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Exclusive: CNBC’s Andrew Ross Sorkin Interviews John Carlin from the Cambridge Cyber Summit Today

WHEN: Today, Wednesday, October 5th

Following is the unofficial transcript of an EXCLUSIVE interview with John Carlin, Assistant Attorney General for National Security, Department of Justice, live from the Cambridge Cyber Summit hosted by The Aspen Institute, CNBC and MIT on Wednesday, October 5th.

Mandatory credit: The Cambridge Cyber Summit hosted by The Aspen Institute, CNBC and MIT.

ANDREW ROSS SORKIN: Thank you, everybody. And thank you, John, for doing this. We should say, by the way, John is leaving the Department on Friday, next Friday. So can we consider this the exit interview, of sorts?

JOHN CARLIN: I don't know if it will be a full exit interview, but I guess so.

ANDREW ROSS SORKIN: You can be a little more open, perhaps, about what's really going on.

Here's where I want to start this conversation this afternoon. We talk a lot about ‑‑ and we have been talking all morning about this idea of privacy versus security. And invariably, somebody from the government says, Well, we need to strike a balance.

What does that actually mean? And is there such a thing as a balance in that debate between privacy and security?

JOHN CARLIN: Well, look. I look at it as someone who, prior to this job, had been a career prosecutor, worked at the FBI. Built into the Constitution is the idea that, one, we need to be secure from threats to our national security; and, two, in so doing, we also need to be secure in our homes and in our private papers from unreasonable searches.

And so I think a lot of the discussions we're having, at least when it comes to cyber security space, are actually security versus security questions. How do we enable ourselves to be protected from crooks, spies, rogue nation states, and terrorists, while also maximizing our protection from the overuse of authority? And what's making it so hard in this space is, technically, how do you configure your system to do that?

ANDREW ROSS SORKIN: Well, who is winning, though? Because if you think about it, what you hear more often than not, especially from Silicon Valley, is this idea that the moment they provide some form of access to you, the security for the whole thing doesn't work anymore. But it is a black‑and‑white issue.

JOHN CARLIN: More generally, let's think of where we are in terms of this technology.

ANDREW ROSS SORKIN: Right.

JOHN CARLIN: It's kind of amazing. In 25‑something years, we moved almost everything we value from analog space to digital space. And then we connected it to the Internet, a medium that wasn't fundamentally designed with security in mind. And it's caused an amazing social transformation. I mean, services now that our kids ‑‑ give you an example. My daughter, when I was teaching her how to read, gave her a book for the first time, tried to swipe it to work the pages.

And so we've had this amazing technological transformation. To those who say we can't innovate our way to a world that maximizes security from bad guys, like crooks, terrorists and nation states, and at the same time provide the framework consistent with the Constitution we followed for hundreds of years so you can serve legal process, I just think that that's got to be false. There's got to be a way we can technically innovate.

What we need to figure out first, though, policymakers and as a society ‑‑ and not just in America, but with our partners across the world, particularly in Europe ‑‑ is what is it that we want that world to look like? And then, can we design our way towards it?

And then there's a powerful incentive to design systems that maximize security of a communication, like our financial system or a bank, but then allow the banks to access the information when they need it to do the transaction. So we're going to innovate our way towards that.

I think more important right now is we need to get a right‑sized understanding of what the current threats are, because we are behind where the threat is.

ANDREW ROSS SORKIN: Where do you think the public is on this at this moment? And what is politically palatable?

I was having a debate in the hallway just before we came out. I don't know if you can comment on what's going on with Yahoo!. But we were talking about this Yahoo! situation, this Yahoo! report and the idea that potentially the government may have asked them to look for a string of words together through lots of different emails. And one person said to me, Well, you know, if the sequence of the words was looking for words like "terrorism," "Orlando" and "club," maybe the public would find that politically palatable. But if it was looking for "Trump" or "Clinton supporter," perhaps we wouldn't feel the same way.

And I said, I'm not even sure these days that the public would necessarily find it acceptable for the government to go through everybody's email looking for the word "terrorism," "Orlando" and "club," even given what took place there several months ago.

JOHN CARLIN: Well, if you go back, the Privacy and Civil Liberties Oversight Board, which was set up by an act of Congress, took a look at the authorities that the Foreign Intelligence Surveillance Court administers under the Foreign Intelligence Surveillance Act, so‑called Section 702. And in that report, they talked about the fact that it requires specific selection terms, and that you cannot ask someone in bulk to search for something like the word "bomb" or "terrorism." I'm not familiar with the report, but people should just take a look back at what is or isn't allowed, which is a different question where maybe people want that allowed. It's not currently under that statute.

And on that debate, I'm no ‑‑ I'm the wrong person to ask about policy. That's not my ‑‑ what I found, though, generally is that people have very strong views that you want your information to be safe, and that safety includes not having it misused by government but also I want my information to be safe from crooks, spies, terrorists; and I want to physically be safe from terrorists and other rogue nation states. And people feel both things quite strongly.

ANDREW ROSS SORKIN: But you don't believe Tim Cook then when he says there is no way to build a technology that keeps all of your things safe, yet effectively there is a key for you, the government?

JOHN CARLIN: Well, I think there's a lot of technological systems, say, to update your phone that will require both the ability to access or change a device and the ability to do it safely. So I think we're going to continue to work or innovate our way so that if we figured out what we wanted the policy framework to look like, that we could innovate our way towards it.

ANDREW ROSS SORKIN: What do you think the Silicon Valley view is of the policy framework? And the reason I ask is: I think if you get a number of these leaders off the record, there's ‑‑ there's a strain that would suggest they would get rid of things like the Colello laws. I mean, this is not simply about encryption. This is about a sort of much broader, perhaps even almost libertarian thought around what it is that the government can and cannot search.

JOHN CARLIN: So I think you've heard the President talk about this a little bit. So imagine there are two worlds, one is a world where we think the world we want to live in is a world where, by design, regardless of the seriousness of the threat, the predication or the court order that there is no way to technically obtain information about a threat.

And another would be the world we want to live in is a world where that information is maximally secure but with a proper court order that is served, you'd be able to obtain that information the same way with a search warrant that you can search someone's home or personal effects after it's been reviewed by a neutral magistrate.

So I think what you heard when the President discussed this out at South by Southwest, he said, "I thought that was the world we were trying to live in. And then it was a question of the security versus security, can we technically get there and how do we technically get there?"

I think you're right. There's some other people who would want to live in a world where it's technically impossible. And so that's a debate that needs to be had and there's a place to resolve that, which is our Congress ultimately.

But one thing ‑‑ one caveat to that would be, we don't live ‑‑ we're not a unilateral world anymore. It's not just America. Our companies want to do business abroad. And the terrorism threat that we face now is quite serious and complex here but even more so with some of our closest Western allies.

And what I'm hearing, at least from my security counterparts, is they will not accept a world where a U.S. company is providing a service, say, in England and the British authorities can no longer investigate a purely local crime involving their own citizens using their own court process because it's being provided to them by a foreign company and they have to use some ‑‑ a complicated treaty request. And I've heard that pressure from an increasing number of countries there.

So what I worry about is if we don't figure out a way to constructively talk about this and design a policy that works, what you're going to end up with is data localization and a change in the whole way that we configure the Internet now where countries keep the information locally so they can access it entirely under their own laws or systems.

ANDREW ROSS SORKIN: So much of this conversation and the thinking in this country on these issues goes back to the name Edward Snowden over the past couple of years. And I'm curious now, given a little bit of perspective and time, hero or villain for you?

JOHN CARLIN: Well, I don't ‑‑ there are charges that have been publicly announced by the Justice Department.

ANDREW ROSS SORKIN: Right.

JOHN CARLIN: And I will leave our commentary to what's contained ‑‑

ANDREW ROSS SORKIN: If I called you two weeks from now ‑‑

[LAUGHTER]

JOHN CARLIN: I think I'd still be conflicted because we oversaw it. But I certainly can't answer it now.

ANDREW ROSS SORKIN: Have you seen the movie?

JOHN CARLIN: No.

ANDREW ROSS SORKIN: Okay. I thought I'd get a laugh, but I didn't.

Let me ask you a different question, which is when Tyler first introduced this panel, he talked about this idea of blended threats. What do you mean by "blended threats" today?

JOHN CARLIN: I think that's an incredibly important topic, and it's the threat that our businesses are facing now and it's going to increase as we move forward over the next five years. And let me give a real‑life example.

So you're running your business. Your information technology professional comes to you tomorrow and says: "Boss, someone's been inside our system. They look like a relatively unsophisticated hacker. We kicked them off the system." And so as the boss you say, "Okay, great." Two weeks later that I.T. guy comes back to you and says, "Boss, this guy just sent me an email using Gmail and asked for 500 bucks through Bitcoin. Looks like a low‑level criminal hacker." The vast majority of companies today would have a discussion in their boardroom and decide that we're not going to report this to anyone. We're either going to pay the 500 bucks or we've handled this on our own. We don't need to worry about it. This is a real case, though.

And on the other end of this hack, it turned out not to be the unsophisticated crook that it looked like ‑‑ not that they weren't trying to make the 500 bucks. But on the back end there was a Kosovo extremist who had moved to Malaysia, from Malaysia had hacked into a major U.S. company with a trusted retail brand, stolen a small amount of personal identifiable information so it looked like a crook. And then on that back end with that information, he wasn't using it just to make a buck; he was providing it to a British‑born citizen named Junaid Hussain, one of the notorious cyber terrorists in the world at the time, who had moved to Rocca, Syria, where he was located at the heart of the Islamic State of the Levant. And consistent with this current face of terrorism of crowd‑sourcing terrorism, he then was exploiting U.S. companies again, Twitter, to blast back by name, by address a list of government employees that they had culled from that list and calling on their adherence in the United States to kill them where they lived.

That is the nature of the blended threat. It cuts across private and public, but it also cuts across criminal and terrorism. And in order to address it effectively, we've got to work it together.

In this case, the company did the right things, worked with government. Because we were working together, because they did what the vast majority of companies don't do, which is work together on this breach, that individual, Ferizi, was arrested in Malaysia pursuant to U.S. process. Malaysians extradited him to the United States. He was sentenced two weeks ago to 20 years of incarceration.

Junaid Hussain was killed in a military in Rocca, Syria, in the ungoverned space where he was plotting his terrorist activities. It's an incredibly difficult complex threat, but together we can work it. It requires a fundamental transformation, though. When you think of all the steps we put in place post‑September 11th to prevent another large‑scale catastrophic attack, they had to do a sharing information within government.

This next threat that we're facing, this new world requires doing something one step harder and creating a new legal and policy framework to do it, which is sharing with the private sector and figuring out also a way for us to share back information that formally was kept totally within the government.

ANDREW ROSS SORKIN: I need to ask you about some breaking news. While you've been speaking, I've not only been listening to you in one ear, but listening in another ear to some breaking news, which we'll share with the audience right now, and I'm hoping you will comment on it. I don't know if you know this is coming. "The New York Times" is just reporting that the FBI has arrested an NSA contractor that was using code to hack into foreign countries. He was a contractor that worked for Booz Allen, same contracting company that Edward Snowden worked at.

Do you know about this?

JOHN CARLIN: So let's say ‑‑ I'm not going to talk about particular charges in a particular case. We have made an arrest of an individual who's involved in taking classified information. And what I think it points out for the private sector and others more generally is this problem of insider threat.

So we talk a lot about how someone can gain, in the Ferizi example, is one of someone gaining access remotely. But as you're designing internal security programs and we're working together, we also need to take into account whether it's economic espionage or traditional espionage, the focus on those who are trusted within our companies, within our government who can exploit that trust to cause enormous harm.

ANDREW ROSS SORKIN: How safe do you think currently our own systems are given the number of contractors, outside contractors that we use, given the number of people that have all sorts of different security clearances?

JOHN CARLIN: Well, when you say "our systems," let's talk about a couple of different categories. One is there is not an Internet‑connected device now that is fundamentally safe from a dedicated either nation state or sophisticated, organized criminal group who wants to get in a so‑called persistent threat. So we need to start thinking about our security in terms of layers, with the idea that you can't buy a company that will build you a wall big enough or deep enough to keep that dedicated adversary out.

So then you need to think, Well, what happens if they get in? How can I get my system back up and going again and start focusing on both resilience and also even the internal configuration of your system? So if someone gains access and doesn't know how they work, for instance, something as simple as if I got the thing that will most harm my company, intellectual property, don't put it in a folder called "crown jewels" when you know that someone's going to be looking at it. You might put something in "crown jewels" that doesn't work and keep your most valuable information either offline or encrypted. And we encourage the use of encryption. Insiders pose ‑‑ the hardest threat, though, is they'll know how your trusted system works, and it requires constant and careful attention to see that they're not exploited.

ANDREW ROSS SORKIN: Just back to this story for a second. Are there other examples of this that we don't know about?

JOHN CARLIN: I'm not sure what the "this" is. And I obviously haven't read ‑‑ haven't read the story. The general idea is, is there a problem with those who would exploit people with inside access to try to obtain information? That problem has been with us as long as the creation of these agencies. I think what's different now is because we store large amounts of data, that a breach or an assessment of information, where if you had to pull up five U‑haul trucks, it would be easier to detect. But if you're able to do it on a thumb drive, you can take a much vaster quantity of information than you could before.

ANDREW ROSS SORKIN: What are you worried about most, though? Are you worried about foreign countries coming to American contractors and other workers and trying to infiltrate the system? I mean, how do you think about this type of issue if we're not talking about this specific story but the idea of contractors or other government workers being leveraged, if you will?

JOHN CARLIN: Yeah. No, I think that is a serious ‑‑ that is a concern. And then knowing your business audience and attention to it.

I think the other shift we've seen is it used to be the state actors were going after traditional government targets. They're not just doing that anymore. They're going after you. They want to go after businesses for economic advantage. And I've seen that in cases that we've brought that ranging from someone in a cornfield in Iowa on their hands and knees in the bright sun of day digging up a genetically modified seed so they could steal it in order to compete against that company, to those trained Russian intelligence ring in New York who was targeting not the traditional intel, not the FBI, but business targets.

So we are seeing a concerted effort now that's new in terms of what the threat is, that's directed at our private businesses.

ANDREW ROSS SORKIN: Last question on this story, at least the idea of this story, which is to say, what are we not doing that we need to be doing, in terms of vetting those around us? And do you look at an arrest like this and say, "Success, we got him" before he fled, if you will, like an Edward Snowden? Or do you say failure because it even got to this point?

JOHN CARLIN: So, not commenting on this story that I have not read, but I'd say generally ‑‑

ANDREW ROSS SORKIN: I know it will make headlines all day. And since I have you here, I need to ask.

JOHN CARLIN: Understood. I'd say generally what we view it as, our shift and approach post‑September 11th, to use terrorism as an example, is success is not the successful prosecution of a terrorist after the act when families are grieving or have lost loved ones, but it may be necessary.

Success is preventing it from occurring in the first place. We need to learn from every incident whether it's espionage, economic espionage, terrorism arena. Whether we've been successful on the front end or not, we still need to learn and adjust our defenses and how we are handling these incidents to try to prevent the next one.

ANDREW ROSS SORKIN: Let me talk about the private sector and the responsibility the private sector has to protect itself, which is to say, who do you ‑‑ or do you ever blame the private sector? Because it's very interesting. Yahoo! was hacked, and some people would say they were a victim of a hack. If you read the stories that have come out since, there is lots of finger pointing, lots of suggestions that they didn't have the security they were supposed to have.

And so do you look at that and say Marissa Mayer, the CEO, was a victim of a hack attack and we should feel terrible, or do you say they didn't do enough?

JOHN CARLIN: So five years ago, let's say, we didn't bring any cases against naming national security actors. So all of the narrative and focus when those breaches occurred would be, What did the victim do wrong? And with that comes the idea that you can build some perfect defense and be breachless, and it's just not true.

It's not true technically, and it's a very strange frame for someone who's been in law enforcement responding to these types of acts. What other area do we say, It's on you, victim? Every time you get breached, the government has no responsibility.

That's crazy. That's not sustainable. And so what you've seen us do, transform in my division, is to say, no, we've got to bring deterrence to the game. And it started with the indictment of five members of the People's Liberation Army Unit 61398, because what they were taking were things like the design specifications for a lead pipe before they would lease it, or stealing pricing information from a solar company so they could price dump that and drive the solar company out of business. And then add insult to injury, when that company sued, they stole the whole litigation strategy.

So this is the second largest military in the world targeting our solar, our energy, nuclear, steel, management side and labor. They brought them all together, which I imagine is pretty rare in that space, as victims. And we brought the case to say, you know, just like the concept of an easement, where if you let someone walk across your lawn long enough, in our legal system, they earn the right to walk across your lawn. It's called easement. Well, international law works the same way. It is a law of customary law. If we continue to allow, day in, day out, uniformed members of the People's Liberation Army to target our companies with no deterrence, with no consequence to it, we are creating a status quo that says that's okay.

So this is a giant "no trespassing" sign, get off our lawn. Since then you have seen us apply that same approach when it came to North Korea's attack on Sony over a movie that they made. That movie, I have seen.

ANDREW ROSS SORKIN: What did you think?

JOHN CARLIN: I blame North Korea for seeing the movie. But they had every right to. It's the only time in my career I have had to go into a situation room, in a serious national security event, try to brief the President and others and start with a synopsis of the movie plot that led us to this place, which if you have seen it, is not an easy thing to do.

But that's a good example of how you shift the narrative. Working together with Sony, we figured out it was North Korea, and we applied this new approach of figuring out who did it, being public about it and imposing consequences. As soon as we said it was North Korea, the narrative changed and it became not what did Sony do wrong, but, government, what are you doing to protect our companies from this type of attack? And that onus should be on us.

Since then you have seen us bring cases against Iran, the Syrian Electronic Army, the Islamic State and the Levant. So this approach is new or at the beginning stages. It can't be confined only to the criminal justice system in terms of consequences. But we have got to decide together that it's worth the short‑term churn. We're going to keep imposing consequences.

ANDREW ROSS SORKIN: That's a great argument for why corporations should come to the government when they do get attacked. But how should they think, though, about the business implication? Because initially, especially those first 24, 48 hours when they are sitting there thinking if they call you, they might be exposing themselves even further.

JOHN CARLIN: I think that's a great ‑‑ that's one area we need to continue to work on, to clarify what will happen and increase the incentives to come forward.

But I do think one thing that happens right now in the boardroom is they'll have that conversation or with the general counsel, and they're going to assume, based on the limited information that they have inside the company, that they know what the threat is.

But if you guess wrong and you decide this looks like a low‑level criminal hacker and it turns out to result in a terrorist attack, number one, as a citizen, you don't want the death of your fellow citizen or maiming on your hands.

But second, as a business, game over for your brand. And if you're not calculating that into your risk ‑‑ which I don't think companies are fully yet because they're not aware of the blended threat ‑‑ you may be making entirely the wrong decision. And the only way you can do that decision correctly is by going into FBI or other systems so we can share information together and give you a real sense of what the threat is.

I think the downside risk of failing to make that disclosure and do it quickly, at least to the FBI or a security agency, is way underestimated versus the potential consequences of doing it.

ANDREW ROSS SORKIN: One question about terrorism in particular. I want to speak about ISIL and social media. They've become experts at this. And I want to understand the role of the DOJ in examining and prosecuting that, if there is one.

JOHN CARLIN: Yeah. So this is ‑‑ there's been a fundamental change in the terrorist threat. Terrorists still want to do the complex hierarchically driven September 11th style attack. So we can't forget that. We need to keep our eye on it. At the same time, they've moved to this crowdsourcing of terrorism where just like they tried to exploit aviation, now they are exploiting another Western‑made technology that's used mainly for totally innocent or commercial or good purposes and use it against us to try to turn humans into weapons, to target our young.

And so since they've changed to this strategy, it's put an enormous pressure on our authorities here. We've brought through my division over 110 cases since the Islamic State in the Levant, 60 last year alone. That's more than we've ever brought. And what we're seeing is the age of the defendants is quite telling. Over half are 25 or younger and one‑third are 21 or younger. That's not ever been the case before and it's linked to the other common characteristic. It's not in one district. It's been in 35 different districts. It's almost every case is linked to social media. And it's caused us to do some things that we've never done before. I know I hosted a justice ‑‑ an event with the head of Counterterrorism Center where we brought in Internet service providers, Hollywood directors, non‑profits, and Madison Avenue advertising types. And we walked them through the threat.

And the reason why we were doing that is, they designed and used this medium for business every day. They're the best at doing. Government, we're not good at doing it. And so we wanted to tell them what the threat was. And then surely, with their minds, we can outmarket, if you will, a group who fundamentally, the real group is about ‑‑ this is someone who murders Muslims and non‑Muslims with impunity, that uses rape as a recruitment tool and says, "Come on, you can rape with us," and then is selling women and children into slavery.

If you know who this group really is, surely we can keep them from having the success at recruiting. But they don't recruit showing the beheading video or the person burned alive. They put those out, but it's to scare people. When they're recruiting, they do things like ‑‑ there's one ad where they show ‑‑ and it's literally a handsome young terrorist passing out cotton candy to children. And that's their image of what life is going to be like in the Caliphate. Or another one, because they know if anything sells on the internet, it's kittens. They have a terrorist with a kitten in one hand and an AK‑47 in the other hand. And that's their portrait of what life is like over there.

We've had two cases recently where I've seen things I've never seen in my career. One, a defendant in Mississippi getting sentenced turns around and thanks the FBI agent who arrested him for arresting him, saying if he hadn't done that, "If I hadn't been arrested, I would have been with this terrible group. I would be either dead or committed atrocities."

In the second case out in Minnesota, you had a father thank the FBI for arresting his son, saying, "Otherwise my son would be dead." So that type of message we need to get out of what's going on in these communities.

And it's this terrorist group who's deliberately using social media, international terrorists, to target kids in the basements of our homes here and turn them into human weapons. We've got to get that message out. And when we do, I think we can effectively confront it at the community level and with the help of social media providers and advertisers.

ANDREW ROSS SORKIN: We've gotta wrap up. But I do have a political question for you. Given that we are in the midst of this very polarizing election ‑‑

JOHN CARLIN: I quit. I'm leaving Justice next Friday, then.

ANDREW ROSS SORKIN: That's why you can answer the question, which is there is a trust deficit. There's a trust deficit in America about justice, about how justice is being served. And I know it didn't ultimately get to you, but it could have gotten to you, this whole Hillary Clinton email situation. It was cut off at the pass before you had a decision to make, given that Comey made the decision.

But how do we get to a place, or will we ever get to a place where you think the country is going to believe that political appointees in jobs like yours ‑‑ and I know you are not one ‑‑ but in jobs like yours ‑‑ Actually, I'm sorry, you were one ‑‑ but to believe that justice is being served. What do you think about that?

JOHN CARLIN: I don't share, and maybe I'm wrong in the cynicism. When I've gone out and done the outreach over the years, I think people have a good understanding of what I have seen from the inside at the FBI, and as a prosecutor, which is one of the amazing things about the American system that sustained us for so long and is true today. There are career professionals who are in their jobs because they don't care who the president is, they don't follow politics, they won't be able to answer even your first three questions if you try to ask them a political question. And they do their job day in and day out because they want to make sure that families like theirs don't have to worry about the threats that they're seeing.

I have been so privileged to work with a group of attorneys who never want to see their name in the press, who work harder than anyone that you know 24/7, we're getting things all through the night, with that one goal in mind.

And it's the same over at the FBI. And, honestly, I think there have been even polls that talk about this for recruiting. FBI, I think, is one of the more trusted names of anything in the entire world, and rightly so. It doesn't mean there doesn't mean to be oversight, there does. And it doesn't mean that we don't make mistakes, because we do. But day in, day out, you got a group of people trying to do the right thing for the right reasons.

ANDREW ROSS SORKIN: Final question: When you go into the private world and you can no longer have a government email address, most secure email out there, Gmail, or do you do a private server?

[LAUGHTER]

JOHN CARLIN: Well, I think all the security professionals will tell me don't talk about how you do your email. Avoid being a target.

ANDREW ROSS SORKIN: Very good answer. John Carlin, thank you. Thank you for your service. Appreciate it.

Thank you.

[APPLAUSE]

TYLER MATHISEN: John, I just want to let you know that a press release has just been released from the Justice Department, Assistant Attorney General for National Security John Carlin, Attorney Rod Rosenstein for the District of Maryland, Special Agent Gordon B. Johnson stating that Harold Thomas Martin of Glen Burnie has been charged with theft to government property and unauthorized use. You're a multitasking kind of guy. You're able to do a press release while ‑‑ he deserves a round of applause, not only for that but for the arrest of this individual.

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