The Arkin Group

December 31, 2020

Progress on the Covid-19 vaccines, including the UK approval of the Oxford-AstraZeneca vaccine on December 30, has helped improve the global economic outlook for 2021. Most economists believe we will see global growth between 4% and 5% in 2021, with the United States at about 4% according to the U.S. Federal Reserve. The rollout of the coronavirus vaccines in the United States and around the world will inevitably dictate the pace of recovery, but immunologists believe the approval of the Oxford-AstraZeneca vaccine could be a game-changer – particularly in emerging markets. While clinical trials indicated that the Oxford-AstraZeneca vaccine has only 70% efficacy compared to 95% for the Pfizer and Moderna vaccines, it is substantially cheaper (at $3 or $4) and easier to transport, handle, and store. The UK is the first to authorize its use and India, Argentina, Brazil, and South Africa could soon follow, allowing for vaccinations across large swaths of the globe and, in turn, fueling the global economic recovery. Good news on the vaccine front along with increased government spending, like the U.S. Covid Relief bill signed into law by President Trump on December 27, will help stave off the worst of the economic damage from 2020 and a difficult first quarter in 2021 still to come. The Organization for Economic Cooperation and Development (OECD), which said the early economic impacts of Covid-19 were 10x those experienced in the first months of the 2008 global financial crisis, forecasts global economic growth will average about 4% over the next two years but that economic recovery will be uneven across the globe. More optimistic, however, economists with Morgan Stanley see global growth closer to 5% in 2021, with all geographies and sectors joining the global economic recovery by March or April thanks to the rollout of the vaccines.

The British Parliament passed the trade deal between Britain and the European Union in a vote of 521 to 73, making this the final step in the long slog to realize the Brexit vote of June 2016. The trade deal, passed on December 30, establishes the economic relationship between Britain and the European Union going forward and, with just one day to spare, helped avoid the potential chaos of a “no-deal” Brexit. This is a huge win for British Prime Minister Boris Johnson, who has been negotiating the terms of the deal with the EU while also leading the UK’s response to the coronavirus pandemic over the past year. The deal provides Britain tariff-free access to European markets, but in accordance with the Brexit promise, Britain will no longer be a member of the European Union’s single market and customs union. Britain left the EU politically last January but had remained under existing EU economic rules for 2020, in a transition period during which Johnson negotiated with European Commission President Ursula von der Leyen to sever Britain from economic integration with the EU. Johnson has long argued that the short-term economic pain of Brexit will be worth the sovereignty and economic independence gained in the long-term. Brexit skeptics in the Labour Party ultimately voted with Johnson’s Conservative Party to pass the bill, recognizing that in the midst of a pandemic, a “thin deal” would be better than the potential catastrophe of a “no-deal.” The pros and cons of Brexit are sure to be debated for years to come, but at least for now, Britain and the EU can put Brexit to bed.

The recent cyberattacks on the U.S. government by Russian hackers present an immediate national security challenge for the incoming Biden administration. While President Trump has doubted the role of Russia in the SolarWinds hack, President-elect Biden is likely to take a harder line on Russian President Vladimir Putin. The hackers, believed to be part of Russia’s foreign intelligence service (SVR), subverted SolarWinds software to penetrate U.S. government and private sector networks with the apparent objective of gaining access to their data. The extent of the hack is still not fully known, and this will need to be a focus of the incoming administration as it fortifies the U.S. government’s defense systems. At the same time, Biden could decide to use cyber weapons in an offensive strategy – either in retaliatory counter-attacks or to preempt future attacks. Already, Biden has said he is in favor of cyber weapons under the control of the U.S. military’s Cyber Command, NSA, and the CIA. Ultimately, the United States and Russia will need new ground rules when it comes to cyber warfare, which will eventually require tough negotiations between the two countries and with other major players, such as China. But cyber is not the only bilateral issue with Russia that Biden will need to deal with immediately upon taking office – the New Strategic Arms Reduction Treaty (New START) is set to expire on February 5. Biden is likely to extend this agreement, which is the last remaining nuclear arms control treaty between the United States and Russia, but it will be left with no time to negotiate anything other than the extension. Biden’s Russia policy has yet to take shape, but it is clear that Russian aggression will continue to be a threat to U.S. national security, democracy, and global stability in 2021 and into the foreseeable future.

Wishing you all a healthy and happy New Year! Hope to see you in 2021!

Former chief of CIA’s worldwide operations, founding partner and President of The Arkin Group, and author of the new book Spymaster’s Prism: The Fight Against Russian Aggression, Jack Devine discussed the gravity of the massive cyber hack by Russia, today on Bloomberg Radio, hosted by Paul Sweeney and Vonnie Quinn. Jack talked about the scale of the cyberattack on U.S. government agencies. He said, “Collecting intelligence around the world is a common event, but the magnitude of going into every aspect of our defense system, is really over the top, an extremely aggressive thing … I think we’re only looking at the tip of the iceberg here.” According to Jack, Russian hackers are deeply embedded in DoD and our defense contracting industry. Regarding the history of Russian aggression against the United States, Jack said there have been continuous intelligence activities over the last 25 years. He noted that the Russians are still using the Cold War strategy to put the United States off balance. Jack commented that Russian interference in the 2016 election is an example whereby Russia is now going beyond just the collection of intelligence, and now with the information they have from the 2020 cyber hack, they will be in a position to take further action against us. Jack believes we are looking at the same dynamics as we were in the Cold War with nuclear weapons, and while cyber weapons are not kinetic, they are nonetheless damaging. “We need new ground rules,” according to Jack who believes the United States and Russia should negotiate the rules of the game when it comes to cyber warfare. Jack said, “If someone thought Russia hasn’t been in an adversarial role, this should be a wake-up call.”

“Hackers May Be Deeply Embedded In DoD,” Bloomberg Radio, December 21, 2020

Spymaster’s Prism: The Fight Against Russian Aggression, by Jack Devine

Friends, colleagues, and collaborators,

I am delighted to announce the publication of my second book, Spymaster’s Prism, available for pre-order now at Potomac Books and Amazon.

My goal in writing Spymaster’s Prism was to offer my perspective on Russia’s decades of unceasing attempts to subvert our democracy and how to devise strategies to counter these assaults. Americans are facing a high level of internal division, and as we strive to address what divides us, it is critical that we not lose sight of the need to defend our democracy from nefarious external actors, including Russia.

I wish you all a safe and happy holiday!

Jack

Spymaster’s Prism

In Spymaster’s Prism the legendary former spymaster Jack Devine details the unending struggle with Russia and its intelligence agencies as it works against our national security. Devine tells this story through the unique perspective of a seasoned CIA professional who served more than three decades, some at the highest levels of the agency. He uses his gimlet-eyed view to walk us through the fascinating spy cases and covert action activities of Russia, not only through the Cold War past but up to and including its interference in the Trump era. Devine also looks over the horizon to see what lies ahead in this struggle and provides prescriptions for the future.

Based on personal experience and exhaustive research, Devine builds a vivid and complex mosaic that illustrates how Russia’s intelligence activities have continued uninterrupted throughout modern history, using fundamentally identical policies and techniques to undermine our democracy. He shows in stark terms how intelligence has been modernized and weaponized through the power of the cyber world.

Devine presents his analysis using clear-eyed vision and a repertoire of better-than-fiction spy stories, giving us an objective, riveting, and candid take on U.S.-Russia relations. He offers key lessons from our intelligence successes and failures over the past seventy-five years that will help us determine how to address our current strategic shortfall, emerge ahead of the Russians, and be prepared for what’s to come from any adversary.

December 18, 2020

Hackers believed to be from Russia’s foreign intelligence service, or SVR, penetrated a range of U.S. government agencies in what has been described as “a grave risk” to the federal, state, local, and tribal governments as well as critical infrastructure and other private sector entities. The hack was nothing short of stunning in its breadth and audacity. The State, Treasury, Commerce, Agriculture, and Homeland Security Departments, as well as the National Institutes of Health, were all successfully breached. As updates have continued to roll in, it has emerged that even the nuclear weapons agency was breached, though the Department of Energy and National Nuclear Security Administration have said that the malware used in the attack affected their business operations but remained outside of internal national security networks. Much remains unknown about the operation, including definitive identification of the perpetrators, how long ago it began, and the full extent of which entities were compromised. Also unknown is whether hackers were able to access classified information or just data stored on unclassified systems. However, it is a near-unanimous assessment that this was highly sophisticated, creative, and well-resourced, and that the potential fallout will be difficult to predict. This incident is also ratcheting up international calls for a multilateral agreement to establish rules of the road, similar to those that govern more traditional forms of warfare, to hold authoritarian regimes and other bad state actors to account.

Mexican President Andrés Manuel López Obrador and Brazilian President Jair Bolsonaro congratulated President-elect Biden this week. López Obrador and Bolsonaro, who were both seen as close to President Trump over the last four years, had withheld their congratulatory remarks for Biden until this week, presumably allowing for Trump’s legal challenges to make their way through the courts and for the Electoral College to meet on December 16. López Obrador said that he had intentionally waited until after the Electoral College met before sending a letter to Biden, while Bolsonaro sent his congratulations via Twitter. Both López Obrador and Bolsonaro emulated Trump in their own ways, most recently in their response to the Covid-19 pandemic, but it is likely that they will both want a working relationship with the incoming Biden administration too. In his letter to Biden, López Obrador noted that maintaining good relations with the United States is one of his top priorities given that the United States is Mexico’s top trading partner. This is pragmatic. With Latin America’s economy set to contract by approximately 8% this year, López Obrador and Bolsonaro know that the countries of the region will need U.S. support coming out of the pandemic. Also, Biden will need to work with Mexico and Brazil on several top issues of interest to the United States, including energy and climate issues; counternarcotics, migration, and border security; as well as the thorny issue of Venezuela. On all of these foreign policy fronts, Biden will need commitments and cooperation from Mexico and Brazil, the two largest economies in Latin America and leaders in the region in their own right.

An Indian call-center scam defrauded more than 4,500 Americans out of more than $14 million by telling victims that law enforcement authorities were freezing their assets because their bank account details had been found at crime scenes linked to Mexican and Colombian drug cartels. The victims would then transfer funds (in various forms, including bitcoins) to purported government accounts to avoid going to jail. Police in Delhi have arrested 50 people for their involvement in the scam. According to police, the scammers – who were trained to speak with American accents – were employed by an Indian man based in Dubai, UAE, who paid them $400-$500 a month with extra monetary rewards for those who showed particular skill in getting people to quickly accede to demands for funds. Call center and online fraud operations are so common in India that there are police units dedicated to them, and with India now officially in recession and facing a long road ahead to return to growth, these types of scams are likely to proliferate.

The U.S. Commerce Department is blacklisting more than 60 Chinese firms today for enabling human rights abuses, supporting the Chinese military in operations and island-building in what the international community considers illegitimate claims to the South China Sea, purchasing U.S. goods on behalf of the Chinese military, and theft of intellectual property and trade secrets. Blacklisted firms include Semiconductor Manufacturing International Corp, which is critical to Beijing’s ambition to reduce its reliance on U.S. semiconductor manufacturers, thereby being less vulnerable to punitive trade actions. This is only the latest salvo in an escalating series of actions by the U.S. that appear designed not only to punish China for a variety of infractions – state and corporate espionage, territorial adventurism, legitimate human rights abuses, particularly against its Muslim Uighur minority – but also to lock the incoming Biden administration into policies that take aggressive aim at limiting the influence of Chinese companies in the U.S. and globally. However, Beijing will likely continue to keep its responses targeted and restrained in hopes of finding a new equilibrium with the incoming Biden administration.

The U.S. counternarcotics strategy should be strengthened, according to TAG Managing Director Amanda Mattingly who provided comment in a recent edition of the Inter-American Dialogue’s daily Latin America Advisor. Amanda argues that “Strengthening the State Department’s hand in working with our allies in the region is a good start, and a Biden-Harris focus on aid and diplomacy in the region will go a long way to fortifying relationships necessary for counternarcotics and border security cooperation.” She also said, “Such supply-side strategies are important, but they are not going to move the needle without robust domestic, demand-side strategies too.”

Latin America Advisor

December 11, 2020

Venezuela held legislative elections on December 6 in which just 32% of the population participated and Maduro tightened his grip on power. The Venezuelan opposition, led by Juan Guaidó, boycotted the elections. Opting to sit out the elections, which they said would be fraudulent, the opposition lost seats in the National Assembly to Maduro’s Unified Socialist Party (PSUV) and other pro-government parties. According to Venezuela’s National Electoral Council (CNE), which is also controlled by Maduro loyalists, pro-Maduro candidates won with 67.6% of the vote which means 91% of the seats available in the National Assembly. The opposition has called for a referendum to reject the outcome of the legislative elections, but it is unclear what tangible results will come from such a vote and many observers are calling this the end of Guaidó’s self-proclaimed interim presidency of Venezuela. Recall that in early 2019, Guaidó declared himself the legitimate interim president of Venezuela when, as leader of the National Assembly, he called Maduro’s 2018 reelection rigged. More than 50 countries, including the United States, recognized Guiadó as the legitimate president and joined him in calling for Maduro to step down and for Venezuela to hold new, free and fair elections. But over the last year during the coronavirus crisis, Maduro has consolidated power, and with Guaidó’s term at the National Assembly over in early January 2021, he seems to have lost momentum in his efforts to force Maduro out.

The conflict in Ethiopia between federal forces and the Tigray People’s Liberation Front (TPLF) is taking a significant toll on civilian life and “spiraling out of control,” according to UN High Commissioner for Human Rights Michelle Bachelet. At the same time, U.S. Senators Ben Cardin (D-MD) and Jim Risch (R-ID) introduced a resolution in Congress this week calling on the Trump administration to consider imposing sanctions on political or military officials found responsible for human rights violations in Ethiopia. The U.S. resolution also calls on Ethiopia’s Prime Minister Abiy Ahmed and the TPLF to cease hostilities, which began on November 4 in the northern region of Tigray. The extent of the atrocities against civilians is not yet known as communications and transportation to the region have been cut off by the government. It is noted that the TPLF had been in power before Abiy Ahmed and refuses to recognize his legitimacy. The TPLF also rejects the government’s decision to postpone national elections to 2021 due to the pandemic. Meanwhile, thousands of Ethiopians are believed to have been killed or displaced to Sudan in the last month. The conundrum for the United States is that Ethiopia is considered an ally in efforts against Al-Qaeda-linked extremists in neighboring Somalia. This is likely to be an issue facing the incoming Biden administration though, as it is unlikely Trump will take action in the waning days of his term.

Hackers believed to be working with Russian intelligence successfully penetrated U.S. cybersecurity firm FireEye and stole the tool kit the firm uses to test client systems for vulnerabilities, which will further enable the perpetrators to carry out attacks on other targets. According to the FBI, the level of sophistication in the attack suggests they were working on behalf of a nation-state, and though there has been no confirmation thus far that Russian intelligence is involved, FBI Russia specialists are handling the case. This is the highest-profile theft of cybersecurity tools since 2016, when a group called ShadowBrokers stole the NSA’s hacking tools and released them online over a series of months. The tools were ultimately used by Russia and North Korea in attacks on U.S. government agencies, hospitals, and other targets. There is some speculation that this most recent attack was retaliatory – FireEye has exposed Russian intelligence involvement in a number of hacking operations over the years, helping to lay the foundation for punitive U.S. actions targeting the units believed to be behind attacks on critical systems and facilities. Competition between the U.S. and Russia in this area is likely to keep intensifying, and the incoming Biden administration will need to develop creative approaches to strengthen our offensive and defensive capacities.

December 4, 2020

The killing of senior Iranian nuclear scientist Mohsen Fakhrizadeh has prompted Iran to disavow any rapprochement with its “enemies” – including the U.S. – but President-elect Joe Biden’s inauguration early next year could nonetheless be the catalyst for a return to the negotiating table. Press reports are near unanimous in attributing Fakhrizadeh’s killing to Israel. President-elect Biden has signaled his intention to revisit a rapprochement with Iran when he takes office, which will prove more complicated in the aftermath of Fakhrizadeh’s death. Iranian Ayatollah Ali Khamenei, in a speech at Fakhrizadeh’s funeral, said dialogue and negotiations were “not possible, because our enemies oppose the nature of the Islamic Republic establishment”. However, Iran is under tremendous stress on the public health front – due to Covid-19 – and the economic front, owing to the reimposition of strict sanctions following the U.S. pull-out from the 2015 multilateral nuclear deal. Iranian moderates may look to the Biden administration as a possible avenue for relief, but Iran will have to walk a thin line in any overtures it makes to the U.S. to return to talks. Hardliners in both countries will object to any indication that their public officials are too trusting of the other side’s intentions, meaning that each step of the process must be carefully calibrated so that neither side appears to be ceding too much ground.

The U.S. State Department has initiated a system of monetary rewards – up to $5 million – for tips on trade activity that seeks to evade sanctions on North Korea and facilitates further development of the country’s nuclear program. Trade transactions in question include money laundering, exports of luxury goods, and cyber activities. The initiative, which features a website for submission of tips (dprkrewards.com), is expected to turn up information on China, which has long been suspected of providing assistance to North Korea in contravention of U.S. sanctions. In its final weeks, the Trump administration has been ratcheting up pressure on a number of foreign adversaries like Iran and China via sanctions and other punitive actions, and North Korea is no exception. The US is expected to levy further sanctions on Pyongyang and its collaborators before the transfer of power on January 20, which will include sanctions on Chinese individuals and entities involved in illicit trade with Kim Jong-Un’s regime. This initiative and other U.S. pressure campaigns will likely complicate any efforts on the part of the Biden administration to dial down tensions with adversarial regimes and force a more confrontational foreign policy posture than under the last Democratic administration.

Armed criminal gangs seized cities in Brazil in coordinated bank robbery attacks this week. The cities of Criciúma and Cametá both came under fire by masked gunmen who took people hostage and stormed the banks. Thought to be gang members, the men were heavily armed and easily overpowered the police forces in these small, otherwise tranquil towns. In Criciúma, the assailants exchanged gunfire with the police and used explosives to detonate the bank. A similar two-hour drama played out the following day in Cametá, which is approximately 2,000 miles from Criciúma. Law enforcement and bank officials have not said the amount of money stolen. Organized criminal groups and drug gangs are known to operate in Brazil, but in these cases, it is clear that gangs are fanning out from the large metropolises of Rio de Janeiro and São Paulo to the smaller, more vulnerable cities in coordinated, well-planned attacks. In Brazil, the high annual murder rate is approximately 30.8 per 100,000 inhabitants, and the Brazilian government estimates that crime costs the country’s economy approximately $75 billion each year. Unfortunately, these brazen bank heists will only contribute to the heightened sense of public insecurity in Brazil. They also undermine President Jair Bolsonaro’s law and order messaging which helped propel him to the presidency in 2018.

November 20, 2020

Questions about democracy, sovereignty, and corruption have emerged again in Latin America, as Peru got its third president in one week, Mexico secured the release of a high-level former official from drug trafficking charges in the United States, and Brazil held the first round of municipal elections this month. In Peru, corruption allegations led to the ousting of popular President Martín Vizcarra, who was replaced by Congressional leader Manuel Merino, who then stepped down amid protests. Francisco Sagasti was sworn in as interim President on Monday, but popular demands for constitutional changes leave in doubt his ability to govern between now and presidential elections scheduled for April 2021. In Mexico, the government of President Andrés Manuel López Obrador persuaded the U.S. government to release former Mexican Defense Minister Salvador Cienfuegos, who was apprehended by U.S. federal agents on drug trafficking charges last month in the United States. Mexican officials saw the arrest as a breach of trust between allies and an infringement on Mexican sovereignty. A U.S. federal judge dismissed the charges upon the request of U.S. Attorney General William Barr on Wednesday. In Brazil, candidates for municipal elections who added “Bolsonaro” to their ballot names in hopes of benefitting from President Jair Bolsonaro’s popularity were not so successful at the polls – possibly indicating that corruption investigations involving the president and his family are catching up with him at the ballot box. The runoff races are scheduled for the end of November.

The UK has announced the largest increase in defense spending in three decades, allocating an additional $21 billion over four years to develop its military’s cyber, space, and artificial intelligence capabilities. The plan, as presented to the public, would include measures designed to enhance the country’s nuclear deterrent capabilities and protect shipping lanes essential to supplying the country, as well as creating 40,000 new jobs. The move to bolster defense spending comes just months after the public release of a report by the UK’s Intelligence and Security Committee detailing years of Russian cyber campaigns targeting various facets of the UK government, including its Foreign and Commonwealth Office and Defense Science and Technology Laboratory, as well as links between the Russian government and organized crime groups operating in the UK and what are believed to be extra-territorial assassinations carried out at the Kremlin’s behest on UK soil. The shift in defense posture also comes amid what appears to be a global recalibration of the threat posed by China in the cyber and military arenas. The spending increase has raised some eyebrows – it may require cuts to funding elsewhere, especially as the UK struggles to content with the fallout of both Covid-19 and Brexit – but it appears to be broadly accepted as long-overdue.

The US Securities and Exchange Commission is pressing ahead with proposed regulatory changes that could force Chinese firms to delist from U.S. exchanges. The proposed regulation would prohibit companies whose financial reporting does not comply with US auditing standards – specifically those that do not allow inspections by the Public Company Accounting Oversight Board (PCAOB) – from listing their shares on U.S. exchanges, and China is one of the few countries in the world that does not permit PCAOB inspections of its companies (this applies to mainland and Hong Kong firms). If this rule is ultimately finalized, the shares of Chinese giants like Alibaba and Baidu, which are held by a number of US individual and institutional investors, would no longer be tradable in the US. A harder line on China appears to have bipartisan support in the US, but this particular regulatory shift will have a significant impact on the bottom lines of some major financial institutions. It is likely trigger at least some backlash in the public comment period, but if it moves forward, the timeline for the change – it would take effect in January 2022 – would allow for either a modification of China’s position, which is unlikely, or a gradual winding down of US investors’ holdings.