For Ciphertrace’s Pamela Clegg, the key to successful investigations in real, virtual worlds is following instinct, being a good teacher, and perpetual learner

By Brian Monroe
bmonroe@acfcs.org
June 21, 2023

In any field, there comes a time when a professional asks themselves: does what I do matter? Am I making a difference? In a given sector? In the world? Or in people’s lives?

It is a question very common for compliance investigators. They often toil away dispositioning alerts and sending critical reports to the government on a bevy of potential crimes – money laundering, fraud, human trafficking, corruption and more. But rarely do they get to see the culmination of their efforts.

For Pamela Clegg, Vice President, Crypto Investigations and Risk at blockchain analytics pioneer Ciphertrace, a Mastercard company, the answer to that age-old question came during a case when the tools, expertise and financial crime instinct she had crafted for more than a decade came together to help rescue a young girl being trafficked.

“It’s hard to top that feel-good moment of having a direct impact on someone’s life like that,” said Clegg, who has been at Ciphertrace for nearly five years. “Obviously when you work on a case in which there is a favorable outcome, that is immensely rewarding.”  

But there was lot going on behind the scenes for Clegg – who had experience in the government and in the private sector leading fincrime compliance programs, and the others on her team – to be able to make the right choice in that case and so many others.

Historically, anti-money laundering (AML) compliance teams and fraud investigators must weigh a host of factors in and out of their dedicated areas of expertise and make a final decision viewed through the lens of their own individual experience.

Investigators must analyze a swirling vortex of data, including the transactions at play, the ways that money moved, the touchpoints with the formal financial system, the regions involved and discern if they breach the threshold of suspicion to being tied to financial crime, and further, the underlying illicit act generating the tainted funds.

Even after creation of crypto stumbling block, investigators must follow the money

Already a challenge in the best of times, the complexity of following the money exploded even more after the 2009 creation of the modern-day virtual value sector, a cryptocurrency, called Bitcoin.

At that time, Clegg was a few years into being a U.S. Foreign Service Officer, focusing primarily on Latin America and the Middle East in counternarcotics and counterterrorism.

Unbeknownst to her at the time, she had set herself on a path that would intersect with the nascent crypto sector – a space that was frustrating investigators who hadn’t yet cracked the code of connecting bad actors to their actions on the transparent, immutable, yet inscrutable blockchain.

But one foundational theme from those years is as true today as then: money is the lifeblood of narco cartels and terror groups – to continue and expand operations and grease the palms of political powerbrokers and corruptible law enforcement agents.  

“In the very beginning, when I was working Counternarcotics and Counterterrorism, I quickly realized that the best way to impact their operations is to attack the financing of their operations,” Clegg said.

“Their power, reach and control are greatly diminished without access to funds to pay off corrupt government officials, buy weaponry, or pay new soldiers or members.”

After 10 years of working at what she calls an “extraordinarily fast pace and living overseas for half that time,” Clegg moved back to Texas near family where she became the head AML officer, also called a Bank Secrecy Act (BSA) officer, for a large community bank in Texas.
As part of that role, she attended AML and fraud conferences and started hearing about a new way to move money: crypto and virtual currencies.

Her timing was particularly good as an entirely new industry was forming around her to make the connection between the human scammers eluding authorities in the corporeal world and the evidence of their digital selves skipping into and out of virtual realities: blockchain analytics.
“To me, crypto and virtual currency seemed like the wave of the future, and I wanted to learn as much as possible,” Clegg said. “It was at one of these conferences that I met the Ciphertrace team and shortly after, embarked on my next challenge.”

As value of individual digital coins ebb and flow, blockchain analytics space set to soar

Partially on her side as well is fortuitous timing to be a crypto crimefighter.

While the virtual value space has been battered by a “crypto winter” and major actions against many of the largest exchanges in the world – Coinbase, Binance, FTX and others – causing Bitcoin prices to generally plunge, forecasts for the overall blockchain sector are rosy.

The global blockchain market size was estimated to be $7.4 billion in 2022 and is forecast to eclipse $94.0 billion by the end of 2027, a growth rate of more than 66 percent, according to published reports.

That bodes well for Ciphertrace, which has helped U.S. federal regulatory and investigative agencies, including the U.S. Department of Justice, follow and recover funds tied to ransomware attacks, trace funds tied to exchanges with lax compliance countermeasures and uncover links to illicit charities soliciting funds in Bitcoin, just to name a few.

In all, Ciphertrace’s blockchain analytics de-anonymize transactional flows by gathering millions of data points weekly, and then applying machine learning to its massive data pool to trace value movements to legitimate entities as well as criminal enterprises.
The company came into being spearheaded by many of the brightest minds in the areas of cyber shielding, finance, technology and the military defense space.

Ciphertrace was founded in 2015 by experienced Silicon Valley entrepreneurs with deep expertise in cybersecurity, eCrime, payments, banking, encryption, and virtual currencies.

The U.S. Department of Homeland Security (DHS) Science and Technology (S&T) and DARPA initially funded Ciphertrace, with the team tracking criminal activity tied to Bitcoin as early as 2011.

With the company being a partner to banks, regulators and investigators, it was a natural progression for Clegg.

She believes that having a background and experience in AML and financial crimes “has been extremely helpful,” and pivotal to her success at brick-and-mortar banks and blockchain sleuthing.

In tandem, she also has worked to see the bigger picture with a “broad understanding of the way criminal organizations function, the patterns and the flow of funds [when generating revenue, moving money in the fiat and digital worlds and what specific money laundering models these groups used].”

But what really is a huge advantage is “instinct and that cannot be taught,” Clegg said.  

“This comes from my 10 years of experience working for the government in so many different operational situations, some involving financial crime,” she said.

“It’s the feeling of, ‘there’s something weird about this transaction,’ that enables me to look beyond the obvious and explore other tangents and aspects of the case,” Clegg said. “It’s this instinct that I tap into when conducting an investigation.”
Clegg was kind enough to share some of her knowledge and insight in our latest ACFCS Member Spotlight.

Who inspires you?

The true crypto experts out there. With the ever-evolving crypto landscape, keeping apprised of the new technologies and techniques is a challenge in and of itself, but then there are those who don’t just keep up with all the tech, but they go on to master it! Especially when a lot of these skills are self-taught, self-discovered, and sometimes attained via trial by error. I have met and learned from so many experts, hailing from such a wide variety of backgrounds and experience, and in ages ranging from teens to nearing retirement. They all possess a catlike curiosity to figure it out how it all works and the tenacity to keep digging until they get the answer. That is all so incredibly inspiring. Never stop learning! And of course, I routinely draw inspiration for my day-to-day rhythm from all the working moms in any industry and any woman in the crypto industry who is unapologetically blazing paths and making an impact. Their resiliency is a very real source of strength during those tough workdays or when I struggle with that magical unicorn known as work-life balance.

What is one thing – either industry-related or not – that you learned in the past month?

I have global coverage with my role at Mastercard, which means I travel frequently. Most of my recent off-chain learning is related to countries and culture. A totally random example: the beautiful, lush grass in Ireland is so dense and nutritious that they can have one cow per acre there (in contrast to say, Texas, where we can only sustain one cow per 10 acres).
 
What is something about you that not many people know?

Answer I would say that I played in volleyball in college, but I honestly am not that great at hiding my competitive nature, so that’s probably not a surprising fact. I love walking. Walking for exercise, walking around a new city or place, going on a walk with my kids, walking in airports… any walking!

What do you do in your current role?

I oversee all our professional services: consulting, crypto investigations and training. We serve as subject matter experts in crypto AML and risk.

What does your career trajectory in financial crime look like?

I grew up in Texas, graduated from the University of Texas with a degree in political science and Spanish literature, and received an MBA from the Universidad Autónoma de Madrid in Spain. I then worked for the U.S. government primarily in Latin America and the Middle East in counternarcotics and counterterrorism, serving in several different countries. After 10 years of working at an extraordinarily fast pace and living overseas for half that time, I decided to pivot, come back to Texas near family, and take my knowledge of criminal activity to the financial sector, where I became the head AML officer (BSA officer) for a large community bank in Texas.
As part of that role, I attended AML and fraud conferences and started to hear about crypto and virtual currencies. My exposure to crypto was limited to what I heard from my colleagues in the banking world – which was mostly anti-crypto – but this only piqued my interest even more! To me, crypto and virtual currency seemed like the wave of the future, and I wanted to learn as much as possible. It was at one of these conferences that I met the Ciphertrace team and shortly after, embarked on my next challenge.

 

What is the best advice you have ever received?

When you make a mistake, own it and bring a solution on how to solve it or make it better.

What is the worst advice you have ever received?

Wait to do your traveling when you’ve retired.

What would you say are the most important attributes for someone in your role to be able to succeed?

Gut instinct to know when something feels off or suspicious, but also when to decide that you’ve gone down all the rabbit holes and it’s time to stop digging.   Curiosity

How has (compliance, investigations, etc.) changed and evolved during your career?

In the early days of crypto, the criminals were not very sophisticated. It was easier when they all thought that crypto was anonymous! Now they have learned just as much as we have, often times studying the technology to better understand it so that they can stay one step ahead of us..

What do you see as the key challenges related to financial crime in your role or in the sector overall?

Ever-changing, evolving technology. It’s a challenge to keep up!

What motivated you to become a financial crime professional?

In the very beginning, when I was working Counternarcotics and Counterterrorism, I quickly realized that the best way to impact their operations is to attack the financing of their operations. Their power, reach and control are greatly diminished without access to funds to pay off corrupt government officials, buy weaponry, or pay new soldiers or members.

Is there anything that surprised you about your current role?

How I can be in one room with a group of people and feel like the smartest person on crypto, then walk into the next room and be the least knowledgeable in a conversation on something like self-destructing contracts or zk-STARKs or zk-SNARKs. Sometimes I am in expert mode, teaching crypto AML and then moments later, I’m in total learning mode trying to absorb as much as possible.

How did you get your first job in the field and what advice would you give other job seekers to help land their first position?

I pulled all the experience I had from my role with US Government and highlighted all aspects that were essentially anti-money laundering and investigations. Use previous experience to highlight the skills that show that you have the capability to learn and adapt to the next role.

What is the most rewarding part of your job?

Obviously when you work on a case in which there is a favorable outcome, that is immensely rewarding. For example, there was a case where our tools, expertise were used to rescue a young girl being trafficked. It’s hard to top that feel-good of having a direct impact on someone’s life like that. When our investigation and testimony is key in putting away a bad guy, that is also a great feeling. Additionally, I feel rewarded when we help policy makers better understand this technology so that they can make appropriate and inclusive regulations that make the ecosystem safer while allowing for innovation.

For professionals with 5-10 years of experience, what advice would you give to help them rise in their careers to the next level?

Having a background and experience in AML and financial crimes has been extremely helpful, as was an understanding of the way crime organizations function, the patterns and the flow of funds. But what really is a huge advantage is instinct and that cannot be taught. This comes from my 10 years of experience working for the government in so many different operational situations, some involving financial crime. It’s the feeling of, “there’s something weird about this transaction,” that enables me to look beyond the obvious and explore other tangents and aspects of the case. It’s this instinct that I tap into when conducting an investigation.

Why did you join ACFCS and/or become CFCS-certified?

I think we all benefit from hearing from and dialoguing with other professionals in the space. It’s really the best way for all of us to keep learning. I usually learn about new laundering or terrorist financing techniques from my peers, via collaborations and learning sessions organized by ACFCS.