02 SEP 16 – Executive Intelligence Summary

EXECUTIVE INTELLIGENCE SUMMARY – 02 September 16

[wcm_nonmember]In this EXSUM (2100 words)…

  • Swing states question DHS desire to protect election
  • 01 Oct: Drop dead date for US control of internet
  • Dissecting Yellen’s Fed speech
  • Trending: Universal basic income
  • And more…

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Priority Intelligence Requirements:

PIR1: What are the current indicators of systems disruption that could lead to a SHTF event?

PIR2: What are the current indicators of an outbreak of global conflict? (Russia, China, Middle East)

PIR3: What are the current indicators of military, government, political, or social-related instability or violence that leads to widespread domestic conflict?

PIR4: What are the current indicators of economic, financial, or monetary instability that leads to civil unrest?


PIR1: What are the current indicators of systems disruption that could lead to a SHTF event?

Iran discovers malware in critical infrastructure systems

Tehran Times this week reported that malware was recently discovered in two of Iran’s petrochemical plants.  In a sign that foreign governments were directly involved, an Iranian defense official said, “Investigations indicated that the industrial software packages, bought from foreign countries, were already corrupted.”

Last week, we reported that the National Counterintelligence and Security Center would be providing threat intelligence to US supply chain managers in an attempt to mitigate the risk of exploitation in an increasingly vulnerable area of critical infrastructure.  Supply chain management — to include software — is continually vulnerable to exploitation, as was seen most recently in Iran, and the US is no exception.

 

01 Oct: Drop dead date for US control of internet

On 01 October 2016, the Obama administration is set to hand most of the control over the internet from a US firm to an international organization known as Internet Corporation for Assigned Names and Numbers (ICANN).  Proponents claim that the internet should be governed by the international community and not just the US; however, a quick look at the “global community” shows a laundry list of governments that restrict and punish free speech.  Based on restrictions on the freedom of speech around the world, our concern should be that the internet will one day become regulated to exclude varying forms and topics of free speech (to include anything deemed as “extremist” or “hate speech”).


PIR2: What are the current indicators of an outbreak of global conflict? (Russia, China, Middle East)

The prospects of global conflict continue to revolve around the usual players: Russia, China, and the Middle East. The ways in which global conflict could cause or contribute to a SHTF scenario in America are myriad and they largely depend on which conflict is initiated. We’re certainly at risk of cyber attack in the event of conflict in any of the three regions. Systems disruption, like the price and availability of fuel, is also a top concern that could cause a SHTF event.

 

NATO-Russia

The big news this week comes from cybersecurity firm Crowdstrike, which accused the Russian hacking group known as COZY BEAR of hacking a number of Washington DC think tanks and researchers last week.  COZY BEAR is the same group that is thought to have hacked the DNC, the Pentagon, and the State Department.  There are a few ways that we can look at this long string of hacking events.  The first is that Russia is conducting intelligence preparation of the battlefield by gathering as much information as possible about key personnel and current or future US policy.  The second way is that Putin has little to nothing to lose by poking the US.  The Russian stock market is reaching new highs, despite crippling economic sanctions and the low price of oil.  Russia is really quite resilient, and Putin is proving that.  Cyber esionage puts US national security at risk, but it’s difficult (impossible) for the Obama administration to justify a conventional response to asymmetric harassment.  We’ve seen Putin aggressively harass Obama’s foreign policy, and I think that continued Russian cyber exploitation against US systems just proves just how feckless the Obama administration has been.

In other news, Russia announced plans to set up three divisions (~10,000 personnel per division) in western Russia; two in the western military district and another in the southern district. They’re expected to remain there until the end of 2016 at the earliest.  The snap checks to test readiness, reported in last week’s EXSUM, continue along Russia’s border with Ukraine, especially in and around Crimea.  It’s not uncommon for Russia to first announce snap checks and exercises to avoid inflaming tensions with NATO (like they did with some fanfare this summer), however, recently the Russian military started holding unannounced exercises; no doubt to keep Ukraine and NATO on their toes.  Putin certainly enjoys playing the wild card on the West, and it’s something that he’s grown adept at doing.

Former NSA counterintelligence agent John Schindler has often accused Russia of having unparalleled access to US decision making through its spies in DC.  Occam’s razor suggests three possibilities.  First, Russia has penetrated US intelligence and government circles — that’s a certainty, but to what degree is unknown.  Second, the Obama administration is inept at dealing with Putin — a very plausible explanation.  And third, Obama is willfully downplaying the Russian threat (something he did throughout his 2012 campaign) and is avoiding direct confrontation with Putin.  In this case, the answer as to why Putin stays one step ahead of Obama could be a combination of the three.  I remain very, very concerned about stumbling into a conflict with Russia.

US-China

Although the news coverage of the conflict in the South China Sea ebbed in recent weeks, tension is still high as China moves military hardware and aircraft to its artificial islands there.  Japan purposefully embarrassed China’s Ambassador to Japan this week in retribution for China’s activities in and around Japanese waters.  During a scheduled meeting, the Chinese ambassador was left waiting for ten minutes — with cameras rolling — until the Japanese Foreign Minister entered the room and began lecturing, saying, “Relations with China are becoming noticeably wors[e] because China is trying to change the status quo.”

Despite a handful of nations vying for the same sea space for what they consider national security imperatives, there are plenty of pressures keeping the peace in the region.  For starters, China continues to say that it will go to war to defend their artificial islands.  I think that’s true, however, the Chinese navy is untested and in some exercises from last year, they had substantial command and control issues.  National sovereignty is a red line issue for China, but there may be some reluctance there to engage in battle unless absolutely necessary.  Should the Chinese navy engage and perform poorly, they would experience a huge embarrassment.  On the other side, the Philippines, Vietnam, and Japan are all involved in the contested region (and the UN ruled in July in favor of the Philippines against China), but there are questions about their ability to stand toe-to-toe with China without help from the US.  And as long as China doesn’t begin interfering with the shipping lanes in the region, through which $5 trillion in global trade transits each year, I don’t see the US getting involved more than it already is.


 

PIR3: What are the current indicators of military, government, political, or social-related instability or violence that leads to widespread domestic conflict?

AQ threatens new attacks

A former Guantanamo detainee recently warned that al Qaida (AQ) still intends on targeting the West.  “[Attacks] will continue but will be [in] a creative and new way by men of your own [who] carry your names, speak your language, and did not receive training in Afghanistan, and whose names are not on the CIA and FBI black list – men who might have in the past drunk alcohol, eaten pork, or been soldiers in your army.”

One of the problems we experienced in Afghanistan was that Taliban fighters began infiltrating the Afghan army and national police forces, and then carried out insider attacks.  That’s been highly problematic and very difficult to fight, and attacks almost always make the news.  It was a huge “public relations” win for the Taliban because they illustrated that the powerful US military was basically helpless to combat that tactic.  Several years ago, AQ officials warned the West that future attacks would involve Western white men and women who had converted to Islam.  To date, we’ve not seen that, although they’ve likely been pursuing that strategy for some time.  As long as recruitment of Americans to conduct terror attacks remains difficult, what’s more likely is that foreign terror attacks will continue to radicalize and encourage Muslims already in the West to carry out their own attacks.  The more coordination and communication involved in plotting terror, the higher the risk of discovery is.  For that reason, lone wolf attacks are far more likely that very complex and coordinated attacks.  We shouldn’t rule out the possibility of future insider attacks in America, like the 2009 case of Major Nadal Hasan.


PIR4: What are the current indicators of economic, financial, or monetary instability that leads to civil unrest?

Dissecting Yellen’s Jackson Hole speech

The theme of last week’s Federal Reserve conference in Jackson, Wyoming was, “Designing Resilient Monetary Policy Frameworks for the Future,” and it got me thinking.  If the Federal Reserve is spending a week outlining plans to build resilient monetary policies for the future, then there must be a significant threat to the monetary system… where there’s smoke, there’s fire, so to speak.

Yellen starts off her speech by saying that the “pre-crisis toolkit” was insufficient for the Great Recession.  In addition to retaining those tools, policy makers may need “additional options” to address future economic risks.  Despite several warnings peppered throughout the speech, Yellen states that the Federal Open Market Committee (FOMC) forsees moderate economic growth over the next few years.  She then cushioned the FOMC’s forecast by saying that it’s wholly dependent on future data confirming the outlook, and that the economic outlook is uncertain.  Reiterating the economic uncertainty, she says, “[W]e want a policy toolkit that will allow us to respond to a wide range of possible conditions.”

Regarding the future toolkit, Yellen states that future interest rates will hover around three percent, instead of the seven percent averaged from 1965 to 2000.  When the Fed cut interest rates during previous recessions, they did so at about five and half percent.  During future recessions, there will be less ability for the Fed to cut interest rates to spur economic growth again.

Overall, Yellen spells out that the future economy is not likely to be as strong as what we’ve experienced.  Demographic trends, such as aging savers and retirees who are more risk averse and keep their money out of stocks, is likely to weigh heavily on overall investment and temper economic growth.

 

Trending: Universal basic income

As the focus on how automation and machines threaten the US job market, I’ve seen a greater push towards a universal basic income; that is, a basic income regardless of employment, profession, vocation, effort or doing any actual work.  Bernie Sanders in 2013 described it as “inevitable,” pointing to half of US jobs being lost to machines within 20 years.  And you may remember that it’s also on the policy platform of the Movement for Black Lives (M4BL).  What’s worse is that it’s a concept actively being studied by think tanks and policy makers in and around DC.  What will millions of Americans — specifically, low skill and low wage earners who have little to no prospect of employment — do to earn a living?  It’s far too early to say exactly how far away we are from the universal basic income, but at the rate we’re going, one thing on which I actually agree with Bernie Sanders is that it’s going to be inevitable.

 

Lew previews G20 Summit

On 04-05 September, world leaders will attend the G20 economic summit in China.  On Wednesday morning, Treasury Secretary Jack Lew gave a preview of what we can expect.  In addition to reducing the monetary and economic friction from manipulated currencies, strengthening the global financial system, and avoiding future economic calamity; President Obama will continue pushing to sustain an “open, integrated, global economy”.  Lew noted that there are concerns about globalization, but says the answer isn’t in ending it.  Despite the Brexit, the future disintegration of the European Union, and populist/nationalist sentiment in the Western world, leaders are still pushing for further globalization.  Lew stated that tax evasion and avoidance will be a topic of concern during the summit, and mentioned that greater access to the banking system is a way to diminish criminality in the cash economy.


Appendix:

EXSUM: Executive Intelligence Summary

FOMC: Federal Open Market Committee

M4BL: Movement for Black Lives

NATO: North Atlantic Treaty Organization

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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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