Barefoot Innovation Podcast

Today’s show is different. My guest, Sigal Mandelker, is the former U.S. Undersecretary of the Treasury for Terrorism and Financial Intelligence, and she talks to us with exceptional reflection and, frankly, frustration, about why and how we need our government to work better. That’s not a novel theme, of course – the world is noisy with critiques of government. Sigal’s message is distinct, though, and desperately needs to be heard, because it’s about technology. Now a General Partner at Ribbit Capital, she’s on the cutting edge of understanding the technology gap in financial regulation, specifically in the fight against terrorism and financial crime but also more broadly, because both the public and private sectors are using technology that is several generations out of date.

She was the most senior person in the Treasury Department on terrorist financing and financial crime, overseeing four units there, including FinCEN. She rightly cites a lot of progress that she’s proud of. But…listen to her voice as she talks about how hard it was to get things done.

Sigal tells the stories. How her own computer often didn’t work. How hard it was to navigate the government’s rules on procurement. How hard it was to hire people with tech skills – she shares one case of struggling, amidst a crisis with North Korea, to make a key hire, and having to wait more than a year. She talks about how hard it is for people in the government just to collaborate with the industry – just to talk with them. She describes how hard it is just to learn new things. It’s so difficult to set up labs and trial and error-based experimentation. It’s extremely hard to touch the technology directly. As she notes, you can’t learn about technology by reading about it. You need to work with it. And if you only understand it from a distance, she argues, it’s easy to focus solely on its risks, and never appreciate its upside potential.

And as she notes, that observation applies to crypto, which many government employees are not allowed to own.

And she talks about what’s at stake. She both starts and ends by discussing her passion for fixing the problem of de-risking, in which, beginning 2012, the US government inadvertently incented banks to cut off vulnerable markets throughout the world by making the AML compliance costs too high to be worth serving these places. She talks about the risks to America’s preeminence in the world, on multiple fronts from tech competitiveness to the health of democracy. She talks about the impossibility of finding patterns of financial crime and money laundering using technology, in both government and industry, that’s left over from thirty or forty years ago. 

And she talks about the huge cultural and procedural forces amassed against change. These include, maybe most notably, that banks are afraid to switch to better tools because their examiners are only comfortable with the old ones. What price do we pay for that, in terms of financial crimes never found, criminal rings never stopped, human trafficking victims never rescued?

We really have to do better, and Sigal has a lot of ideas on how to do it. We need a lot more technology funding. I myself think FinCEN must be the most under-funded agency in the government, looking at the gap between its mission and its size, and almost all the agencies lack realistic budgets for technology upgrades, much less R&D. She points to the need for that R&D – that safe space for trying and learning things. She calls out the need for new hiring and beyond that, new ways to retain great people – she talks almost poignantly about finding great tech people in government, excited to work on important problems, who leave in frustration because they can’t get things done. She talks about the desperate need for government tech training, and for modernizing procurement. 

And she says financial regulators need to do more than simply tolerate new industry technology – they need to demand it. My colleague Nick Cook, former head of innovation at the UK Financial Conduct Authority, argues that agencies need to move beyond the notion of being “tech-neutral.” Vendor neutral, yes, but not tech-neutral. To the contrary, regulators need to expect industry to get technology that can do the job properly, for the digital age.

Sigal is optimistic, and I am too. She points out, for one thing, that the Federal Reserve has brought in its first ever Chief Innovation Officer, Sunayna Tuteja (who will soon be a guest on our show). There are lots of signs of progress. But, realistically, it’s way, way too slow. If we can’t move faster to catch government technology up to industry technology, bad things are going to happen.  

We at AIR published a paper in 2020 called the Financial Regulators’ Dilemma, examining these barriers to technology modernization at government agencies. It was written for us as a pro bono project by the Buckley law firm, based on interviews with innovation leaders at the major financial agencies. Those confidential interviews sounded so much like this conversation with Sigal. Again, it’s so powerful to hear this voice of frustration, and common sense. After all, digital technology is transforming finance. We can’t regulate it effectively with pre-digital tools.

Sigal says it so well – changing these huge, old, venerable regulatory bodies will require effort by people with passion, who can be a force of nature. I hope her words will be inspiring to our many government listeners, to add your own energy to that force.

Let me note that we recorded this conversation a few weeks ago, and the interim has had lots of excitement, especially in crypto. We’ll have to circle back!

More on Sigal

Sigal Mandelker joined Ribbit Capital as a General Partner in April 2020. Ribbit is an investment firm focused on financial services and technology. Prior to Ribbit, she served as U.S. Under Secretary of the Treasury for Terrorism and Financial Intelligence. In that role, Sigal supervised four main components of Treasury – FinCEN, OFAC, the Office of Intelligence and Analysis, and the Office of Terrorist Financing and Financial Crimes. Before serving at Treasury, she was a partner at Proskauer in New York. She also previously served in a number of senior positions in the U.S. government, including as Deputy Assistant Attorney General in the Criminal Division of the Justice Department as an Assistant US Attorney in the Southern District of New York; as Counselor to Secretary of Homeland Security Michael Chertoff; and as Counsel to the Deputy Attorney General. Sigal is also an Advisor to Chainalysis, is on the Boards of the Crypto Council for Innovation and the Financial Technology Association, serves on the advisory group to the Digital Dollar Project, and is Member of the US Holocaust Memorial Museum Council.

More for our Listeners

We have more great shows coming up. A partial list is that we’ll have Sunayna Tuteja, the first-ever chief innovation officer of the Federal Reserve System; Randall Quarles, the recently departed Vice Chair of the Federal Reserve Board; Circle CEO Jeremy Allaire back with us again; the founders of Daylight, talking about their fintech initiative for LBGTQ consumers; and the fascinating innovation team from the MSRB –the Municipal Securities Rulemaking Board.

Please note also that our global TechSprint on anti-corruption is this month. It is called ASET –  Anticorruption Solutions through Emerging Technologies – and is being hosted by us with the U.S. Departments of State and Treasury. Learn more here!

Next week I’ll be speaking at the ABA’s Regulatory Compliance Conference, in a fireside chat with Ryan Rasske on what the compliance officer’s job will look like ten years from now, in 2032. I’ll also be speaking in Zurich next week at the Point Zero Forum, hosted by the Swiss government and Elevandi, a nonprofit entity created by the Monetary Authority of Singapore (MAS) (I serve on Elevandi’s board.) 

I’m excited to be speaking in August in Aspen at the really interesting Moonclave conference, which will be tackling all the big issues emerging in crypto. In September I’ll be back at Compliance.ai. And we’ll of course be at Money 20/20 in the fall.

Don’t forget to follow AIR on LinkedIn and Twitter. Be sure to leave us a five-star rating on your favorite podcast platform. And please follow me personally on Twitter @JoAnnBarefoot.