradise? Because I also know a lot of people, especially here in San Francisco, who think it's not a criminal enterprise. Everyone should be able to choose whatever they want to buy. One could go buy anything from heroin to fake passports, and to a lot of things in between. And by the way, Silk Road- KYLE BASS: And they just mail them to your house? KATHRYN HAUN: Yeah. Well, typically, for sophisticated actors or users of Silk Road, they wouldn't pick their house. But there were plenty of people who indeed did select their house. And the Silk Road was making millions of dollars a month. And they had them generating a lot of revenues. And I believe it was I'm trying to remember how exactly the case got opened in New York, but I believe hearing that Senator Schumer read a wired article and was wondering why this was being allowed to proceed. And so, the Southern District of New York, which was another US Attorney's office, I was in the US Attorney's Office out in San Francisco. SDNY opened the case and was trying to figure out who was behind the Silk Road. At the same time, you had a DC office just in Baltimore, outside of DC, also trying to figure out who was running the Silk Road. And there were parallel investigations going in. And the government had taskforces comprised of an alphabet soup of agencies. You're talking about FBI, Secret Service, DEA, ATF, Marshals, on and on. And one task force, the one out of Washington, DC, well, Baltimore in Washington DC, they had an undercover agent. And that undercover agent was able to befriend the person running the Silk Road and all the government knew at the time was that the person running the Silk Road went by the nickname DPR for Dread Pirate Roberts. From the movie The Princess Bride. Yeah. So, they didn't know who DPR was. But the undercover agentKYLE BASS: Struck up an online relationship with him? KATHRYN HAUN: Exactly. He actually said I want to buy the Silk Road. So, struck up an online conversation with DPR, and proceeded for the next two years to engage in messaging conversations with DPR. The two actually became quite close confidantes. KYLE BASS: Interesting. KATHRYN HAUN: Yeah, over two years. KYLE BASS: And then what went wrong? KATHRYN HAUN: Well, a lot of things went wrong on both sides. From the Silk Road's side, 2013 was a really bad year for the Silk Road, because what you had was you had a person, an online persona, who went by the name Death From Above. Death From Above started extorting DPR saying, if you don't pay me hundreds of thousands of dollars in bitcoin, I'm going to reveal your identity to law enforcement. And then meanwhile, there was another online persona, and this person went by the moniker French Maid. I can't make these names out. French Maid was selling DPR information into the government's investigation for Bitcoin. And French Maid was telling DPR the feds are closing in and the end is near. And you're about to be had. KYLE BASS: So, French Maid, in theory had to be someone either married to or was part of the government's investigations. KATHRYN HAUN: Well, DPR didn't know but DPR paid for that information. And the government didn't know any of this at the time of course, this all came out after the fact. But amidst this, something else really bad happenedKYLE BASS: What else happened in 2013? KATHRYN HAUN: About 21,000 bitcoins, which is today, in excess of I always have to do the calculation given how Bitcoin is moving, but it's an excess of 150 million dollars, I think today, went missing overnight from the Silk Road. From Silk Road vendor accounts and also from what you might consider the petty cash account, although there's nothing petty about 21,000 bitcoins. And so, that went missing overnight. And DPR was of course infuriated the next day. He thought he'd been hacked. So, he launched his own internal investigation, and he quickly discovered so he thought his right hand man, the Silk Road administrator was responsible for this theft. KYLE BASS: And it was about 21,000 bitcoins? KATHRYN HAUN: 21,000 bitcoins. So, whatever the figure is today, it's in excess of 100 million dollars. And so, the right hand man, the Silk Road administrator, it turns out, was a grandfather living in Utah, by the name of Curtis Green. And Curtis Green, what DPR didn't know was that Curtis Green, his right hand man, was already cooperating with the feds by this point, with those task forces that I mentioned to you earlier. KYLE BASS: Yeah, the feds had found him. KATHRYN HAUN: The feds had found Curtis Green in what's called a buy bust operation. Where they delivered some keys of coke to his house. There's a wired article story about the bust. And Curtis Green said I'd like to cooperate and spare myself a long sentence, and I can help you with the Silk Road. And so, that's what he did. He sat down with the federal task force, the one I mentioned outside of Baltimore, and he showed them how did the Silk Road work? How do you log into it? How do you reset vendor pins and passwords? Of course, he had that access because he was a key administrator. So, he was showing this federal task force that day, here's how it works. And he even gave them his laptop to keep because it was evidence. So, they had it. And that becomes important to the story later that they had the access. They had the login credentials. KYLE BASS: They actually became an administrator. KATHRYN HAUN: They could have. KYLE BASS: For the Silk Road. KATHRYN HAUN: They certainly could have, they had the tools to do that and the know-how. And what ended up happening was in this 21,000 bitcoins goes missing overnight, DPR looks into it and says, hey, it's Curtis Green's pins and passwords that have allowed this to all be drained. And Curtis Green, therefore, must have committed this theft. And actually, I want to have a hit put out on him. KYLE BASS: So, kill Curtis Green. KATHRYN HAUN: To kill Curtis Green. So, he paid about $80,000 in two installments of $40,000. Interestingly, not in bitcoin, just in a pure old-fashioned wire and guess who he turned to, to do the hit? KYLE BASS: Who? KATHRYN HAUN: The undercover federal agent who had befriended DPR. He had a code name named Nob. That was his cover. KYLE BASS: And that's who he turned to in the murder for hire? KATHRYN HAUN: DPR turned to Nob not knowing Nob was actually an undercover federal agent. DPR thought Nob was actually a drug lord with connections to the criminal underworld. All he knew is the two had only ever conversed online for two years but he clearly trusted Nob, that's who he asked to help him torture and murder Curtis Green. KYLE BASS: Wow. And so, what happened next? KATHRYN HAUN: So, of course, the feds, now, they have Curtis Green cooperating, they confront Curtis Green the next day and say, there's a hit put out on you. And by the way, we know you stole 21,000 bitcoin, you're not going to make a very good cooperating witness if you don't come clean on that. And Curtis Green was insistent he had not stolen the money. He pointed out he had turned over his laptop just the day before to the task force. And he didn't have any way that he could have committed this theft. So, he was insistent. But the feds had to go about staging Curtis Green's murder. And so, they proceeded to take photos, proof of death photos that depicted the torture and murder of Curtis Green. Yeah, they sent this to DPR saying the hit's been done. And Curtis Green's dead, your problem's gone. And we still didn't know thoughKYLE BASS: But did DPR ever think he could get the 21,000 bitcoin back? KATHRYN HAUN: Well, I'm not sure what he thought. In October 2013, DPR, it was discovered who he was. And he was none other than Ross Ulbricht, he was operating the Silk Road. KYLE BASS: What's his name? KATHRYN HAUN: Ross Ulbricht. KYLE BASS: Ross Ulbricht, yeah. He was the kid from Austin, Texas? KATHRYN HAUN: Yeah, that's right. At that time, still a kid. He think he was around 20 something at the time. And my counterparts in New York arrested him out here in San Francisco in the Glen Park library, in the act of running the Silk Road. KYLE BASS: From the library? KATHRYN HAUN: From Glen Clark library. That's right. KYLE BASS: Wow. On his laptop? KATHRYN HAUN: Right. And they needed to catch him in the act, even though they had identified who he was by then, they needed to catch him in the act, because he could have basically hit the equivalent of a kill switch and destroyed a bunch of evidence. Yeah. So, the FBI staged a lover's quarrel in the Glen Park library with two undercover agents posing as boyfriend and girlfriend having a big fight. And this distracted Ross Ulbricht who looked away from his laptop while another FBI agent swooped in and snatched it. KYLE BASS: Amazing. And so, bringing you in, you investigated some good guys gone bad. KATHRYN HAUN: Yeah, that's right. KYLE BASS: So, what happened? And how did the good guys go bad? And what did they do? KATHRYN HAUN: Sure. Well, so I was not actually involved in the Ross Ulbricht prosecution or investigation, as I mentioned, that was my colleagues in New York. But in 2014, I was sitting out here in my office in San Francisco in the US Attorney's Office, and I was talking to a witness in another case, and he pulled me aside and said, I feel like I can trust you and I have a tip for you. And he said, I'm a former investigative reporter. And I know a rat when I see one. And you have a rogue agent on your payroll. KYLE BASS: Wow. KATHRYN HAUN: Yeah. On the government payroll. KYLE BASS: And so, what did you do? KATHRYN HAUN: I thought we're in San Francisco and this place is really full of so many conspiracy theories. So, I took it with a grain of salt. Honestly, Kyle, I thought, I hear all the time being out here how the government is conspiring against everyone. I secretly, I think, rolled my eyes and thought, whatever. It's a shame this guy is smearing a federal agent's good name. KYLE BASS: Right. That would be my defense, too. KATHRYN HAUN: Yeah. Well, look, I had been working with federal agents by that point for a decade. And they're absolutely heroes. 99.999% of the time. And so, coupled with the fact that I was always hearing these conspiracy theories in San Francisco, and there were a lot of them. But this particular individual was really insistent. And like I mentioned, he emphasized that he had been an investigative reporter. And he seemed very insistent. So, I thought, well, we'll look into it. If for no other reason than to clear this person's name. So, we took a high level dive, this is where the blockchain comes in. We took a high level dive- and by the way, it's not a popular thing in a prosecutor's office to openKYLE BASS: Right, to look at one of your own. KATHRYN HAUN: Exactly. And that was why the blockchain was particularly useful to us. KYLE BASS: Because you could follow things. KATHRYN HAUN: You could follow some things. So, we took a high level look into it. And we saw that this agent who we got the tip for- and by the way, the agent was the undercover agent I mentioned who had been investigating the Silk Road. KYLE BASS: Nob? KATHRYN HAUN: Correct. And what we found was that Nob was liquidating hundreds of thousands or even millions of dollars a month in cryptocurrency. And so, I thought of this is probably another undercover operation, poorly backstopped. And there's probably a legitimate explanation. So, but let's look into this a bit further, because that does certainly seem odd. So, we went to some of these exchanges where Nob was liquidating the crypto. And what we found was that he had actually been emailing these exchanges, directing them to destroy evidence, and destroy transaction history. KYLE BASS: As an agent of the government. KATHRYN HAUN: Correct. And that's how we knew something nefarious was probably afoot. Because as an agent, if you're running an undercover operation, you're not asking for evidence to be destroyed. You need that as proof and as evidence later. So, we then, I think, in our minds, thought this is very odd, and in fact, does bear or does merit further investigation. And so, that's what we did. And so, we started looking into it. And then we were comfortable issuing subpoenas, doing some search warrants on some communications facilities. And what we found was evidence of a pattern of really bad behavior. That's to put it mildly, not just vis a vis the Silk Road and DPR, and Ross Ulbricht. KYLE BASS: Right. Other sites. KATHRYN HAUN: Other individuals, early users of cryptocurrency, who probably wouldn't have been the ones to report- I've been the victim of a crime, if you catch my drift. And so, we started uncovering more and more and we started looking at blockchain, the blockchain and we traced back payments from Nob's accounts where he had liquidated this hundreds of thousands and indeed millions of cryptocurrencies. It turns out Nob had been French Maid selling Ross Ulbricht or DPR information into the government's case. KYLE BASS: Oh, I see. KATHRYN HAUN: But that's not all. It turned out also, that Nob had been Death From Above extorting Ross Ulbricht and threatening to reveal his identity to law enforcement if he wasn't paid hundreds of thousands of dollars. KYLE BASS: Oh, my word. So, he created various personas. KATHRYN HAUN: He was a double agent. He's playing both sides the whole time. Ross Ulbricht and DPR are one and the same, and then also the government. Because he's supposed to be finding out who is DPR for the government. So, he was playing both sides the whole time. And so, naturally, we thought, oh, he probably also stole that $150 million or the 21,000 bitcoins. Because he had been handling Curtis Green. And he had access, unique access to Curtis Green's laptop, admin credentials and passwords. And so, he probably also, since he did these other bad thingsKYLE BASS: But was it him? KATHRYN HAUN: Well, so we looked, we found initially, of course, it was him. He had access. KYLE BASS: Right. He had motive, access, all of the above. KATHRYN HAUN: Right. But we traced these payments and the movement of funds of the 21,000 bitcoins and we traced them to a Japanese cryptocurrency exchange the named Mt. Gox that had by then gone belly up. I don't know if you've heard of Mt. Gox. KYLE BASS: Yeah. Mt. Gox was a huge- it was really the big Bitcoin scandal where all of a sudden, so many bitcoins went missing. KATHRYN HAUN: That's right. It was Mt. Gox suffered a series of hacks to the tune of almost $400 million. It also suffered a US government seizure, and eventually went belly up. And so, we traced the 21,000 bitcoins to Mt. Gox, but unfortunately, there were no corporate records left because Mt. Gox had gone belly up. So, what do we do then? And this is where the blockchain comes in, we're able to still trace because the blockchain is immutable and permanent. And it's tamper proof. KYLE BASS: Right. Series of records. KATHRYN HAUN: Right. So, we still were able to go to that and trace those funds. And we traced it eventually, through the hard work of some agents who I was working with at the time, some of the agents who are investigating some of these early cryptocurrency cases, we traced it right back to this one of the Silk Road task forces. But not to Nob. KYLE BASS: What do you mean? Another agent? KATHRYN HAUN: Another agent. This time, a secret service agent who was joint duty to the NSA, and he was the US government's literally expert in TOR and anonymizing technologies. He had also been part of that task force. And he had also been in that session with Curtis Green, where Curtis Green showed him how to log in. And that agent, that night, went back to his hotel room after the Curtis Green debrief and pretended to be Curtis Green and drawing the 21,000 bitcoins and put it into his own Mt. Gox account. And meanwhile, knowing the next day that there had been a hit put out on Curtis Green. And literally thought he was setting up Curtis Green to be the fall guy. KYLE BASS: Oh, my gosh. And never to be caught. KATHRYN HAUN: Never to be caught because he was a real specialist at covering his tracks. Both of these agents were. These guys had been in federal law enforcement, they knew how criminals got caught. They knew how to cover their tracks. And also, don't forget, Kyle, at the time of this investigation, they were federal agents with guns and badges. And they also had subpoena power. And so, these guys did everything from burned evidence and burned bags in official government burn bags to go to different cryptocurrency exchanges with their badges saying delete this evidence, and to banks, by the way. And they even, in the case of Nob, even issued fictitious Justice Department subpoenas directing certain activity be done to cover their tracks. KYLE BASS: Let's move from the Bitcoin Silk Road case. Let's talk about how you decided to make that transition from a prosecutor- an amazing prosecutor to the investment world. And what drove you there? KATHRYN HAUN: Yeah. Well, I don't know that it was really anything that drove me there. I made the decision after having been a federal prosecutor for over a decade that it's probably time for me to move on to something else. My earliest supervisor in the Eastern District of Virginia, in that Rocket Docket, I remember him telling me in the beginning, a good prosecutor has a shelf life of seven to 10 years. And I'll never forget that. And I think that's true. It's like that sweet spot where you've learned how to do things and make cases and bring the right and the good cases really well. But then also, it's time to move on and give someone else an opportunity to do these cases. And so, I knew when I was giving away federal murder trials to other prosecutors in the office that my time had come to go do something else. And moreover, there was this new space, crypto, I found it very fascinating. And look, we're in this jurisdiction where there's so much happening in the technology world. I'm out here in Silicon Valley. And I felt like two things. One, I felt like I had done everything I wanted to do as a prosecutor, and two, there's this whole other world of technology and cyber security and crypto. And I found that so fascinating. KYLE BASS: And you're already living where the digital Gold Rush was. KATHRYN HAUN: Right, exactly. And so, increasingly, and by the way, as part of my job when I was an assistant US Attorney in the San Francisco office, I became our first digital assets coordinator. And part of that job, it wasn't just to go prosecute the bad case, the bad uses of cryptocurrency, it was also to create a task force to be a liaison from legitimate players in the industry and build bridges to policymakers, regulators, and try and bring the two sides together. KYLE BASS: Right, somebody had to. KATHRYN HAUN: Right, to usher this forward. KYLE BASS: Yeah. And you still hold that seat today, you're bringing the regulatory supervisory world into meet with the good guys on the investing side and bring them closer together. Because historically, there's been this wall, that virtual wall that really shouldn't exist. KATHRYN HAUN: Yeah, I find it's not even just with the regulators and policymakers. It's even with mainstream traditional players in financial institutions or Wall Street. And I think that the way the technologists that I know, particularly in the crypto space, but just across a variety of technologies, think about this technology like crypto and the way that policymakers or regulators or even Wall Street and some traditional financial institutions think about this technology are very different. And there's a real need to bridge that gap. And so, that's what I'm trying to do now. And I started that with vis a vis the policymakers and regulators when I was still in the US Attorney's Office. And so, through that work, I got to know more and more of what I'll just call them the legitimate players in the industry. And there are many, and that number is growing. And those guys and gals, they don't want nefarious activity on their platforms. Not only is it illegal, but it's also bad for business. And so, they are very much incentivized to follow the law and follow regulations, they just would tell you, we don't know what laws and regulations apply to us, which I think is a fair criticism. There's been a lot of regulatory uncertainty, particularly in this space. And so, it was time for me to go from the government. And yet there's this whole other world I wanted to dive deeper into. And so, I was very fortunate. In May, two years ago, I joined the board of directors of Coinbase, which is one of the world's leading digital asset platforms. And so, I joined that board. And there, I met my now partner, Chris Dixon. And I also, through that work, met a variety of other venture capital firms, but also met Ben Horowitz and Marc Andreessen of Andreessen Horowitz. And so, got to know them while I was serving on the board of one of their portfolio companies, Coinbase. I also joined the board of another of a cyber security company called Hacker One, which is a bug bounty white hat hacking platform. And again, this is I think, Hacker One is a great example of, you think of hackers sometimes and you think of like black hat hackers, and this image of people doing bad, but actually white hat hackers are some of our best defenses against the black hat hackers. KYLE BASS: Absolutely. So, you moved through the US Attorney's Office, in your core competencies and brought those to the investing side, the corporate side from the board perspective, and then the investing side on how you think about these things going forward. And I think everyone watching is going to be most interested now in understanding how you're thinking about where there are opportunities to invest? Where are you, more broadly speaking, where do you think this opportunity is in the next 10 years, since you guys invest on a long term time horizon here? What types of things are you looking at? KATHRYN HAUN: Yeah, so I think, let me break it down in two big categories. And we'll talk about each separately. One is what I would call a category of literally internet money. We've had this internet of information. The internet has connected billions of people around the world through information. But the thing that we don't have, and that we've been missing is the internet of value. Why is it that today, if you're over in India, I could send you an email with contents instantly? I could send you a photograph from here to there instantly, but I couldn't send you value. And so, I think that's one big category, it's the internet of value, and internet money, which we'll talk about in a second. The other way that we're thinking about this is it's a new computing platform. So, what you see in the history of technology is about every 10 to 15 years, there's some new computing platforms that emerges like we have PCs, and then we had the internet. And then we had mobile. And now, we think of crypto as a new computing platform, like totally a part of the currency side of things. And this is a discussion I know you and I've had. It's not just currency. KYLE BASS: This is where our debate's going to get more lively. KATHRYN HAUN: Okay, so we think of this as a new computing platform. And what you will often see with new computing platforms is you often see people thinking at the new, wait a second, this isn't even better than the old, this is worse than the old. Like in the case of mobile, when mobile phone came out, people thought why would I want- or some thought, why would I want a smaller screen than my PC? Why would I want a tiny little keyboard like this when I have a regular keyboard? But what you get with these new computing platforms is new features. And so, in the case of mobile, what you had that the old platform didn't have is you had GPS built in, you had a camera built in. And that enabled things to be built on top that we couldn't have even imagined at the time, the new platform came out like Lyft, or Uber, Instagram, and all of these new applications that are built on the new computing platform. And so, in much the same way, we think of crypto as a new platform, a new decentralized platform that decentralized apps- or they're called DApps. And I think that's a term you're going to be hearing and your viewers are going to be hearing a lot in the coming decade. DApps, decentralized applications. And the thing about DApps is they can be built at scale by anyone all around the world. And there's some interesting overlays with crypto about incentivizing content creators and creators of these applications, that they're able to monetize for what they're creating, building in ways that they previously weren't with just pure applications, not DApps, but apps, where they're paying huge profit margin to some of the platforms that they're on now. KYLE BASS: Right, they're giving away a third their value if they have to sit on top of the current platform. KATHRYN HAUN: That's right for and by the way, it's not just the value. Can I also tell you, it's also the platform risk? If one of these platforms decides they don't want to service that anymore, they just simply turn you off. So, we were seeing a lot of de-platforming now. And it's not just that, they write the rules. A few big giants really write the rules for everyone else. And so, we think in this wave of decentralized apps or DApps, thatKYLE BASS: You don't have to have a boss. KATHRYN HAUN: Right. Now, we're in the early days. And I think this is a debate that we've had before and that I have with many people all the time. And I think it's really important not to judge the current state of innovation with the end state of innovation, because you could tell me right now, Genki, it doesn't work. And I'll agree with you. We're not there yet. KYLE BASS: I'd actually like to rewind and talk about- let's talk about crypto assets. And so, we separate crypto from blockchain, crypto from digital assets to a certain extent and we talked about this idea of does scarcity equal value? And can you transfer value like the example you gave for India, from here to India or here to a different location and around the world? Should we be able to transfer value without know your customer rules? Without Federal Reserve wires or without Federal Reserve oversight, should you and I be able to transfer value somewhere unchecked? And when we think about you mentioned- much earlier in our conversation, libertarian paradise when I speak with people in the crypto community and people in the highest echelons of this community that were early adopters, and are extremely wealthy today, I hear a little bit more than libertarian out of them when I talk to them. I get, after half an hour and maybe a glass of whiskey or two, I get to this point where I hear anarchy, I hear a little bit of we don't need any government. We don't need anyone looking over our shoulder. And where do you fit in that argument? Or let's say where's your own opinion? KATHRYN HAUN: Yeah. Well, I'm certainly not an anarchist. And I think that there's a segment of that, of course, in crypto, there's a segment of that in all kinds of new platforms that comes up. So, I think that crypto is really no exception, although it is pronounced, I would give you that, in the crypto space. But look, I worked for the feds for 12 years. So, I'm not an anarchist. I think there's a rightful and a legitimate place for government. I think it can do a lot of good. I think what you see in this space is people and legitimate players, of which there are many, and the number is growing literally by the day, do not say we don't want any regulation at all, they just say we want to know number one, who is the regulator. Because right now, it's a bit of a free for all. And we want to know what regulations apply to us. And we will follow them. What they can't tolerate and what's just impractical as you build a business, in any business, can you imagine, as you're doing a startup and you have some innovative product that you are told, well, we have 50 different regulators, we don't know which one might or might not regulate you. And by the way, none of them really know which of their regulations apply to you. KYLE BASS: It's like living in San Francisco. KATHRYN HAUN: It's actually worse than that. And so, what they want is it's not that they want no regulation and no government, I think what they want is they want some regulatory clarity. And you look to places like Singapore and you look to places like the UK, who has this a single financial regulator with the FCA. They have this new Sandbox for financial innovation. And they've really made a push to be the FinTech hub of the world. And what we see, unfortunately, is we're seeing more and more projects moving overseas. They're like, well, I can go apply for a Sandbox, I know I have a single regulator. So, that's not someone looking skirt our laws. KYLE BASS: That's always been one in the strength. They've always been maybe a financial clearinghouse for the world, much more than the US because, yeah, truthfully, they have laws that aren't as stringent as ours. KATHRYN HAUN: That's right. But on the other hand, the crypto entrepreneurs know what the laws are. KYLE BASS: I see. Is that going to happen here? KATHRYN HAUN: Well, so one of the things that is increasingly happening is we're seeing agencies like the CFTC. So, one of the big questions in the crypto space is, I'll give you a great example. Is it SEC, is it the CFTC? KYLE BASS: It's a land grab from a regulator's perspective. They all like to be functionally relevant. KATHRYN HAUN: That's right. But then what you have with crypto is you have this new asset class that may be at one time, something's a security, but then it changes over time to a commodity. And at what point does that happen? And who regulates it? Where's the handoff? Is there a handoff? So, I would push back on the assumption that people in the crypto space don't want to follow laws and don't want to follow regulations. I think they just want to know which laws are relevant. And that's something I'm trying to help with now. And try and be part of these conversations. KYLE BASS: Yeah. Well, the bigger question for me, as I know, you and I have discussed is what happens to the global financial order if it becomes decentralized? And I mean that in a way that- we know the Swift system is designed, it's based in Belgium for a reason. It's where all financial wires go through. And it's how the US Treasury exercises its, let's call it its third arrow, and its quiver, the big one, when we as a country or other European block nations implement sanctions on bad actors, our last move is just cancel, take them off the Swift system, means they can't move money around the world outside of shrink wrap pallets of hundred dollar bills. KATHRYN HAUN: Sure, like with Treasury regulations. KYLE BASS: Yeah, which we're doing now on various bad actors in Iran and other places. So, when I think about decentralized or I think about crypto, I wonder how in a rules based order, it actually can coexist with governments that are actually functioning democracies? KATHRYN HAUN: Sure. Well, so it's great question. And it's something I spend a lot of time thinking about, like, what does the world look like where you have complete- and we don't have it yet. We're in the dial up days of all of this technology. So, when I talk about complete decentralization, I don't mean to suggest that we're there. But I do think that's coming. And I'll get to that. To answer your question, Kyle, look, I think you mentioned Swift, and that's a great example. The problem with Swift is the problem with any centralized system, there's a single point of failure, which can be good for regulation, what you're talking about, if it's appropriately exercised, government authorities appropriately exercised using discretion. However, the problem with a centralized system is it's a single point of failure. And Swift is a great example because Swift was hacked. And where we live in a world of daily cyber breaches, centralized systems are huge targets and huge honey pots. So, I think that's one problem with centralized systems, which decentralization is indifferent, is obviously an alternative to that. But also, when you talk about Treasury sanctions, whether you're talking about FinCEN, 311 or OFAC sanctions, it's a great question, should people just be able to move value around. And look, I would say, our current system, anti-money laundering laws are critically important. I can tell you that as having been a money laundering prosecutor for 10 years. Of course, I care about that. And you need the ability to follow funds in certain cases. But actually, our current system is just doing a pretty terrible job of it I'd say. Let me tell you what I mean, 99.9% of all money laundering crimes go unprosecuted. 99.9%. And you can go Google that statistic. I testified before the US Senate about this. And the person who cited that statistic other than Senator Chuck Grassley, was the ex-Treasury official. And I thought that can't be right. KYLE BASS: He was in charge. Yeah. KATHRYN HAUN: But I indeed, I researched into it and it's true. Go look it up now. 99.9% of money laundering crimes go unprosecuted. Yet, financial services industry is spending $20 billion a year on AML and KYC. So, I would ask you, is it even working? I don't think it's working right now. So, the moving to a decentralized system I think is really, I think we're kidding ourselves if we think that's going to change too much. I do think there is need to follow large amounts of money. And crypto will make that hard as we move to a peer to peer system. Perhaps there could be some limits on when the amount is over a certain amount of crypto asset. I don't know what the right answer is. But I know that the technology is here, and the genie is out of the bottle. So, say, oh, this is bad. And peer to peer transmission is going to subvert important terrorist financing rules, I would ask you, first of all, are we sure we're really catching those things now? The fact of the matter is terrorist attacks that we're seeing now are committed usually with things like guns or trucks. They're not sophisticated operations that cost a few thousand dollars. Those folks are using cash, or they're using prepaid cards, or systems like that. They're not exactly doing it in a traceable way. KYLE BASS: I don't know. Well, look, ISIS had $2 billion, they still have three, $400 million. And I think it's a widely known secret that it's all in Turkey in the Turkish banks, and it's run by technically legitimate businessmen who decide to launder money. And it's hard to decipher when you're running a business that actually is legitimate and if you're giving that to terrorists, it's really hard to catch. KATHRYN HAUN: Sure. But I would say that's hard to catch now. KYLE BASS: No, I agree. I'm just saying that if the US is looking to sanction bad actors, and let's just say bad sovereign actors, and people within those sovereigns, we can actually stop it today. Or let's say- stop it, we can actually make it really difficult for them to move substantial amounts of capital anywhere or do business with US banks. Or Western banks. KATHRYN HAUN: When they're traced, and when they're caught, I agree that that is true. But I would also say, at what cost you do that? You have 2 billion people in the world today who don't have a bank account, who have zero access to financial services. They can't pay for things easily. And aside from paying for things or storing value, they also are not able to do basic things like get a loan. And so, you've got 2 billionKYLE BASS: This is the idea from mobile banking. KATHRYN HAUN: Sure. And you've got 2 billion people with no access to it. What mobile banking implies you have a bank account. So, crypto really offers 2 billion people the ability to accessKYLE BASS: They're positive things. Crypto in Argentina, crypto in Venezuela and these countries that have the sovereigns really blown, either politically, or financially or both. KATHRYN HAUN: Yeah. Hyperinflation economies. KYLE BASS: Yeah, it's been a way for people to actually save the store of value of their savings instead of let some rogue government basically light it on fire. And so by the way, maybe I haven't even told you this. Now, I'm a shareholder of a crypto company. KATHRYN HAUN: You did mention that. KYLE BASS: I came in kicking and screaming through an acquisition. But now I'm rooting for it in its totality. And I've just sat on the sidelines all along because I have to see a logical, regulated, positive use for this asset class for me to jump in with my assets. But those early pioneers, again, these are the people that just went west for the gold rush. They made fortunes. I wasn't in that tip of the spear, I'm waiting for it to settle down and figure out how to properly operate it in an environment where there is a regulator, where there is a CFTC, or the SEC, or the Fed, or whoever the regulator is going to be. I actually believe that these assets will be something, there'll be some asset that actually holds this store of value and medium of exchange. KATHRYN HAUN: Right. And so, you have those assets and things need to be solved for that to happen too by the way. I mean you talked about Venezuela, there's no denying that crypto prices have been all over. They are volatile so far. Once upon a time, gold also experienced quite a bit of volatility as you know, particularly in the '70s, it lost 30% of its value in a very short timeframe. And so, right now, as a medium of exchange, crypto hasn't yet achieved its full promise or even, frankly, even close to it because of the volatility. KYLE BASS: It won't until volatility comes down. KATHRYN HAUN: And that's where things like staple coins come into play. You have USDC as a good example, where for every dollar of USDC have an actual dollar in a bank somewhere. That's one model of staple coins, fiat backed, there are also algorithmic staple coins, which is essentially, and this gets really blow your mind complicated, but it's essentially a smart contract that adjusts what the collateral is backing the staple coin. And so, this is a whole other variety of staple coins that we have. And so, there are fiat backed but then there are also crypto asset backed. And so, there is some collateral backing it, but it's all controlled by this autonomous self-executing smart contract. KYLE BASS: Dear Lord. KATHRYN HAUN: Very complicated. KYLE BASS: So, you guys are on the forefront of I think a new industry, a new asset class, something that's, I think, mathematically and intellectually so fascinating. And then practically, to interface with the old world, there are going to be frictions that continue. And let's hope that the bad actors get taken out of this space and that I think this space is going to grow like crazy with or without additional deep regulation. But I think knowing you and knowing what you guys are doing is, it's been fun, and I really appreciate you taking the time to sit and talk about these things. I think people are going to find it to be fascinating.