Cryptocurrencies have been an incredible development in the realm of both finance and technology, they are pegged on their ability to maintain autonomy and keep a decentralized system in place with the elimination of a mediator, whether it be a government or a private individual. For these reasons and more, the unorganized sector, primarily, is using digital currencies like Bitcoins [BTC], Ethereum [ETH], Ripple’s XRP for payments across vast distances and to conceal end to end identity.
One such sector that has been exploiting the innovation of this dichotomy of finance and technology is terrorism. Gone are the days when a mere hawala system was sufficient to maintain infrastructure, manpower and an arsenal to qualify as a global terrorist threat, terror groups have forayed into the field of terror financing using much more advanced techniques.
Abhinav Pandya spells out this unsettling partnership between the realms of cryptocurrency and terrorism in his essay entitled “Cryptocurrencies: A New Scourge of Terror Financing”. A policy analyst who specializes in counter-terrorism and geopolitics, a regular writer for the likes of the Indian Military Review, Indian Defence Review, Fair Observer and more, Pandya has been a key player in the terror financing field and now set his sights on the crypto-world and its repercussions on national and international security.
The Dark Side
It’s no surprise that a tool like Bitcoin, with its emphasis on anonymity and immutability, will be used for illicit activities and the case here is quite bare. Silk Road, an online marketplace present in the lairs of the Dark Web has been used for activities like drug dealing, money laundering, computer hacking, purchase and sale of credit cards, passports and other identification documents. Using a system called TOR (The Onion Router) an encryption software required by the Dark Web, safeguarding the user’s IP address and uses bitcoins as payments.
Coming to the crux of the issue, Bitcoins, since its arrival in 2009 has been used for a multitude of terror activities. In 2015, a teenager from the American state of Virginia was posting instructions on Twitter explaining the process of donating to the Islamic State using Bitcoins. In 2016, the online Jihadi media unit of Gaza, Ibn Taymiyya initiated a social media campaign to raise funds using bitcoins. In June 2017, a Syria-based Indonesian militant was using Paypal and bitcoins to fund the Islamic State, as reported by WSJ. The following November an organization by the name Al-Sadaqah (voluntary giving) was soliciting funds for relief work in Syria, the group’s Twitter feed contained the message “Donate anonymously with Cryptocurrency” and a bitcoin address. Cryptocurrencies, particularly the dominant bitcoin has been the payment of choice for several jihadi operators not just in the Middle East and North Africa but also in technologically advanced western countries.
As mentioned earlier, anonymity and immutability coupled with the mechanism of transferring huge sums of money across oceans is a gem for terror groups, and the enticing prospect seems like a perfect fit. Crypto-currencies are unrestricted, they offer global reach, which builds a stream for supporters to funnel money. Speed and, particularly, non-reversibility is key to these groups. The lack of a middlemen makes cryptocurrencies difficult to be regulated by authorities and the potential to expand and is tremendous.
Conversely, terror groups are more conservative and are less likely to advance out of their traditional and reliable methods of acquiring funds for a system that requires an immense electronic infrastructure. In his essay, Pandya also looks at why they will shy away from cryptocurrency, as laid out below:
1. The open-ledger aspect of the blockchain is one of its prime feature, this enables anyone with the means to audit the ledger, a feature not wanted by terror organizations.
2. Terror groups like the Islamic State previously controlled territories as large as the United Kingdom and raised money through taxation, extortion and oil smuggling. Over the recent years, they have been wiped out of their occupied territory and are debilitating, the use of blockchain technology, in such a war-torn region at this time seems unlikely.
3. Certain terror organizations like Hezbollah, Lashkar-e-Taiba, Hamas are depended on state financing and do not require a concealed method of finance.
4. Majority of attacks that take place on western soil are from radicalized lone-wolves that have access to welfare benefits that can be used to generate funds for terror activities.
5. Governments have stepped up their efforts and in some cases imposed a complete ban on the use of virtual currencies. In the US, the FinCen (body in charge of the enforcement of compliance with the Bank Secrecy Act) has proposed that persons “creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies”fulfill the registration requirement with the Anti-Money Laundering Counter-Terrorism Financing (AML/CTF) provisions. They will also have to file Suspicious Activity Reports (SARs) and verify customer identities.
6. Furthermore, the IRS (Internal Revenue Service) defines virtual currencies as property and hence will have to maintain all records of the same. This will bring entities dealing in virtual currencies under the purview of US tax laws and make them comply with the requirements of record keeping, or face criminal penalties.
Several countries are doubling down on the use of crypto-currencies fearing their use in anti-state affairs. In 2013-14, Thailand and China took effective measures prohibiting banks from dealing in virtual currencies. The Danish Financial Supervisory Authority issued a warning against the use of virtual currencies. Russian and Indonesian central banks also declared bitcoin transactions to be illegal. Regulations are being pushed to bring virtual currency exchanges under the jurisdiction of the AML/CTF.
David Carlisle, an independent consultant with the British think-tank RUSI (Royal United Service Institute) has said, with respect to the use of bitcoin technology in terror financing, that it remains anecdotal. He rules out the possibility of the widespread use of bitcoin technology by terror groups in the present and in the near future, as there are several reliable financing streams.
Having said that, the possibility of its use should not be completely ruled out. As we have previously seen with messaging applications like Telegram and Signal, the reason to update to newer versions is better encryption and more privacy. Zcash and Monero are two cryptocurrencies that facilitate this endeavor.
Pandya opines that the drawbacks and the hampering of regulations will not hold them back, and terrorists will eventually become “adept in handling cyber technologies and the ‘dark web.’” If they do, then false passports, credit cards, bombs, drones, and other sensitive materials can fall into their hand. An indication of this is the “Fund the Islamic Jihad without Leaving a Trace” deepweb page, that invites donations for jihad at a bitcoin address. A PDF document entitled “bitcoin wa sadawat al-jihad” (bitcoin and the charity of the violent physical struggle) is a guide to use the ‘darkweb’ for financial transactions.
The essay quite clearly lays out the future probabilities of the convergence of the two powerful worlds of finance and terror, one that clearly is dependent on the other. The use of such funds, although difficult and unlikely, could spell a wave disaster for the free world and hence the author, Abhinav Pandya has listed down a slew of recommendations to better handle this scourge.
The challenge presented by virtual currencies is unprecedented and one that has to be handled with precaution and security. Virtual currencies are the most advanced evolutions of financing and due to its intricate features, of decentralization, immutability, non-reversibility, and anonymity, the organizations that are set up to handle it have to be cautious and quick. Pandya states, “Through the worst-case scenario has not unraveled yet, it can be a fast approaching reality” and in light of this lays down the following:
1. An investigative approach, as advocated by Alan Brill and Lonnie Keane, should be adopted. Training of government personnel in cybercrime and the updating old technology should be pushed.
2. With reference to the movement of terrorists to the ‘darkweb’ there presents an obvious need to monitor the same. For example, the DARPA (American Defence Advanced Research Projects Agency), uses MEMEX (domain specific search engine) software to monitor the deepweb.
3. The FATF (Financial Action Task Force), an inter-governmental organization that primarily deals with money laundering should update its guideline to include terror financing and virtual currencies. Pandya recommends the dissemination of,“ a standard template of the best practices for the tracking, reporting, and monitoring of suspicious virtual currency transactions and help, prevent its use in terror financing.”
4. Since the main aim of the virtual currency is minimum government intervention, a series of non-governmental and self-regulatory organizations at the national and international level should be created to check for malfeasance.
5. Continuing on the previous point, a system that enhances cooperation, knowledge, and skill sharing between the involved bodies to combat terror- funding should be prioritized. Organisations like the FATF can be immensely helpful in this vain.
6. Agencies should be set up specifically to keep a check on the emergence, expansion, and evolution of new companies and private underground exchanges that dabble in the cryptocurrency sphere, especially those that pop up in weak regulatory areas like Africa and the Middle East.
7. The legal framework required to thwart any terror financing should also be expanded to bring offenders under the law’s purview.
8. Internet Service Providers (ISPs) should collect information about users who engage in or download servers like The Onion Route [TOR] and monitor them so that they do not engage in illicit activities.
The Final Word
Bitcoins are no doubt a product of the ingenuity of the FinTech worlds and over the years, has sent shockwaves through the two. They have revolutionized the way we see the globally connected financial world, not as currencies that change between borders, but as one common digital currency that is unchanged no matter where it is mined, that does not hide behind the guise of any government and one that cannot be controlled by a single individual. They allow the holder to retain control without fear of being muted, centralized and reversed. However, the same reasons why it has gained so much attention is why terror groups have turned to it. In fear, some countries have outright banned it, but they still exist under the system and such a ban can “only be a temporary option and at best an anti-evolutionary reaction.”
Governments have a two-fold responsibility in this regard, they have to push for financial inclusion using cryptocurrencies, but, at the same time, they have to curtail and regulate its use by cybercriminals, money launders and most importantly, terrorists. Regulatory bodies must keep a check, expand their gambit, diversify the law, recruit technologically adept people and develop the required skill-sets to track and funnel out these transactions. In light of the above and the essay by Abhinav Pandya, the current day and age do not indicate the direct use of cryptocurrencies as a medium for terrorism, a worst-case scenario in the extreme, but it may be a disastrous reality in the not-so-distant future.
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