Sep 30, 2020

Axios Codebook

Zach Dorfman of the Aspen Institute

Hello, and welcome to Codebook. This week, we’re thinking about digital authoritarianism and how its China-led rise may help define the next century.

Today's newsletter is 1,498 words, a 5½-minute read.

1 big thing: The nat sec risk hiding in Trump's debts

Illustration: Aïda Amer/Axios

The blockbuster New York Times report on President Trump’s taxes reveals that the president is $421 million in debt, with more than $300 million coming due during Trump’s potential second term — and the identities of the president’s creditors remain unknown.

Why it matters: If some, or all, of this debt is held by foreign actors, it raises serious national security implications.

  • "As an intelligence professional, the most important thing is the unknown source of significant loans," says Douglas Wise, a former senior CIA and Defense Intelligence Agency official, because they hold "the potential for blackmail, manipulation and extortion."

The big picture: Standard counterintelligence practices counsel against granting access to sensitive information to individuals with a history of financial instability, because these can provide acute leverage to predatory foreign governments. Senior intelligence officials are even required to disclose all stock transactions in a monthly report.

Between the lines: An average American with Trump's financial profile — massive debts and a history of bankruptcies — would likely not get a security clearance, say former intelligence officials.

  • Large debts are a "glaring signal for any hostile intelligence service," says Marc Polymeropoulos, a former senior CIA official who retired in 2019. "Financial vulnerabilities are at the top of their list when pursuing targets for recruitment. ... That the president has such glaring vulnerabilities is jarring to see."

One key risk in President Trump's case is that "hostile intelligence services can quite easily penetrate foreign banks," says Polymeropoulos.

  • That means foreign intelligence agencies may already know a great deal more than the American public about Trump's finances, offering the governments they serve another potential point of leverage over the president.

Some former U.S. intelligence officials worry about these vulnerabilities even after Trump leaves office. Ex-presidents can traditionally continue to receive intelligence briefings, including bespoke classified briefings before traveling to specific countries.

  • "No one has ever questioned whether these individuals are vulnerable," says Larry Pfeiffer, who served as chief of staff to CIA director Michael Hayden. But, he notes, there is also no precedent for the "massive debt load that this president is holding."
  • "All of a sudden you have a leveraged private citizen Trump who still has access to existentially valuable secrets," worries Wise.

Flashback: The question of whether Trump's businesses have relied on foreign financing — and particularly Russian money — has simmered for years.

  • It’s been widely reported that after filing for business bankruptcy at least four times, Trump could no longer find U.S. banks to lend him money, so he went searching abroad for financing, including to Germany’s Deutsche Bank, which has lent the president hundreds of millions of dollars.
  • Deutsche Bank has been embroiled in controversy involving Russian money laundering, but the Trump Organization has also been linked directly to Russian capital.
  • At a 2008 realtor’s conference, Donald Trump Jr. said, "Russians make up a pretty disproportionate cross-section of a lot of our assets. ... We see a lot of money pouring in from Russia." Eric Trump reportedly said in 2013, "We don't rely on American banks. We have all the funding we need out of Russia" to finance the purchase of golf courses. (He subsequently denied making this statement.)

The Mueller probe declined to look deeply into the international money trail, according to senior investigator Andrew Weissmann — a key oversight, he believes.

Be smart: For Christopher Burgess, a 30-year CIA veteran who writes often on counterintelligence issues, the revelations about Trump’s indebtedness raise more questions than they answer.

  • "Is there a side agreement? What caused the bank [that lent him money] to take this risk? What’s his credit score?" asks Burgess. "The risk of them signing the money away was very high. The track record is that he screws everybody he does business with."

The bottom line: If any portion of the vast sum Trump reportedly owes is derived from overseas financing, the issue of his debt becomes a matter of national security — and unprecedented in the history of the presidency.

2. Trump's business dealings raise security concerns, too

Even before the recent Times report, President Trump’s financial entanglements raised the specter of foreign influence.

The big picture: Although Trump has said he turned over day-to-day management of the Trump Organization to his two sons, he hasn't divested from any of his businesses. Revelations from the Times report add to concerns that this state of affairs is shaping elements of Trump's foreign policy.

Catch up quick: National security questions have been raised about:

What's new: The Times report deepens and substantiates this picture, showing that in the president’s first two years in office, "his revenue from abroad totaled $73 million," including "$3 million from the Philippines, $2.3 million from India and $1 million from Turkey" in revenue from licensing deals.

  • It also shows that, in the past, the Trump Organization made over $5 million in a botched hotel deal in Azerbaijan — a project spearheaded by a family with links to Iran’s Revolutionary Guard — and $3 million on a licensing deal for a hotel in the United Arab Emirates.

Trump's business interests in the Philippines, Turkey and India also cloud the relationship between the U.S. and these countries, says Polymeropoulos.

  • "[Philippine President Rodrigo] Duterte and [Turkish President Recep Tayyip] Erdoğan at times act inimical to U.S. interests, yet Trump barely pushes back. And we have tilted decisively toward India under the Trump administration."
  • Even if these policy choices are entirely divorced from Trump’s personal finances, says Polymeropoulos, the “bottom line is that the income just makes anything that happens suspect."

What's next: The post-presidency briefings that will be available to Trump will, among other types of key data, contain highly sensitive economic intelligence, says Wise. "It will give him extraordinary advantages over other competitors."

3. DNI releases unverified Russian intelligence assessment

Director of National Intelligence John Ratcliffe. Photo: Tom Williams/CQ-Roll Call via Getty Images

In a highly unusual disclosure Tuesday, Director of National Intelligence John Ratcliffe declassified unverified potential Russian disinformation relating to the 2016 Russian election interference campaign.

Why it matters: The disclosure lends an air of legitimacy to Russia’s campaign to smear Hillary Clinton in 2016 and comes as the Trump administration and campaign seek to downplay ongoing Russian efforts to aid in the president’s re-election.

Driving the news: The letter, addressed to Senate Judiciary Chairman Lindsey Graham and purportedly a response to Graham’s request for information relating to the FBI’s “Crossfire Hurricane” investigation, detailed previously unreleased — and entirely unverified — Russian intelligence obtained by U.S. spy agencies.

  • "U.S. intelligence agencies obtained insight into Russian intelligence analysis alleging that U.S. Presidential candidate Hillary Clinton had approved a campaign plan to stir up a scandal against U.S. Presidential candidate Donald Trump by tying him to Putin and the Russians' hacking of the Democratic National Committee," says the letter.
  • "The IC does not know the accuracy of this allegation or the extent to which the Russian intelligence analysis may reflect exaggeration or fabrication." CIA Director Brennan briefed President Obama on this intelligence, says the letter.

Yes, but: Per Politico, this Russian intelligence report was deemed "as having no factual basis" by bipartisan Senate investigators during their long-running probe into Russian interference into the 2016 election.

  • The most interesting unanswered question in the letter is how, and by what means, the U.S. intel community has "obtained insight into Russian intelligence analysis."

Our thought bubble: It’s hard to overstate how bizarre Ratcliffe’s letter is. What is the public value of releasing unverified Russian intelligence that the intelligence community believes "may reflect exaggeration or fabrication"?

  • The letter states that the release of this intelligence will not affect the ongoing Durham probe into the origins of the FBI’s investigation into the 2016 Russian interference campaign.
  • But it does appear to try to sow doubt over Russia’s 2016 active measures by tying them to the Clinton campaign.
4. Microsoft report highlights trends in cyber crime

Some 70% of cyberattacks by cyber criminals are now phishing-related, according to a new report from Microsoft, which also found that attacks on critical infrastructure represent just a small slice of state-backed hacking efforts.

Why it matters: In the past, the report notes, "cybercriminals focused on malware attacks" to compromise their targets. The shift reflects cyber criminals’ skill at quickly adapting, in this case by pivoting to tried-and-true human engineering to trick people into handing over credentials.

Of note: In the last year, Microsoft analysts observed hackers affiliated with "16 different nation-state actors either targeting customers involved in the global COVID-19 response efforts or using the crisis in themed lures to expand their credential theft and malware delivery tactics," says the report.

  • These attacks targeted government health care organizations, as well as academic and commercial entities working on vaccine research, per the report.

Meanwhile: Though much attention has focused on breaches in critical infrastructure, the vast majority of cyber espionage observed by Microsoft is unrelated to it, says the report.

  • 90% of Microsoft’s "nation-state notifications in the past year have been to organizations that do not operate critical infrastructure," says the report.
  • "Common targets have included nongovernmental organizations (NGOs), advocacy groups, human rights organizations and think tanks focused on public policy, international affairs or security."
5. Odds and ends
  • Rep. Lauren Underwood (D-Ill.) is the new chair of the House Homeland Security’s cybersecurity subcommittee. (The Hill)
  • The dangers of Facebook and election-related disinformation. (Washington Post)
  • Kuwait’s emir, known as a "regional peacemaker," has died at 91. (Wall Street Journal)
  • Why Azerbaijan and Armenia are fighting over the disputed Nagorno-Karabakh territory. (Foreign Policy)
  • The lawyer for China’s influence agents. (Axios)
Zach Dorfman of the Aspen Institute