The dangers of our rapidly narrowing understanding of China

Danny Crichton:

Hey, it's Danny Crichton and this is the Riskgaming Podcast by Lux Capital. My guest today, Randall Phillips once helped one of the most challenging jobs in espionage, Chief CIA representative in China. Across the nearly three-decade career in the agency's Directorate of Operations, he witnessed espionage up close and how fast it shifted as the pace of technological change accelerated. Today though, we are focused on his work around China and specifically the narrowing space for information on one of the world's most important countries. Under President Xi Jinping, the once semi-open country has increasingly locked down information on all aspects of its government, economy and society, putting databases behind strict firewalls and frustrating the efforts of private due diligence firms from understanding what's really going on on the ground. We talk about that as well as the recent Department of Justice indictment against the Sinaloa drug cartel and underground Chinese money launderers.

We then cover the Fentanyl crisis, the challenges of operating on the mainland at CIA, and finally what the prognosis is for China's economy in the years ahead. That's a lot. So let's dive in with Randall and get the show underway. So Randall, I mean the reason we're talking today is a couple of weeks ago the Department of Justice put out a superseding indictment against a group of individuals and it was focused on transnational crime and specifically Chinese money flowing into the drug trade across Latin America, across the United States, and in this triangular trade. It's been covered not just by this indictment but in The New Yorker and a variety of other publications. And just given your background in the financial world and due diligence, just set the tone a little bit for us, set the scene of what's going on here and why are we suddenly prosecuting people in multiple countries and these massive networks of crime.

Randal Phillips:

Certainly, I think like anything else, the old adage of, I forget which criminal back in the '30s it was of why do you rob banks? Because that's where the money is. Right now, there's just so much money flowing into Mexico, not only on the drug trades, Central America as a whole, but through Mexico, which in and of itself is a draw, but also with the supply chain movements that Mexico is now booming in terms of investment from China but elsewhere. So between those things, you've got lots of opportunity for those elements that see an opportunity to profit off of that and they're clearly doing it.

Danny Crichton:

And one of the things that I think is interesting here is you emphasize trade, and I was reading a New Yorker piece earlier in the year and it was really focused around Peru, Chile and a lot of the harbors and ports that are going on on the west side of Latin America and these countries are now, in most cases, China's the number one trade partner. There's a lot of activity going back and forth. Most of that's legal and totally fine, but that also offers and affords opportunities for the nefarious activities that are taking place as well.

Randal Phillips:

Absolutely. Now you mentioned ports. That is something that has gotten a lot of attention from people, not only on the trade front but on the security front. Certainly in the US there are a number of Chinese companies or China-linked companies as in out of Hong Kong that have invested in port facilities all over the world to the point where China is by far the leading investor in ports and has controlling interest in ports in many places around the world you would probably never expect, and it has sometimes manifests itself in concerns over a port facility near maybe a US military base, somewhere overseas to something like this is probably 15 years ago now, Long Beach, California, obviously a major, major Port.

China was looking to be a major investor there and sometimes that would turn into a syphilis-related security review. But the whole port issue is one that clearly if you're looking at, especially coming from China, but that foreign investment in facilities that would allow if not supervise or regulate it appropriately allow for this type of transnational activity to take place. It certainly is there for the taking. So I think that's a really good place to start in this whole issue.

Danny Crichton:

And I will say as a side note, I first became aware of syphilis in middle school during the Dubai ports world controversy. I think it was around '05, '06.

Randal Phillips:

Exactly.

Danny Crichton:

I was looking to buy, and that's when I found out about syphilis and no middle schooler should probably understand-

Randal Phillips:

It's pretty impressive. Yeah.

Danny Crichton:

It's one of those was super interesting at the time, et cetera. Obviously advanced in age have not invest I think in my understanding of syphilis any more than anyone else has. But to your point, I mean these ports offer all these hubs and nodes of activity. Places where you can trade, places where you can using subterfuge, get things across the border. And one of the things I think is most interesting here is obviously fentanyl has been a political issue in the United States for at least a decade going back to 2015, 2014, it's gone through the Trump administration, it's gone through the Biden administration. It's still a massive issue. It shows up in the 2024 election right now. China is, at least for the precursors, I think somewhere in the range of 80 to 95% of the precursors for fentanyl come from one country, and yet it still has not been solved. Why do you think that is despite all of the diplomatic pressure, bipartisan efforts across the board of the United States?

Randal Phillips:

Well, it's above several minds of this issue. Certainly this has been something, the pressure has been building on China for quite some time now, the last several years at least, and certainly at the San Francisco meeting between President Biden and President Xi. That was a leading issue to make sure that they understood the sensitivity of this issue and the priority that we gave it and to have them do something. Now, this is where in China we oftentimes think of this monolithic all controlling center that everywhere downstream has to abide by its ruling. It still doesn't exactly run that way. Certainly the center very capable of imposing its will when it really feels like it needs to. But oftentimes there are things that happen below the central level that central doesn't know about or chooses to ignore. And a lot of things can go on that. Even if the central government is not supportive, there's a looseness of the way in which China is governed in that respect that could offer some opportunities.

Now, that's where the importance of the Xi-Biden meeting was, was to try to energize at the Xi Jinping level of, hey, this is a key core issue in US-China relations. If you really want to try to ease up the rivalry, the issues of concern, we need some action on this. Now, as you noted, China is a probably 85, 90% producer of the ingredients that go into fentanyl just as they are with a number of precursor chemicals across the board. And so controlling that, it's not that there are just one or two or three companies producing that material, there are dozens. And so it's still a problem that if enough concerted pressure comes from Beijing to do something about it, there ought to be something that can be done and we're beginning to see at least some initial signs that they're at least making some steps towards taking action on that.

But it's not the kind of concerted action that certainly the US government would like to see. And I just close on saying, now my experience over years, whether in the intelligence world or beyond, was that frankly, I think there's a little bit of karma coming back to bite you when it comes to China with the opium wars of the 19th century. Now Westerners imposed opium on China, there's a certain line of thinking in China of, hey, if you want the drug traffic in the US, this is a little bit of a payback in a sense. So I don't think there's a great desire part of the Chinese leadership to solve the problem for the US. They'll certainly take steps if they feel like it's in their best interest at that moment in time in bilateral, multilateral relations, but in a sense, there's not a huge desire there on China's part to solve this problem.

Danny Crichton:

One of the questions I have for you, I mean you've had decades of experience in this region. When I look at China, particularly around the financial services industry, it went from the wild west in the '90s. You had the reform and opening period in the '80s. You had this rapidly growing fast, very little regulated banking and financial services in the '90s. And then over the last couple of years under Xi Jinping, you've seen this clampdown of not just the traditional financial services industry but basically a complete shutdown of cryptocurrency. You've seen this rise of digital UN over the last couple of years and there's been a couple of announcements even in the last couple of weeks.

It seems to me like the government is trying to centralize and control the money at all different levels of government. So whether it's Alipay and WePay, et cetera, all the way up to between banks as well, there's a goal of having the CCP in the middle of all that. Is that effective? Is that in any way a control for some of this money laundering that's going overseas or are they, parallel systems going on right here?

Randal Phillips:

Well, at least for the time being, it's more or less parallel systems. I mean the CCP has always been concerned about any other power center developing that is outside of its purview for a variety of reasons. And certainly in finance that would be a key area where they wouldn't want to see, for example, an Alipay that becomes a dominant player and not necessarily operating at the behest of the CCP. So that's certainly at play. And so you've also seen, I think in China's efforts to lessen its dependence on the dollar and internationalize the renminbi, a desire to move away from the dollar and find a way that they could take advantage of the digital currency growth.

And creating the digital UN was a part of doing two things at once, trying to keep control through the central bank of that digital currency and force people to use that but also make that as part of its internationalization of renminbi. And if they can get that to become a key part of finance in and through China, that would be very helpful to their overall goals. And so far it may be not moving at the speed that they would ultimately like it to be, but it is growing and I think so far I think they would consider it a success.

Danny Crichton:

Interesting. So you think it's on the road to success?

Randal Phillips:

I think it's certainly, if you look at... I mean, starting from a very low base.

Danny Crichton:

Of course, yeah.

Randal Phillips:

The amount of trade transactions in the renminbi I think a couple of years ago was maybe one and a half, 2%. I think now it's at five, but it's the upward trajectory here. And certainly the Ukraine war has helped just given what's going on, certainly between China and Russia, but also beyond that where now you have a lot of countries that are much more willing to trade in the renminbi or certainly even in Bitcoin or digital currency that you didn't have before. So I think those numbers, they may plateau or they may continue to grow, but they were certainly, I think they have reason to believe that next year would be better than this year.

Danny Crichton:

And obviously a lot of countries who trade in renminbi are doing it almost because they have no other choice. So Russia, because of sanctions, Iran, North Korea don't have access to traditional western banking services. And so renminbi is an alternative that allows them to trade and in many cases get the resources, namely oil from Iran and Russia that you need to power those economies. But on the flip side, the concern has always been around renminbi, around currency controls that the central bank and the People's Bank of China oftentimes intervenes in these currencies for the benefit of China itself as opposed to the users of the currency more broadly, up to, and I believe it was just last week, we had a little bit of currency operations just like that. I'm curious, has the Chinese government gotten looser on those controls or do you think it's staying just as strong as always and for these countries that's just what they have to live with because they're outside of the western system?

Randal Phillips:

I don't know if it's... I mean, that's a great question. I don't think it's getting looser. Certainly the intent is not to get looser even though they have in the past, I think two years now have widened the band slightly in terms of the daily trading range for example of the renminbi. I mean that's bowing to the reality of just the size of the economy, but they still are concerned about capital control or concerned about money leaving the country. And I think you a lot of countries, not just China and Russia that are concerned about basically the US use and, particularly the US, but western use of sanctions and the western financial system as being something that while obviously beneficial to them in one way offers an opportunity for extraterritorial action that they may find useful.

So I think you have a receptive audience among many countries from a transaction standpoint, the near-term transaction to use the renminbi at all. But I think where you still see some of the reticence for all the reasons you mentioned are as having the renminbi as part of your basket of reserve currencies. Now that, I think people are still a little concerned about the ultimate regulation and how the renminbi will be able to hold up over time to have that confidence to have more than just a small amount of your basket in renminbi.

Danny Crichton:

And we started this conversation, I'm going to change this topic just a little bit, but we're talking about extraterritoriality and these actions that take place outside of China's borders in other countries and in addition to the superseding indictment from the DOJ around transnational financial circuits and crimes, we just had another DOJ investigation that was launched southern district here in New York focused on the deputy chief of staff to our current governor Kathy Hochul focused on CCP influence operations. I imagine you have some thoughts or at least background in some of these united front activities, obviously most of which are monetary in nature, at least in terms of greasing those wheels. How has that changed over the years? I mean you focus on this for many, many, many years, but is that just one where it's showing up in the public imagination for the United States, the DOJ putting its eyes on this all of a sudden and it was just always there or do you think it's actually getting a little bit more aggressive on the Chinese side?

Randal Phillips:

It's definitely always been there. That was 28 years of my life in government was this case, it would be like a textbook case of united front activity where you would have certainly the security services of China, but not even necessarily. It could be through the united front of the party itself and just an influence operation, not for necessarily intelligence collection or it could be some combination thereof. They would look at somebody like this individual who is ethnic Chinese, who has family still back in China, who may or may not have business interests in China, and those are all things that the system in China is set up to play with and carrot and stick. In the past it was more carrot than stick. Increasingly in recent years we're seeing a little bit more stick and a little bit more, I'd say brazenness, to really go after people in places where in years past they might've taken a light touch.

Now it's willing to now take a little heavier touch and certainly the effort would be pretty broad based, so it would find individuals like that. They would be potentially at the risk of being approached by some element of the CCP to take advantage. Usually they would try to seek a win-win resolution with them, not a coerced kind of situation and try to make a deal. Now the problem with that, and DOJ had a program, I think it started around the late Trump years where they were taking a really hard look at various places in academia, business, certainly government. It was good in a sense in that there are certainly things, certainly in my experience, a number of things to look at there, but the problem is you're tiring everybody with the same brush and it's easy to see something that could be a legitimate academic exchange, for example, that may have some ulterior motives, but nobody's done anything wrong at this point.

So they had to dial that back a little bit, DOJ, and be a little bit more focused, but the problem is real. There has been certainly no backing off on the part of China to be able to utilize connections like that. That's in the wheelhouse for both the united front and the security services. I think the thing where they've gotten more brazen to your question is where they've gone outside of that comfort zone, which we've been doing for many years. That's nothing new, but to really go after non-ethnic Chinese in a more aggressive way, and that's certainly the last 10 years at least. Certainly during the Xi Jinping era, we've seen a great pressure put on the security services to do that.

Danny Crichton:

I mean you highlight one thing which is there's a bunch of these activities which are completely normal between two countries. So scientific exchanges is a good example. The US Senate has been debating extending the US-China scientific cooperation agreement, which I believe officially expired imminently or just in the last decades.

Randal Phillips:

I think the end of August was its second six-month extension and they're still negotiating.

Danny Crichton:

And so it is officially expired, but it's a good example of look, science, you exchange, but now there's critical technology information there. It gets tricky. Presumably the US doesn't do a lot to try to acquire, as we know, technologies out of those agreements. The Chinese might do so, and so there's concern on our side that is not being reciprocated in the open science format that we expect. But what I'm curious about is when I think about intelligence services doing source recruitment, I usually think of bags of money and China's not a country that is lacking for cash.

So it's interesting to me that you're going from the carrot, which to me is usually a business deal, a proposition, a family member who's home who gets a job. I'm thinking of the traditional ways you can deliver value to a family or to an individual versus a threatening, this person's going to get jailed, you're going to be cyber hacked, we're going to steal your wealth, we're going to go into your bank accounts. Why the switch, particularly when China has become so wealthy over the last two, three decades?

Randal Phillips:

I think it's the pressure of being such a up and coming rising superpower and certainly the personality of Xi Jinping, his words making China great again or to restore China's position in the world that they have put great pressure on particularly the intelligence services, but others to be more aggressive, be more... Be like, this is a really bad example, but be a little bit more like the Americans or others who have seen themselves as a superpower will act like it. So rather than being somewhat cautious and even with broad-based efforts, to be taking more risk, and so that is certainly at play. The financial aspect of it has the tools of that have certainly not gone away. In this moment in time, the way China's economy is and the way that foreign investment has really backed off of China, there are fewer opportunities as opposed to say five years ago or 10 years ago where you would have a lot of people seeking to get into the China market or would have business deals there and they could just tag along with that or use that as an enticement.

It'll give you a preference for being able to, the currency, the realm really in China for years and years was your ability to have access through either somebody that works for you or somebody you know to government officials in whatever realm you need to deal with them and everybody knew you had advantage. That's something called that la guanxi, and so that was something that they could really offer to people as an enticement. That certainly hasn't gone away. That's still there, but it's just not as strong of a pull just given the overall flow of investment in the state of the economy right now.

Danny Crichton:

And when we expand the remit beyond China just a little bit, and we talk about extraterritoriality and I covered this in the context of India and Canada over an assassination or attempted assassination a couple of months ago. We also saw recently Russia going after a German defense CEO. We've seen the Iranians do the same thing. It seems to me like countries, not just China are getting more aggressive of using the cloak and dagger tools in the toolkit so to speak, to reach different political objectives.

On a prep call we talk about Wagner Group, but Wagner Group maybe being the ultimate example of an entire organization of thousands of people spread across Africa, spread around the world, also working on computational propaganda around US elections, just extensive private-public partnership if you will. That seems like too innocuous of term for a Wagner Group, but when you think about how many countries and how much utility is coming out of this, is it the media that's covering this more? Is it actually happening more? I just come from the statistical background of, I assume this has always been in the background, but it just seems to me like it's a headline story almost every other week that we see another one of these examples.

Randal Phillips:

Yeah, it's a great question. I think it's nothing new. Half of the British Empire was obtained through the East India Trading company. The British used a cutout to do a lot of what they needed to do to capture half the world. So the use of proxy organizations has always been there. I think it fundamentally comes down to risk versus gain calculation in the part of government. I mean the most efficient way for a government entity to achieve an objective generally speaking would be to use your own inside the government tools, use your army, use your ministry of foreign affairs, use somebody directly line of control, bring in to do. If that doesn't work either for efficacy or the risk is too much to have your hand or your fingerprints on it that directly, then you'll use some other organization to do that. A Wagner Group type entity, which even if people very much know it's at the behest of the Russian government, it's still not the Russian army.

So you've got a little bit of deniability that can be employed by the government of Russia in this case or any other government using an organization like that so that they can say, we did not know or we didn't know everything that was going on here and it was some other entity going on here. Even if people shake their head and say, come on, that defies logic here, but it gives you a little plausible deniability and then things you really feel like you got to hide. You go to greater efforts to obfuscate the origins of those people, but that you lose on the efficiency scale for that of how are you getting something done and the control of exactly how the mission is carried out. So it's almost like a sliding scale of how efficient do you need to be to get done what you need to get done versus the deniability you need to cover it in case things end up on the front page of the Washington Post.

Danny Crichton:

When I think about some of these areas, we just had Zach Dorfman who's intelligence writer base out of San Francisco. He was recently talking about his blockbuster piece in Politico, which was about the FBI's sabotage of Soviet Union's chip acquisition in the 1980s, and one of the things that we were talking about is Silicon Valley is locus for spying. There's an immense number of people here focused on industrial espionage, collecting information, particularly with the rise of big data, collecting data on as many people as possible, hacking into these systems or using insider threats, people who are employees of say a social network, a cloud data provider who have access to those databases to look up individual facts.

Do you think that the US has figured out how important Silicon Valley is compared to that? Because, and I give you the context of 10 years ago when I was up at the Kennedy School, we had basically all the leaders in the intelligence community and the summary of this off the record conversation was basically the intelligence community doesn't know anyone in Silicon Valley. We don't know their phone numbers, we don't know who to contact. There wasn't a lot of integration, there was a lot of hostility. This was particularly after Snowden, I think it's around 2012, so there's a lot of privacy, hostility and concern. Do you think those relationships have gotten better and is there more awareness in the intelligence community of the risks that come from the technology industry?

Randal Phillips:

Yeah, I think my old friend and colleague, Paul Colby who was up at Kennedy Shool, and I know for a fact he knows how important Silicon Valley is. And I mean, the easy part of the questions you asked to answer is, is the US government aware? Absolutely, and it's only gotten more important. The hard part, which obviously is government and particularly the intelligence committee has had the most difficulty with is, okay, what do we do about it? How do we instill trust, develop relationships, be involved in the center of it to the degree appropriate and try to see the problem up close and figure out effective ways to counteract it? I know the FBI and the Secret Service have always been much better, [inaudible 00:25:43] domestic agencies now as compared to say the CIA in terms of developing those relationships and finding a way to be cooperative with an appropriate balance of public-private relationships.

CIA has always been a little bit on its back foot on that, but I think it's through efforts like In-Q-Tel that's set up 15 years ago, maybe more now, that was partially not only to figure out how best to deal with Silicon Valley but also get the agency smarter in terms of frankly what's out there to have people understand why this technology matters or developing technology, how that may matter, and how it can be utilized or figure out what the scope of risk might be. They've gotten better at those relationships. It's still probably far from perfect. I mean there's a cultural aspect of a lack of trust I think that comes out of Silicon Valley to things, security, government, they see it as you're trying to hem me in or control my message or control my ability to create or whatever it might be. And so it's trying to break down those barriers that's got to come from both sides to solve it. I think it's probably better today than it's been in the past, but I'm sure there's still a lot of work to do.

Danny Crichton:

And one of the other things that Zach was also talking about, I mean obviously one of the interesting dynamics with Xi Jinping's rise to power and he was the one at Yahoo News [inaudible 00:27:07] news about the role of the CIA's network in China of its contestant network, and that happened roughly contemporaneously when Xi comes to power. Xi was VP for multiple years, comes, takes over his chairman of the CCP and then becomes president a year later. And this has this background of there are spies lurking around all over the universe and there's a lot more espionage going on here than you realize. I've always had the argument, and I pose this to him of imagine you have become president and you look around and you're like, who do I trust? And I've always had this suspect that we've always been very surprised if you read the foreign policy blob of DC of who was Xi? Why did he change so much?

We knew him as VP. He was number two. He comes to power. He has a radical shift in government, and I've always said, look, this moment in time was actually quite crucial to his maturation into leadership. I'm just curious if you had any thoughts either about that rise to power or that shift because we went from that engagement, I'm thinking, oh wait, the Olympics that happened in Beijing. People were very excited at the end of the Hu Jintao administration into what is now a very competitive, strategic competition between the two countries that didn't exist before.

Randal Phillips:

Well, actually I've got some very personal insights into that just given my last 12 years at the agency I was chief of China operations and then my last job, ran East Asia division and then was chief of station in Beijing through summer of 2011. So obviously can't talk about it, but suffice to say that Xi had some things to worry about because there were some successes there. And so that started, the unraveling of that happened roughly about my last six months or so, started realizing there were some things that we got to figure out what's going on and then retired and others worked that out to see what the scope of the problem is.

So I can absolutely see us where Xi Jinping is watching this and he's still VP and all, but by that point he's the anointed one in 2010, 2011, and frankly I think in a way it helped him in his domestic battle to ensure that he got the top job in fighting against Bo Xilai and others in that 2011, 2012 period, but it certainly had to be eye-opening for him that, and he certainly has utilized that to fight back not only in trying to go after that but on empowering the Ministry of State Security and Ministry of Public Security to say, hey, we've got to really up our in terms of our counter espionage and counter intelligence capabilities, and that's where you started seeing all the campaigns on every foreigner is a potential spy, the students.

Watch out for a redheaded student over here who might be trying to steal your homework or whatever it might be, and everything else is happening in between. You fast-forward that to today. He still is feeling that. I think if you look back for example over this last year of the campaign against the strategic rocket forces and the two leaders that about a year ago were taken out, and I haven't been heard from since. For the first time ever, the strategic rocket forces, which as you know is the most sensitive part of the PLA, has been receiving very significant funding because Xi Jinping has been trying to expand China's nuclear force and that's the people who run it. So that organization as a whole has been receiving billions and billions. Now, the one thing I know from my history in China is that when billions and billions are rolling around, there's going to be corruption.

And so Xi Jinping saw before what happened at pretty senior levels in the military that people had turned out to be susceptible to foreign enticement for this and the corruption issue was so dire. He's got to be sitting there looking at the strategic rocket forces, his most sensitive element of the military and saying, can I really trust these guys? Are they still on team China? What's going on here? The Ukraine War of course doesn't help that. And they look at... The one thing that the Chinese had about the Russians, they seem to believe very strongly that the Russian military was a lot better than it's shown itself to be in Ukraine and certainly a number of their own systems have been either bought from or modeled on Russian systems, a lot of the tactics and training from Russia. There's got to be some doubts rolling around in his head, which to my way of thinking is not a bad thing.

Danny Crichton:

Well, I mean you emphasize Ukraine and one of the things that was shocking was looking at tanks that have treads that don't function, and it was like, well, the treads contract went to someone who'd never actually produced any good treads. As soon as the tank tried to move, treads fell right off and now the tank is stranded.

Randal Phillips:

Now even that happens, yeah.

Danny Crichton:

But you suddenly realize what you thought was a very strong army on paper, and this is always the danger of any system. I mean it has to boil up. You have to look at aggregates. You're looking at, I have 900 units available for movement, and then you suddenly find out there's 40 and all that was taken in the middle. And it is been interesting to see the massive expansion of China's nuclear capability over the last year, and I think it was indicated. I know publicly in the last couple of years there's been satellite data showing that there's new missile sites being built. Obviously they have to build the sites before you can build the missiles and put the missiles in the sites, but it seems for decades there were a single nuclear policy for China that has changed in the last few years and obviously that's been circulating with open questions. Do you have any thoughts on why the change so late? Even for Xi, it was not something that happened day one.

Randal Phillips:

I think people are still trying to figure that one out. On the face of it, an easy assumption to make, which probably is at least part of the answer, is that he had taken at his word of statements he's been making now for at least the last four or five years where the dark winds are blowing US and others are trying to keep China down. The environment is not as hospitable as it used to be and therefore, China's got to prepare. Whereas in years past China, certainly it had a, I think it was about 300 weapons they've had for the longest time, and that was certainly seen as an ample deterrent for an ability to have at least something credible to strike back if they were hit but not seen as a first strike type of nuclear posture. But it was enough to be defensive and their whole foreign policy was constantly stated to be around that principle. And that actually worked pretty well for China for a long time.

Now, for whatever reason, Xi Jinping is now determined that that's no longer good enough. He needs to have China in position to have more. Now the question that's going through everybody's head is, okay, is that because he thinks that the amount of weapons he currently has isn't ample enough for a second strike for defense, or does he want to first strike capability? Because they've constantly refused to get involved with nuclear talks with the United States on this. It's always been a US-Russia thing and now as you know, things haven't been going so great with the Russians recently, so maybe he wants to ultimately build to a point where they can be at the table and help dictate what the terms are. Yeah, it's probably, I'm sure if you've got them at that point, you'd probably would want to be at the table, but I think what people are trying to figure out is to what end is he growing the program? Is it to get first strike capability or is it something less than that? And I think the jury's still out in that.

Danny Crichton:

I don't think there's an answer. I mean, my little pit answer is if you believe in the corruption and you believe that maybe 70, 80% of those just don't even function, you almost need to just have more of them available to theoretically have 10 or 20% of them that are usable in the event that you actually need a first or strike second strike capability. But let's pivot the conversation a little bit over to North Korea. Obviously, China's been the benefactor and a big brother protector, a blood ally sometimes it's referred to given China's support of North Korea in the Korean War in the 1950s. We've seen quite a bit of activity from the North Koreans over the last couple of years. A lot of tests around ballistic missiles, recently sending trash bags over the border on these weird balloons. It is one of the strangest things that I have to read quite religiously is just random trash bags going over the border, dumping on all kinds of lawns all across South Korea. What is going on there and is that something that people should be worried about?

Randal Phillips:

Well, the trash bags and that I think are Kim Jong Un's attempt at humor to push back against the loudspeakers and the dumping of other balloons that have come the other way with K-pop songs and the latest drama series or whatever it is. And so I think that's more of a nuisance thing. I think the more concerning thing is how they have, especially now with the relationship with Russia turning the way it is and North Korea being needed by Russia, it's a marriage made in heaven. I mean, Kim Jong Un needs a couple of things, absolutely for sure. He needs help with his military, various technologies in the military, everything from his submarines to missile technology to more precision munitions kind of thing, and certainly get that from Russia. He needs to have money, and so Russia buying these things is really helping him out and he needs to be less dependent on China.

The one thing I learned over many years of dealing with that is as dependent as North Korea is on China, and they're still very dependent on China just in terms of 90% plus of their goods come via China. If the Chinese were ever really serious about cutting them off for whatever reason, they could do it, but they've never been willing to do that. That's always irked the North Koreans. And so there's not a great love lost in a sense between North Korea and China generally speaking, and certainly from Kim Jong Un's standpoint. He'll do the needful and seeing Chinese leaders when need be, but I'm sure he's loving the fact that he now has Putin coming to him and has somebody else that needs him. And so that's a real win-win. The problem is, and I think what people are trying to wrestle with is does this make Kim Jong Un feel a little more emboldened to take some kind of risk, some type of first strike or some type of attack of some kind, not necessarily a full-scale war.

Well, you can never take that off the table, but something that makes him, like taking down the Burma attack in the South Korean leadership in the early '80s or something else very provocative. And certainly, their weapons capability has improved pretty significantly over the last 5, 6, 7 years. They haven't backed off in the missile testing. They're getting better at what they do. And so all that adds up to capability and intent being in going directions you don't want to see it there. And I think people are probably underestimating at this moment in time just given everything else that's going on in the world, how problematic that could be. I mean, we're all focused on understandable reasons on what's going on in Gaza, what's going on in Ukraine. This North Koreans could be, this afternoon, could decide to do something not very smart, and then we get a whole different situation.

Danny Crichton:

Well, what's interesting to me is not only are these capabilities, I mean they've always threatened Seoul and not just because there's nuclear weapons involved, just the artillery available across the border, Seoul miles, Seoul's always been threatened and South Korea's always been threatened, but these ICBMs are getting closer and closer to being fully operational to the western coast of the United States, which means all of a sudden you have maybe not a veto, but certainly a very nice tool in your hand to be able to say to the United States of saying, back off, get away from me. Don't do this, don't do that. Which they did not have before. And it does seem to be not provable today and it doesn't seem as reliable, and it's one of those that has to be really reliable if you wanted to use it. But we're getting closer, and to me that radically changes the equation there.

The other thing you mentioned that I think is important to highlight, and obviously it's been reported in the press, is North Korea's exports of weapons to the Russians for the Ukraine war to me has been driving the economy very strongly over the last year and year and a half and realizing that now North Korea is not just a net importer of all these goods, as you emphasize from China, it's all coming over the border, food, oil, all these necessities. But North Korea actually is building up an industry, not industry we particularly like, but it is producing, manufacturing these weapons which has been focused on for the last two, three decades, and it's exporting them and it's actually getting hard currency. It's able to do this, it's doing it outside of the western sanctions regime and is actually able to build some level of autonomy that they didn't have before.

Randal Phillips:

Yeah, the same with Iran. I mean with the missiles and drones coming from Iran, the same thing they've got. Obviously, Iran's got the benefit of having oil too, but that whole industry is, that's what North Korea has to export, and they're pretty good at it in the exact things that Russia needs right now. And so yeah, they're taking advantage of it. It will give North Korea a little more room for maneuver because they can feel the flexibility of having the Russians needing them, Chinese having to deal with that, and China's not going to want to do anything helpful to the US right now either, but they probably are not loving the fact that there's this relationship going on between Putin and North Korea. But on the other hand, they obviously haven't pushed back on the Ukraine war, so the last thing they want to see is Putin lose this war, and so it's actually, they're probably putting their lip and accepting it.

Danny Crichton:

Well, and so I'm going to switch this topic again. So obviously this is Riskgaming Podcast, and part of the Riskgaming is we develop scenarios, we develop speculative, but usually a couple of years into the future. So new technologies, new threats, new risks that come to the world, we have to adjudicate, actually war game out. How do people respond? What are the incentives? Et cetera. When it comes to those sorts of, I hate to use the term black swans because it's a little overused, but when you think about threats that people aren't emphasizing enough, may not be things that are no one's ever heard of before, but things that are falling onto the deeper pages of the newspaper, so to speak. They're not hitting the front page, they're not hitting the headlines. What worries you about the world today?

Randal Phillips:

Just the ease with which relatively minor players, non-state players will have tools at their disposal for whatever cause that they're fighting for. This could be terrorists, it could be cyber crime, any number of things that you now have cyber capabilities, AI capabilities, abilities to project yourself in ways that are relatively low cost and easy to do. The days when we just had to pretty much worry about state actors seems pleasant in a sense where you can, it's easy to rack and stack those things and count ships and missiles and all that.

Now you're worried about things that you can't readily see, which makes it that much harder obviously to figure out how to de-risk the situation. It's seeing where that's all going. And if you really think of the blackest swan of all, it's if you've got a state or a couple of state players with lots of resources that decide to utilize not only some of the technologies but some of the splinter groups to do a swarming attack with some deniability attached to it and the amount of disinformation in the world where there's people increasingly in a lot of different places in the world, especially in the US, don't believe what they see in the news, it's frightening actually. It's harder to get people to rally around truth anymore. That is, to me is really problematic.

Danny Crichton:

It is interesting because when I think about non-state actors, I think Al Qaeda being the quintessential example. Here's a terrorist network. It's based in a place, it has specific goals, it has methodologies and tradecraft they undertake to accomplish their missions. I think what you're getting at is this more modern sense, and I don't think non-state actor gets at this. It's more like a non-state network where as you're pointing out, Russia's trying to have influence operations overseas that happens to dovetail with different groups that may not take Russian money. They may not actually care about Russia at all, but happens to overlap in some way that parallels and aligns with their own mission.

And so they're like, okay, we'll join in this. We'll help in this particular way. We don't even have to coordinate. There's no central organization. We're just lined up. And you see this around Russia and the network, there's China and the network, of Iran to a lesser degree. But I think it's interesting here is just how hard, when I think of traditional tradecraft techniques of either on the analysis side or operations intelligence, what you can do with these groups. Because in most cases, if I post a manifesto, someone reads it and takes action on it, there's very little trail to follow to actually be able to do anything either to predict and or to stop that particular action.

Randal Phillips:

I actually agree. I mean that's where figuring out where the risk is coming from at any given moment in time. I mean, I guess probably easiest part of this is to keep eyes out for the universe of potential problem areas if rallied correctly. The hardest part is being able to be on time present and able to react to whoever is marshaling or taking advantage of those forces for something that is problematic to you. That is hard, and it's just getting harder. And I watched my old colleagues in government and they've continued to fight the good fight of trying to stay as ahead of that as best they can. And you need a variety of intelligence sources from technical means to human sources and signals and everything in between. Nothing still beats having a human being who's involved in something come tell you what's going on. That's a missing piece that's very inefficient and hard to get, but invaluable when you have it.

Danny Crichton:

And I'm going to close out, we're shooting this in the middle of September, the Twin Towers. We've got the two pillars of light going up in downtown New York right now in commemoration for Memorial for September 11th. And obviously after the terrorist attacks, there was a massive retrofit and renovation of the intelligence community. We created the Directorate of National Intelligence. We made a lot of changes to try to make the intelligence community stronger and better. But all that happened right before the rise of, let's call it the internet, data, all the cloud technologies, artificial intelligence. I mean, you think of the list of technologies that have arrived in the 20 plus years since we reformed the intelligence community. All that happened afterwards. Do you think the intelligence community as its architect of the day is prepared for these sorts of attacks? Do you have faith in the system? I really should have faith in the people, but there's people and then the people get aggregated as you know. And to bureaucracies, is it designed the way it should be today or do you think there's more changes required?

Randal Phillips:

I think there's always going to be change and adaptation that's going to be necessary, but I think the single best thing that the Directorate of National Intelligence whole infrastructure put in place and the old 9/11 commission report nails this on the head, and I certainly lived that and felt it both before and after, is getting the agencies of US government talking to each other in a better way. It's like searching for a more perfect union. It's never perfect, but breaking down some of the bureaucratic things between organizations to talk to each other was by far the best thing that came out of that. There are probably some other bureaucratic inefficiencies that were put in there, a little bit redundant and all, but from that perspective, it really did have a lasting effect, which I think can't help but be a good thing for all the various things that we're facing today and going forward.

So I think having that kind of communication and having it be robust and instantaneous, that has to happen. Just that you have to do it at the speed of business, at the speed of the threat that's coming to you. It's coming at you hard and fast instantaneously. You got to have the reaction that's similar. So you got to be able to have the resources that you're in command to battle this, to be able to talk to each other in a real-time basis, build institutional trust to be able to do that, and then keep working out the kinks, figuring out not only how you better that communication over time, but also what other tools you might need just given the evolving technologies and what you see coming from your enemies now where they seem to be going. And so you're just going to have to just keep plugging away, keep turning over rocks, and do the needful.

Danny Crichton:

Well, there you go. Randall Phillips, thank you so much for joining us.

Randal Phillips:

No, appreciate it, Danny. Thank you.

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