Defending U.S. Democracy Against Cryptocurrency–Driven Foreign Interference in the 2024 Presidential Election

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ILLICIT EDGE POLICY BRIEF

Sponsored by

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Issue Overview

In recent years, cryptocurrencies have increasingly become a tool for foreign adversaries seeking to undermine democratic processes worldwide. An array of foreign actors is leveraging the decentralized and pseudonymous nature of blockchain networks to bypass traditional financial systems and facilitate malign activities, such as disinformation campaigns, cyberattacks, and electoral interference.

As the 2024 U.S. presidential election approaches, U.S. adversaries may use cryptocurrencies to disrupt voting processes and manipulate the election’s integrity and outcome.

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Key Concerns

1. Foreign Financing of Disinformation and Cyberattacks:

• Cryptocurrencies have been linked to foreign entities, including those from Russia and Iran, in funding activities that could undermine democratic processes. For instance, during the 2020 U.S. presidential election, Russia’s Internet Research Agency (IRA) used cryptocurrencies in campaigns to spread disinformation and sow discord among U.S. voters.

• In 2021, the U.S. Treasury Department sanctioned Iranian actors who used cryptocurrencies to spread false information and fuel divisions within the U.S. electorate. These actors used cryptocurrency to purchase domain names and hosting services, allowing them to evade traditional financial oversight. More recently, the FBI, ODNI, and CISA announced that Iran was behind cyber operations targeting both presidential campaigns during the current election cycle.

• These tactics underscore the ongoing risk of cryptocurrencies being abused to manipulate public opinion and undermine the integrity of U.S. elections.

2. Rise in Ransomware Attacks:

• Ransomware attacks funded through cryptocurrencies have escalated, with the LockBit ransomware group serving as a prominent example. The group is known for targeting entities and demanding payment in Bitcoin, which highlights the broader security risks posed by bad actors who abuse cryptocurrencies.

• Although these attacks may not be directly tied to election interference, they illustrate the potential for cryptocurrencies to fund the disruption of critical infrastructure and to erode public trust in institutions.

• The decentralized and pseudonymous nature of cryptocurrencies can sometimes present challenges for law enforcement. However, given the immutability and transparency of the blockchain, the public sector can leverage an array of Chainalysis solutions to trace transactions and identify perpetrators involved in such attacks and other threat actors.

3. Decentralized Finance (DeFi) Platforms:

• The rapid growth of DeFi platforms, which allow users to transact on-chain without traditional intermediaries, poses new challenges. These platforms have been the subject of attacks and exploits by foreign actors that have resulted in significant funds being transferred to adversaries.

• North Korea, known for its aggressive campaigns of DeFi hacking, has used proceeds from these hacks to fund its weapons of mass destruction and ballistic missiles programs, demonstrating how these platforms can threaten global security.

• The lack of comprehensive regulations and absence of Know Your Customer (KYC) measures on most DeFi platforms further increases the risk of their misuse by malicious actors.

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Policy Recommendations

1. Strengthening Regulatory Frameworks:

• Action Needed: Implement and enforce consistent regulations on cryptocurrency transaction intermediaries.

• Details: Ensure that the scope of existing financial laws, such as the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) provisions, cover all cryptocurrency transactions. New legislation should close any regulatory gaps and provide comprehensive oversight of cryptocurrency platforms that intermediate transactions.

2. Leveraging Advanced Technologies:

• Action Needed: Increase investment in blockchain analytics and artificial intelligence to trace, analyze, and disrupt illicit activities.

• Details: Utilize these technologies to enhance public sector capabilities in tracking and blocking funds involved in foreign interference. Blockchain analytics, which revolves around analyzing on-chain transaction data, is crucial in identifying patterns and tracing illicit fund flows across wallets.

3. Enhancing Public-Private Collaboration:

• Action Needed: Foster stronger partnerships between the U.S. government, the private sector, NGOs, academia, and civil society groups.

• Details: Expand initiatives like the Joint Cyber Defense Collaborative (JCDC) to facilitate real-time intelligence sharing and to develop tools to detect and combat illicit cryptocurrency transactions linked to foreign interference. Involving a broader set of stakeholders will enhance the collective capacity to deter, disrupt, and defend against these threats.

4. Promoting International Cooperation:

• Action Needed: Support global efforts to establish and enforce internationally accepted standards and norms for cryptocurrency regulation.

• Details: Strengthen alliances through participation in multilateral institutions like the Financial Action Task Force to ensure a coordinated international approach to regulating cryptocurrencies and combating their misuse in foreign interference.  Global cooperation is essential to address the cross-border nature of digital currencies and their associated risks.

5. Increasing Public Awareness and Education:

• Action Needed: Launch campaigns to educate the public about the risks associated with illicit cryptocurrency use, including foreign interference.

• Details: An informed electorate is crucial in defending against disinformation and manipulation. Initiatives such as CISA’s Election Protection Toolkit should be promoted to increase public understanding of cryptocurrency’s misuse in elections.

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Conclusion

The crypto nexus to foreign interference in U.S. and global elections continues to evolve. As the 2024 presidential election fast approaches, it is imperative that the U.S. takes comprehensive and proactive measures to protect its democratic institutions. By clarifying regulatory frameworks, expanding public-private and international cooperation, leveraging advanced technologies, and fostering public awareness, the U.S. can effectively counter these digital threats and safeguard its democracy against foreign adversaries.