By Alexandra Ippoliti
Cryptocurrency-facilitated terrorism—international and domestic—is an ever-worsening problem that can affect any one of us. Attacks happen daily against hotels, shopping centers, schools, nightclubs, workplaces, and anywhere people congregate. Their purpose is to make the general population afraid and lose confidence in their government.
However, terrorist operations cost money, and they usually get that from supporters in other countries. Given the many laws now in place to detect the international movements of illicit monies to fund terror and other criminal activities, terrorist groups such as ISIS, Hamas, Hezbollah, and Al Qaeda, have found ways to meet their needs across borders. One of the newest methods has been using cryptocurrencies (or crypto) since at least 2014.
Cryptocurrencies In a Nutshell
A principal feature of crypto is that the owner is identified only through a complex password: the “key” to a “wallet” of cryptocurrencies stored in “cyberspace,” the virtual world where electronic bits live in a network of independent yet interdependent computer banks that form the Internet. Whoever has the key has access to the cryptocurrency in that wallet and can transfer a part or all of it to another wallet anywhere in the world.
Unlike traditional bank transfers, deposits, or withdrawals that pass through known, traceable systems within physical entities, crypto transactions occur outside the regulated banking systems in the virtual world of cyberspace, hidden from law enforcement. An individual in one country with the key to a wallet can transfer funds to another wallet with a few simple actions on a keyboard. Then, the individual with the key to the second wallet, wherever they are, will have the newly transferred funds elsewhere in the world. Such a transaction occurs without any identifiers other than the wallet names. Lose or forget the key, and the wallet is lost!
This process—wherein ownership is vested strictly in possessing the key to a wallet and a financial system that does not require users to be identified—makes money transfers inherently anonymous. Added to that is the “dark web,” a privacy-focused Internet section that sets up obfuscated connections between two points through multiple, randomly generated intermediary links. The dark web allows criminals to transfer anonymous funds through untraceable Internet connections.
Hawala In the Cyber World
Even before the Internet, peoples of the Middle and Near East have for centuries used hawala—a time-tested, personal trust-based system for transferring money across borders. Hawala, which translates to “transfer” or “trust” in Arabic, is informal and operates much like a money transfer in a traditional financial system but with characteristics that make it nearly anonymous. First, money is entrusted to a hawala broker, who is then put in touch with another hawala broker representing the other party in the transaction. Once this is done, and a password is verified, the money is released through the second hawala broker to the intended party, minus a small commission fee.
Today, hawala systems have begun to use cryptocurrencies to transfer funds to terrorist organizations because of the ease with which large amounts of anonymous money can be moved quickly.
Jihadists and other extremist groups have set up numerous websites on the dark web to transfer cryptocurrencies under the radar to their cohorts, and common criminals use crypto to launder money, traffic drugs and arms, and carry out ransom attacks. The dark web and cryptocurrencies provide them with the means.
Donation Networks for Terrorism
Another use for crypto, because a simple barcode is all a potential financier needs to deposit funds, is to set up terrorism donation networks. However, if deposited into a traditional or a crypto system subject to the better-regulated financial systems, terrorists’ use of such regulated platforms becomes challenging and risky; but not so with a poorly regulated crypto exchange.
Another crucial component that lessens risk by making transactions challenging to trace is anonymity; and crypto’s greater anonymity encourages terror groups to use it for their finances. Tellingly, crypto developers frequently work to increase anonymity by combining several coins, muddling IP addresses, and concealing ownership. With that, extremists can obtain the money they need to plan attacks without relying on regular banks, and the opaqueness of crypto transactions hinders the prosecution of those funding terrorism.
We need to cut through the anonymity of crypto and the dark web to predict terrorists’ activities better and lessen crypto’s usefulness.
Criminals, Rogue States, and Crypto
Besides terrorist groups, other organizations are avoiding U.S. sanctions and security controls. The U.S. Treasury Department has identified individuals in sanctioned nations, such as Iran, Cuba, Syria, and Russian-controlled Crimea, who use cryptocurrency platforms to violate U.S. sanctions. For example, the North Korean regime uses crypto to fund its nuclear weapons program; and cryptocurrencies are now crucial to the rogue nation’s nuclear development.
In another example, the cryptocurrency known as Bitcoin was used by ISIS in Sri Lanka to finance a terrorist attack there. It was also used for ransom payments in Syria when Islamist extremists kidnapped foreigners in that region.
Finally, ordinary criminal enterprises are also attracted to crypto because the anti-money laundering reporting and other regulatory requirements that apply to traditional fiat monies are notably absent for crypto.
It’s Time to Modernize Our Laws
Advances in the field of information technology have only made the anonymous nature of cryptocurrencies more so. Unregulated cryptocurrency exchanges prevent terror organizations and criminals from being tracked and monitored by judicial institutions.
As digital keys today unlock the cryptocurrency wallets of terrorists, investigators need their law enforcement “keys” to unlock and track the terrorists’ illicit monies—through regulations that treat all crypto exchanges like traditional monetary systems.
It’s past time that we pull crypto exchanges out of the shadows with more vital legislation.
Alexandra Ippoliti is an Intelligence Analyst with the Inquesta Corporation.
She can be reached at alexandraippoliti@gmail.com.
