Page 16 - ACAMS-Today-V20N3

[ AML CHALLENGES ]
Cryptocurrencies: The new villains
Considering the latest trends in global terrorism and the virtualization of terrorist funding, cryptocurrency poses a serious concern to the global financial system.
According to the Council on Foreign Relations,2 daily bitcoin transac- tions grew alarmingly from an average of 100 daily transactions in
2009 to 282,000 in 2017. Technology is playing a big role in sustaining funding channels for terrorist groups as cryptocurrency and platforms like the dark web are used to support terrorist entrepreneurship.
Terrorists are attracted to cryptocurrency because some can guarantee anonymity and nontraceability of
monetary transactions.3 A 2020 study by the Counter Extremism Project and Berlin Risk revealed that the Islamic State group (IS) and its worldwide affiliates are using a vast web of monetary and cryptocurrency
assets to finance terrorist activities. During its peak, IS was relying heavily on traditional sources of funding
such as oil revenue and local tax collections. With IS’s physical caliphate in shambles, revenue from oil and taxes have vanished and various cryptocurrencies like Bitcoin, Dash, Ethereum, Monero, Verge and Zcash have provided an alternative funding source.4
According to The Washington Post, “In addition to the more-established terrorist organizations, an emerging
cadre of terrorist groups and their affiliates, such as Al-Sadaqah, Malhama Tactical and the Ibn Taymiyyah Media Center, have
begun using cryptocurrency.”5 In 2016, the Ibn Taymiyya media center, which is a jihadi unit of Gaza, initiated social media
campaigns to garner bitcoin funds.6 In June 2017, Indonesian security agencies7 claimed that Islamic militants were raising funds for IS via Paypal and bitcoin. In
November 2017, Islamic news agency and pro-jihadist website Dawaal Haqq was in the news soliciting bitcoin donations8 on Facebook and in December 2017, pro-IS websites like Akhbaar- al-Musalmin and Isdarat were also soliciting bitcoin donations.9 On August 13, 2020, it was announced that U.S. counterterrorism authorities dismantled a series of fundraising campaigns, some of which were linked with al-Qaida, that were launched on social media channels like Facebook and messaging applications like Telegram to share posts containing anonymized Bitcoin addresses.10
There are many instances that demonstrate this increasing use of cryptocurrencies for carrying out terrorist activities. Prominently, there have been fundraising drives by various designated terrorist groups in Gaza soliciting bitcoin donations on Twitter.11 In addition, an alleged IS representative posted a bitcoin appeal for funding on the dark web after a convicted IS sympathizer published an instruction manual on using bitcoins.12 With the advent of newer cryptocurrencies and changes in technology, the driving factors behind crypto terrorism will be the availability of technology to support terrorists’ needs and capabilities.
Emerging cryptocurrencies and the lack of global regulation
Cryptocurrency is emerging as a big enabler of terrorism. New cryptocurrencies that offer new features and properties――like security, irreversibility and no requirement of permis- sions――are what is now driving the adoption by terrorist outfits to a large extent. Examples of such cryptocurrencies are alternative currencies (altcoins), such as Omni Layer (formerly Mastercoin), BlackCoin and Monero, which have features that make them more secure and private than bitcoin. For example, Omni Layer enables creating and trading custom digital
assets and currencies with its advanced features. Omni Layer also offers decen- tralized crowdfunding, which allows users to send bitcoin tokens directly to an issuer address without needing to trust a third party. Similarly, Monero uses ring signatures and stealth addresses, which make tracing transactions more difficult.
Lack of uniform and standardized global regulations on cryptocurrencies also enable crypto terrorism. Although governments and regulators are aware of the misuse of cryptocurrencies through bitcoin fundraising campaigns, as well as via building alternative reserves in bitcoins for carrying out terrorist activities and money laundering, they still face several questions on how to frame regulations. Even today, cryptocurrencies do not have a regulatory body like the U.S. Securities and Exchange Commission or the Commodity Futures Trading Commission.
In addition, the increasing familiarity of new technology by terrorist groups makes the whole issue worse. For example, there are terrorist organizations that use the auto- matic address-generating software to seek the donations in their cryptocurrency wallets. It may be noted that none of these new cryptocurrency wallet addresses can be found on the blockchain. Moreover, terrorist outfits are leveraging technology like anonymizing services, called “mixers” or “tumblers,” which are available for cryptocurrency users to ensure protection against any forensic analysis or tracing of financial flows.
Cryptocurrency and terrorism: Building a defense
The world is coming to terms with the virtualization of terrorism. Regulators and governments have started to realize that without a coordinated approach toward this changing landscape, the whole world will be heading toward a collective failure. The Financial Action Task Force’s June 2019 guidance13 on virtual assets and virtual asset service providers (VASPs) is a step forward in global efforts to address the menace of terrorism and a response to the increasing use of virtual assets for money laundering and terrorist financing.
16 [ JUNE–AUGUST 2021 ]