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September 2022 Global Tech Policy Bulletin: From Turmoil in Iran to Biden’s Big Tech Impasse

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September 2022 Global Tech Policy Bulletin: From Turmoil in Iran to Biden’s Big Tech Impasse

Hello and welcome back to Citizen Tech, InformationWeek’s monthly policy roundup. This month, we’re looking at President Biden’s continued impasse with the Republicans over how to regulate web content; cryptocurrency platform Ethereum going green; European Parliament asking at what point AI violates human rights; Big Tech’s battles in Brussels; Elon Musk’s attempt to give the Iranian people internet in defiance of their government; and more.

Biden, Congress, and Tech Policing

The fight over Big Tech in Congress continued this month with a tap of the spurs from the White House. On Sep. 8, President Biden met in a “listening session” with advisors and tech executives, notably from Sonos and Mozilla, to discuss the endless problems of the tech sector: misinformation and disinformation, extremist and violent content, youth mental health, privacy, competition, and lack of transparency, among others.

POLITICO has linked this session with the recent scuffle over Section 230 of the Communications Decency Act, which implies that online platforms bear no responsibility for the user content they host. Biden wants Congress to strike the section entirely, allowing the government to police content for things like misinformation and algorithmic racial discrimination. But Republicans see this as a cynical political maneuver, a wink and a nod to Silicon Valley to push conservatives off the internet altogether.

It will be up to midterm voters to break this impasse. In the meantime, it’s interesting to note that neither Google nor Meta was invited to the “listening session.” Whatever the validity of GOP suspicions, this was hardly a Big Tech conspiracy. It almost looked like the opposite.

Iran Abroad…

American authorities have issued arrest warrants for three Iranian nationals on charges of cyber-fraud and extortion (per the New York Times). The three allegedly launched malware attacks against hundreds of networks worldwide, particularly in the US and other countries hostile to Iran. The damage was serious: a children’s hospital and a domestic violence shelter figured among their victims, along with the expected government and business websites.

There’s more than a whiff of sabotage and spycraft about this case, which the Department of Justice’s statement to the Times did not obscure. All the accused work at companies connected to Iran’s Revolutionary Guards.

…And Iran at Home

The cyber-extortion plot seems to have started around 2020; it’s by clever timing or dumb luck that the American warrants should be issued just at the moment of Iran’s domestic crisis. The police murder of Mahsa Amini has sparked what looks more and more like a revolution, with scores of unarmed protesters slain. The Islamic Republic is in trouble. Authorities have blocked the internet in volatile regions, including greater Teheran and Iranian Kurdistan, since the 22nd. This was partly in response to a flood of anti-regime TikTok videos and other social media posts, often of young Iranian women cutting their unveiled hair as a gesture of defiance.

We talk so much about the importance of the internet to our daily lives that it’s worth imagining, if only as an exercise, what its complete shutdown would look like.

As to be expected, the White House condemned the Iranian government’s repression. Secretary of State Anthony Blinken announced on the 23rd that the Departments of State and the Treasury would issue a general license to allow American companies to offer web browsing, social media, video sharing, automated translation, and other services to users in Iran. Such services were previously banned under the Iranian Transactions and Sanctions Regulations.

But tech diplomacy only goes so far for a people without internet. That’s as true for states as it is for would-be, one-man states, like the Republic of Elon Musk. As PC Magazine reported, just after Blinken’s announcement, Musk ordered SpaceX’s Starlink satellite internet service to activate in Iran. Theoretically, this would mean good quality broadband beyond the control of the Iranian government. The Iranians responded the next day that they had blocked Musk’s satellite’s. That seems to have been a bluff, but whether they manage to disrupt Starlink or not, PC notes that a Starlink home satellite costs about $600.

A flash in the pan, in other words. This isn’t Musk’s first intervention in a foreign conflict: he offered Starlink services to Ukraine during the first few weeks of the invasion, and his stalled takeover of Twitter is a matter of geopolitical concern, as Citizen Tech has reported before. What gets lost in the noise of the news is how remarkable this is: a high-tech Caesar, jostling with sovereign states.

War Bulletin No. 8

Russia needs chips. Documents leaked to POLITICO show the Kremlin scrambling for materiel — not just missiles, of which the Russians are running low, but “semiconductors, transformers, connectors, casings, transistors, insulators” and other tech products, mostly produced by countries like Taiwan, the US, and Japan. The documents contained itemized “shopping lists,” organized by importance to the Russian war effort. Top of the list are chips.

International sanctions (including updated restrictions by the White House) have squeezed Russian tech supply, although a researcher at the Flemish Peace Institute (a Belgian government think tank) warns against overrating them. He told POLITICO that a gray market of online retailers and third party fronts has circumvented bans before.

But clearly, the Russians can’t rely on those channels. As early as May, Gina Raimondo of the Department of Commerce claimed that the Russian army had resorted to stripping chips out of kitchen appliances like dishwashers to press them into service as materiel, according to the Washington Post. It looks like she was right: good news for the Ukrainian army.

EU May Ban Facial Recognition

A majority of the European Parliament now supports an EU-wide ban on facial recognition technology. The center-left Socialists & Democrats parliamentary group and the left-ecologist Greens had called for such a ban for years; what made the difference this month was the decision by Renew, the centrist group whose members include La République En Marche, Emmanuel Macron’s party.

“We’re going to ban what we believe is not according to our values,” Dragoș Tudorache MEP (Romania, PLUS) told POLITICO. “As Europeans, we believe that we need to be free of the risks of mass surveillance.”

We mentioned Emmanuel Macron just now to highlight the key irony of this shifting mood. EU member governments, including France, are nervous about this. They see it as an impediment to law enforcement. Facial recognition AI is part of the anti-terrorism toolkit; the 2015 Bataclan terrorist attack in Paris is still fresh in the memory of French security forces, and unrest in Europe’s southern and eastern frontiers has governments nervous.

Nevertheless, the new anti-recognition majority in Strasbourg suggests that values may trump security concerns. A renewed dedication to human rights and republican values in response to the Ukraine War may be one cause; keeping up with American Big Tech may be another.

Vestager-1, Google-0

Moving from Strasbourg to Brussels, the European Commission won an important victory in the Court of Justice of the European Union against Google over competition law, a subject dear to Commission Vice President Margrethe Vestager. The Commission states Google is manipulating its Android phones to use the Google search engine and Google apps to the exclusion of others.

“Certain aspects of Google’s strategy for adapting its business model… constituted an abuse of a dominant position,” said the ruling. It was “an overall strategy by Google to cement its dominant position on the online general search market at a time when the importance of the mobile internet was growing significantly.”

This summer we reported on the hot autumn the European Commission faced as Big Tech firms like Google and Intel assembled their European legal teams. So far, it hasn’t looked good: Intel embarrassed the Commission in June (as Reuters reported), as did Qualcomm a month ago.

Ethereum Goes Green?

Sep. 15, the cryptocurrency platform Ethereum completed its promised “Merge,” a massive software update intended to cut 99% of the platform’s carbon emissions and protect against cyber attacks. At the heart of the Merge was a transition to proof-of-stake verification from proof-of-work, a process too complicated for even the Times’ crypto reporters to lay out succinctly. We needn’t bother here: suffice it to say that this architecture transition was incredibly risky, but seems to have worked more or less without a hitch.

The question is whether this virtuous strategic shift will soften the Biden administration’s unfriendly stance toward crypto. In August, for instance, Gary Gensler of the SEC warned the crypto sector that securities are securities, to be regulated like any capital market. The fact that a platform dealing in such securities is no longer contributing carbon dioxide to the environment will likely not change his opinion.

But who knows? Ethereum’s founder, boy wonder Vitalik Buterin, told Wired that the Merge was a key step toward legitimizing his company (and implicitly, his industry) to governments and other institutions. “Ethereum is not a proof of work network anymore, and that makes people who had… concerns, a lot more willing to use it now.”

We’ll see, Mr. Buterin.

What to Read Next: 

August 2022 Global Tech Policy Bulletin

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Black Hat at 25: Why Cybersecurity Is Going to Get Worse Before It Gets Better

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Binance Makes Multi-Billion Dollar Transfers Following FTX’s Collapse

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Binance Makes Multi-Billion Dollar Transfers Following FTX’s Collapse
  • Binance has made transfers worth several billion dollars since the downfall of FTX.
  • Many of these transactions are associated with proof of reserves demonstrations undertaken by centralized exchanges.
  • A recent transaction of $2 billion caught the attention of on-chain whale watchers.
  • Changpeng Zhao has stated that the transaction was to prove ownership of the wallet. 
  • The exchange has clarified that more of these large transactions will take place to verify the ownership to auditors. 

The downfall of FTX has paved the way for the world’s largest crypto exchange to cement its position as the most popular exchange. Binance has been actively involved in the aftermath of FTX’s collapse, from indirectly triggering the bank run on the Bahamas-based exchange, to leading the way in establishing greater transparency in the industry by publishing proof of reserves. 

$2 billion transferred by Binance

Blockchain intelligence firm Arkham Intelligence published a Twitter thread that took a closer look at the billions of dollars that Binance has moved around over the past few days. The report was prompted after on-chain whale watchers alerted crypto Twitter about a massive transfer by the exchange that involved 127,351 BTC worth a little over $2 billion. 

The transfer was seen as a bad sign by many on Twitter given the current crypto climate. Binance had recently published its proof of reserve (PoR) and users on Twitter speculated that the transfer was actually the exchange reversing funds upon completion of the PoR. CEO Changpeng soon clarified that the massive transaction was in fact part of the PoR, but not how it was being perceived. 

“The auditor require us to send a specific amount to ourselves to show we control the wallet. And the rest goes to a Change Address, which is a new address. In this case, the Input tx is big, and so is the Change.” CZ tweeted. 

Binance previously published its PoR, but some still remain skeptical because the exchange has not provided any details about its liabilities, in addition to there being no evident segregation between its own assets and customers’ funds. 

Arkham Intelligence also shed light on some of Binance’s other recent transfers. For instance, the $1 billion BUSD transfer by the exchange which was supposedly for the Industry Recovery Fund launched by CZ. Binance also received close to $1 billion from Tether as part of its chain swap from Solana to Ethereum. 

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BlockFi declares bankruptcy, files Chapter 11

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BlockFi declares bankruptcy, files Chapter 11

Summary:

  • Crypto lender BlockFi declared bankruptcy on Monday after exposure to FTX.
  • The company had some 100,000 creditors and around $256 million in cash when chapter 11 was filed.
  • FTX backed the lender with a $250 million loan following Three Arrows Capital exposure.

Cryptocurrency lender BlockFi filed for chapter 11 bankruptcy on Monday following exposure to troubled crypto exchange FTX, the exchange founded by Sam Bankman-Fried. 

BlockFi held $256.9 million in cash when it filed for bankruptcy. The company also has around $1 billion in assets and liabilities alike. Per details of the filing, the lender boasts over 100,000 creditors including FTX US and the Securities and Exchange (SEC). 

The crypto lender reported $275 million in unsecured claims tied to FTX US. Notably, Sam Bankman-Fried’s exchange loaned $250 million to BlockFi back in June. At the time, BlockFi faced liquidity concerns after exposure to insolvent crypto hedge fund Three Arrows Capital (3AC).

Also, the lender owes $30 million to the SEC as part of a settlement agreement from February 2022. The largest creditor was Ankura Trust Company LLC with a $729 million claim.

BlockFi joined the chat

Celsius, FTX, Voyager, and now BlockFi all filed for bankruptcy in 2022 as the bear market unsettled crypto CeFi players. Hackers exploited loopholes in DeFi smart contract code, stealing billions from protocols, cross-chain bridges, and other decentralized finance solutions. Reports said October was the worst month for crypto hacks so far.

Nevertheless, the decentralized technology that backs digital assets jumped forward in leaps and bounds. Ethereum, the second largest blockchain behind Bitcoin, successfully deployed a major technological upgrade.

Blackrock and Google tapped crypto for services and offerings as well, signaling institutional interest.

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Amazon Taps The Russo Brothers For TV Series About The FTX Saga

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Amazon Taps The Russo Brothers For TV Series About The FTX Saga
  • Amazon is set to release an eight-part series based on the collapse of FTX.
  • The streaming giant has teamed up with the Russo brothers and David Weil for the production of this series.
  • The Russo brothers have described the FTX scandal as one of the most brazen frauds ever committed. 
  • Apple is also working on a movie based on Sam Bankman-Fried’s activities in the run-up to FTX’s implosion.

Streaming giant Amazon has partnered up with famed directors Anthony Russo and Joseph Russo, also known as the Russo brothers, to release an eight-part TV series based on the spectacular collapse of Bahamas-based crypto exchange FTX.

Amazon will begin production in spring 2023

According to a report by Variety, the streaming firm has teamed up with AGBO, the production company of the Russo brothers who are known for their involvement with several Marvel movies. David Weil is set to be the executive producer of the show, in addition to writing the pilot. The show will go into production in spring 2023 and will be based on “insider reporting” by journalists who covered the downfall of what was once the world’s second-largest crypto exchange. 

This is one of the most brazen frauds ever committed; It crosses many sectors – celebrity, politics, academia, tech, criminality, sex, drugs, and the future of modern finance. At the center of it all sits an extremely mysterious figure with complex and potentially dangerous motivations. We want to understand why.” the Russo brothers said.

Amazon is reportedly trying to get the famed duo to direct the series as well. 

Apple is nearing a deal for book rights on SBF & FTX

Fellow streaming firm Apple is also looking to get a piece of the FTX pie. According to a report by Deadline, Apple is about to close a deal for the book rights to Michael Lewis’ story about the fall of Sam Bankman-Fried and his crypto empire. 

Michael Lewis is known for several books that were adapted into popular movies like Moneyball and The Big Short. Lewis had been following Bankman-Fried for six months before his exchange imploded, taking down several companies with it. The deal is reportedly in the mid-seven figures range and is expected to be adapted into a feature film. 

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