National Intelligence Bulletin for 26 January 2018 – Forward Observer Shop

National Intelligence Bulletin for 26 January 2018

The National Intelligence Bulletin is a weekly look at national security, domestic systems disruption, the risk of failing critical infrastructure, and threats to social, political, economic, and financial stability in the United States. This report is available each week for National Intelligence subscribers.

In this National Intelligence Bulletin… (3,130 words)

  • GAO urges government to target ADS-B
  • Chinese espionage continues to pose threats
  • One million drone operators register with FAA
  • Whistle blower alleges “secret society” exists in FBI
  • Rejected by DACA, violent illegals remain unaccounted for in U.S.
  • FBI: New wave of MS-13 gang members headed to U.S.
  • Violent crimes drop after DOJ charges record number of defendants
  • DHS to help secure federal research facilities
  • President Trump, Treasury Secretary, and Commerce Secretary send mixed signals at Davos
  • G20 to discuss global regulation of Bitcoin, cryptocurrencies in March
  • Jim Rickards continues warning of future financial panic
  • China covers up financial, debt problems
  • And more…

In Focus: Another volatile week for the Trump administration. In Trump’s defense, he’s not exactly surrounded by people who support him. Government aparatchiks continue to campaign against America First, stacking bureaucratic cards against the president’s plans. And then the administration also finds itself hounded by the media at every turn. The president’s enemies — some of them created by the president himself — continue to call for impeachment. And, following up from a report from a couple weeks ago, special counsel Robert Mueller still wants to question the president as a part of the investigation. To be specific, Mueller is likely looking for evidence of obstruction of justice. Reports from this week indicate that Mueller may be wrapping up the first part of his investigation [source], and wants to finish up by questioning the president on the firings of former national security advisor Mike Flynn and former FBI director James Comey. [source] The other part of the investigation remains about ‘collusion’ and Russian meddling in the 2016 elections.

Is this investigation a sham? Yes and no.

Obstruction of justice is a real possibility. The Trump team was trying to stave off an investigation that would clearly be biased against him – to wit, several cases of bias exhibited against the president by members of Mueller’s own team, who have since been reassigned elsewhere. And while Mueller will want the president to swear-in his statements under threat of perjury, remember that when questioned about her email server, former Secretary of State Hillary Clinton was not placed under oath. Peter Strzok, the deputy assistant director of FBI counterintelligence who led the investigation into Hillary Clinton, was clearly biased in favor of Clinton (which is why the investigation went nowhere) and clearly biased against Trump. This in and of itself is a travesty of justice.

The firing of James Comey, after the president allegedly requested Comey to intervene in the investigation of Mike Flynn — if confirmed — could absolutely be considered obstruction of justice. And then there are reported cases of President Trump attempting to pressure Director of National Intelligence Dan Coats and NSA Director Mike Rogers to intervene into the investigation of Mike Flynn, as well. These three cases will certainly be covered in Mueller’s interview of the president –which may be just weeks away — and if Mueller is going to recommend charges over obstruction of justice, it’s where he will likely hang his hat.

As for collusion, I doubt anything will come of it. The evidence of collusion is the real conspiracy; aided by news reports involved in, at best, misinformation, and, at worst, disinformation, which are then pushed by Trump’s political enemies. Several democrats have gone on record to say there’s nothing there, as have several members of Trump’s own team. When President Trump says there was absolutely no collusion, I believe him.

Priority Intelligence Requirements

PIR1: What are new the indicators of systems disruption and threats to critical infrastructure?
PIR2: What are the new indicators of potentially disruptive social, cultural or political conditions or events?
PIR3: How are state and federal agencies preparing for domestic conflict and/or instability?
PIR4: What are the new indicators of systems disruption and threats to the economic or financial industry?

PIR1: What are new the indicators of systems disruption and threats to critical infrastructure?

GAO urges government to target ADS-B

Not that it’s any great secret, but the average internet user can track civilian and military aircraft mid-flight in real-time. We’ve previously used websites like FlightAware 24/7 and software-defined radio (SDR) dongles that use the Automatic Dependent Surveillance-Broadcast (ADS-B) to see who was coming and going in our area and dozens of other areas around the world. (Analyst Comment: Each aircraft with these transponders will broadcast this information automatically.)  A recent report from the Government Accountability Office (GAO) warns that ADS-B currently provides “an aircraft’s precise location, velocity, and airframe dimensions, and better enables real-time and historical flight tracking” for people who might not need to know this information. [source]

(Analyst Comment: GAO is concerned that ‘bad actors’ could use information provided by the ADS-B system to target aircraft for physical, electronic, or cyber attacks. We don’t believe that this presents an imminent threat, however, it would greatly benefit pre-operational surveillance of a target, especially where it concerns target identification via tail numbers. GAO published a classified version of this report and provides some security recommendations to mitigate the risk of an electronic or cyber attack against the ADS-B system.)

Chinese espionage continues to pose threats

News outlets were buzzing in previous weeks regarding the arrest of a former CIA officer — a U.S. citizen of Chinese origin — who is being accused of retaining highly classified material after his departure from the Agency in 2007. In truth, the story is a little more salacious: the former officer is suspected of providing CIA source information to Chinese authorities, which resulted in the arrest and murder of numerous Chinese citizens. [source]

(Analyst Comment: At least once a month, I see the Department of Justice publish a public affairs release about the arrest or conviction of a Chinese national engaging in espionage against the United States on behalf of the Chinese government. We’ll work on a roll-up of events from 2017 and maybe have a running count for 2018. Most recently, a 31-year old Chinese national was sentenced to five years in prison for theft of proprietary source code from his U.S. employer. This is very common — just about once a month by my recollection — but it’s causing serious erosion to U.S. technological advantages over China. Much of Chinese technology is derivative of what’s been stolen from the U.S. and other advanced Western nations. Chinese espionage is highly dependent on Chinese nationals and U.S. citizens of Chinese descent. As unpalatable as it may be — and it’s certainly not politically correct — the only way to significantly disrupt this type of Chinese espionage is for U.S. tech companies to end the practice of hiring Chinese nationals, and possibly even U.S. citizens of Chinese descent. Otherwise we’ll continue to see technology siphoned away from the U.S. in what can only be described as the largest transfer of wealth in world history. ADDENDUM: After writing this report, I saw that DOJ convicted a Chinese-based company of stealing trade secrets from a U.S.-based company.)

One million drone operators register with FAA

Despite a rocky start, the Federal Aviation Administration’s database of drone operators has grown to one million. After a court overturned the FAA’s mandatory registration rule, the 2018 National Defense Authorization Act required commercial drone operations to register. [source]

PIR2: What are the new indicators of potentially disruptive social, cultural or political conditions or events?

Whistle blower alleges “secret society” exists in FBI

Sen. Ron Johnson, R-Wis., told an American news network on Tuesday that an FBI whistleblower has confirmed to congressional investigators that a “secret society” exists within the bureau, and that its members worked to prevent Trump from winning the November 2016 election. In addition, the society members met after Trump won, in secret locations away from the Justice Department and FBI headquarters in Washington, D.C., Johnson said.

On Monday night, Reps. John Ratcliffe R-Texas, and Trey Gowdy, R-S.C., spoke about the “secret society” texts between FBI investigators Peter Strzok and Lisa Page, which were contained within a 384-page batch of text messages delivered to Congress from the DOJ last Friday. Of note Ratcliffe says that Strzok and Page were included in the clandestine anti-Trump cabal at the highest levels of the American intelligence community.

“What we learned today in the thousands of text messages that weve reviewed that perhaps they may not have done that (checked their bias at the door). There’s certainly a factual basis to question whether or not they acted on that bias. We know about this insurance policy that was referenced in trying to prevent Donald Trump from becoming president,” Ratcliffe said. “We learned today from information that in the immediate aftermath of his election that there may have been a secret society of folks within the Department of Justice and the FBI to include Page and Strzok to be working against him,” he added. [source]

Rejected by DACA, violent illegals remain unaccounted for in U.S.

During a Congressional hearing, an official from U.S. Citizenship and Immigration Services (USCIS)charged with implementing Deferred Action for Childhood Arrivals (DACA) testified that of the 2,127 recipients who had lost their status due to criminal or gang-related activity, some 1,475 had either been released from ICE custody or were not recorded as being removed, detained or released, meaning that they likely remain in the United States and are currently unaccounted for by ICE officials. [source]

FBI: New wave of MS-13 gang members headed to U.S.

According to an FBI official, El Salvadorian gang Mara Salvatrucha, colloquially known as MS-13, is sending more gang members to the United States. “They’re very much interested in sending younger, more violent offenders up through their channels into this country in order to be enforcers for the gang,” an FBI official told Congress last week. After a recent trip to El Salvador, House Homeland Security Committee chairman Peter King (R-NY) said that law enforcement in El Salvador told him that gang leaders were “frustrated that MS-13 members in [the U.S.] country are not violent enough”. The leaders also said they wanted to send “more violent members” to America. One ICE official commented that his organization is “looking at the information we’re getting and doubling down our efforts against MS-13.” [source]


Other Notable Indicators

President Trump offers path to citizenship for 1.8 million illegal immigrants

PIR3: How are state and federal agencies preparing for domestic conflict and/or instability?

Violent crimes drop after DOJ charges record number of defendants

According to a preliminary report on violent crime for 2017, the FBI says that violent crime rates leveled off last year after rising by seven percent during 2015 and 2016.

Violent rime rates from January to June 2017 actually dropped by 0.8 percent, compared to the same time during 2016. And although murders increased by 1.5 percent nationwide over the first half of 2017, that represents an annual decrease compared to the first half of 2016 where the murder rate increased by 5.2 percent. Rape, robbery, and aggravated assault all decreased during the first half of 2017.

In a written statement, Attorney General Jeff Sessions reported that, “Last year, we charged more defendants with violent crime offenses than in any year in decades. We convicted hundreds of human traffickers, arrested thousands of violent gang members, and charged hundreds of people suspected of contributing to our opioid abuse epidemic. Working with our state, local, and tribal law enforcement partners, we are making a difference and protecting our communities. These data are encouraging, because it is essential that drastic increases in violent crime not become the new normal. We are dedicated to ensuring they do not.” [source]

DHS to help secure federal research facilities

The Department of Homeland Security (DHS) wants to help federal research facilities — many of which house and conduct research fatal diseases and chemicals — with their cybersecurity. Fearing that hackers could potentially introduce malware into internet-connect devices at the laboratories, DHS awarded a contract to a cybersecurity firm to test software that scans the networks at these facilities. “You can cause the containment to breach, you can cause damage to the people inside and you can certainly release dangerous pathogens outside the facility … by just manipulating the small embedded computers that control the building,” according to a cybersecurity official. [source] (Analyst Comment: Although I’m wary of quoting cybersecurity officials who are trying to get government contracts, both nation-state and criminal hackers have likely considered targeting these facilities, some of which contain SARS, yellow fever, West Nile virus, anthrax and other potentially fatal viruses, diseases, and chemicals. In a time of war, these kinds of attacks are certain to complicate homeland security.)

PIR4: What are the new indicators of systems disruption and threats to the economic or financial industry?

President Trump, Treasury Secretary, and Commerce Secretary send mixed signals at Davos

As the dollar continued its slide to three year lows this week, Treasury Secretary Steve Mnuchin seemed to praised the dollar’s decline, saying that it would benefit the U.S. economy. “Obviously a weaker dollar is good for us as it relates to trade and opportunities,” Mnuchin said, adding that the short-term decline is “not a concern of ours at all.” His long-term expectations of the dollar seemed to improve: “Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency.” [source] (Analyst Comment: In the past year, the dollar has retreated 15 percent from the Euro, nearly 14 percent from the British Pound, and nearly 8 percent from the Canadian Dollar. In fact, it’s lost value compared to each of the G10 currencies.)

And Commerce Secretary Wilbur Ross seemed to imply that the U.S. was ready for a trade war, presumably with China. “There have always been trade wars. The difference now is U.S. troops are now coming to the ramparts.” [source] After these comments by Mnuchin and Ross, the media jumped on the opportunity to hype a trade war, accusing both Mnuchin and Ross of doing the same. Shortly after, President Trump said that Mnuchin’s words were taken out of context (which may be true), and that the dollar will ultimately strengthen under his tenure. The president also denied that the administration was pursuing a trade war with China.

G20 to discuss global regulation of Bitcoin, cryptocurrencies in March

Britain’s finance minister, speaking at Davos, said that his office needs to be cautious about Bitcoin, but added that the level of adoption could become “important in the global economy”. He also said that regulating Bitcoin and cryptocurrencies would be on the docket at the G20 meeting in Argentina this March. [source] (Analyst Comment: Does this sound bad or good for Bitcoin? Well, there’s a case in either direction. If governments do begin to adopt regulations for Bitcoin and other cryptocurrencies, then the digital currencies will certainly lose some of their autonomy, especially as governments weigh on coin developers and decision-makers. At the same time, if governments — unfortunately — adopt regulations, then these coins will become more interesting for institutional investors as assets — really, the creation of an new asset class — which will increase demand and likely drive the price up. To be sure, not every coin will be regulated because there will always be ‘underground’ and completely decentralized coins out there. But as far as Bitcoin is concerned, maybe we should get ready to witness the end of the Wild West era of Bitcoin, and a lot more government rules surrounding ownership and trading in the coming years.)

Jim Rickards continues warning of future financial panic

Alternative economist and eternal gold bug Jim Rickards discussed in a recent interview a future financial panic. Here’s a synopsis of his argument:

  • The Federal Reserve believes the economy is stronger than it really is.
  • The Federal Reserve is taking U.S. dollars out of circulation and raising interest rates because they believe too much inflation will otherwise happen.
  • This is too much tightening, and it will lead to disastrous consequences.
  • It’s been nine years since the last financial crisis or panic. And we’re overdue of a recession.
  • The Federal Reserve typically needs to drop interest rates by 3-4 percent in order to help the economy grow out of a recession. The Federal Funds Rate is currently at 1.5 percent.
  • The Federal Reserve is in a race to raise interest rates to three percent before the next recession hits.
  • Not being able to achieve a three percent drop in interest rates means the Fed will have to print more money, called Quantitative Easing (QE).
  • But the problem is that the Fed has already completed several rounds of QE, so they’ll have to print even more money than the last round. This is the law of diminishing returns.

Finally, Rickards is predicting that the Federal Reserve will go after money market and 401k accounts, in effect “borrowing” the money there, or nationalizing those accounts; taking that money already in circulation instead of printing trillions more out of thin air. Rickards also predicts that the Fed will introduce capital controls to avoid Americans from taking all their money out of the bank (he gives the example of restricting ATM withdrawals). “I expect a weaker economy than the mainstream in 2018. Perhaps, a stock market crashing based on that alone. I also expect another financial panic. It’s impossible to say when, but eight years on, nine years on, I would say sooner than later. And this response function is going to be something that people haven’t seen since the 1930s.” [source]

(Analyst Comment: Alternative economists and investors like Jim Rickards, Jim Rogers, and others have built a career warning of financial panics and global contagion, but only because it’s happened before. While I don’t disagree with Rickards’ reasoning, I should note that they’ve been warning of another financial collapse for years. As we noted last year, Jim Rogers — who started the extremely successful hedge fund, Quantum Fund, with George Soros — has been calling for a major economic and financial meltdown every year since at least 2012. Eventually, he may be right.)

China instructed media outlets to downplay financial debt problems

One trend we’ve followed for a while is that of Chinese public and private debt: massive amounts of debt that could lead the country to a meltdown reminiscent of the U.S. financial panic of 2008. We know there are trillions of dollars worth of ‘off book’ debt, hidden from pubic view, and that an economic slowdown or recession might create some of the same conditions in China experienced when the collateralized debt bubble popped in the United States. According to the South China Morning Post, the Chinese government has warned its media outlets not to spread panic about the growing debt problem. [source] (Analyst Comment: This is not an indicator of a Chinese financial panic, but it absolutely is an indicator that the Chinese Communist Politburo wants to avoid a financial panic at all costs, including glossing over the truth. It appears that the government wants to buy time and help highly-leveraged corporations to unwind their debt in order to avoid a financial house of cards crisis. And just like the U.S. debt crisis took the world down with it, a Chinese repeat could have far-reaching implications, as well. It’s something we’ll keep an eye on, especially for PIR 4.)

Samuel Culper is a former military intelligence NCO and contract Intelligence analyst. He spent three years in Iraq and Afghanistan and is now the intelligence and warfare researcher at Forward Observer.

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