Lack Of Infrastructure Make Cryptos Unpopular For Terrorist Financing Says CSIF Analyst

Due to lacking infrastructure and market adoption in jihadist regions, cryptocurrencies remain unpopular amongst terrorist groups as a means of financing terrorism.

0

A September 7 press release by the U.S. Congress Subcommittee on Terrorism and Illicit Finance explains that cryptocurrencies are not an important form of financing for terrorist groups due to their lack of usability in the nations that harbor and foster terrorism.

Past attempts unsuccessful

The committee concluded that while terrorists have, over the years, tried to use crypto for their activities, most of these attempts have not been successful.

A terrorist financing expert told the subcommittee that terror groups around the world viewed cryptocurrency as one of the channels of raising funds. However, these groups have so far had no luck with the emerging technology.

For example, a terrorist group called the Mujahideen Shura Council (MSC) that operates in the Jerusalem area organized a 2016 online campaign to raise funds but was unsuccessful.

Yaya Fanusie, a director at the Foundation for Defense of Democracies Center on Sanctions and Illicit Finance, told the hearing that the group succeeded in luring only two contributors. It managed to raise just over $500 in several weeks.

According to Fanusie, it illustrates just how little success these jihadist terror groups have had in terms of using cryptocurrency as a form of fundraising.

Traditional financial system still preferred

The U.S. House of Representatives Financial Services Committee published the statement after the hearing, which discussed the different ways in which terrorist and other outlawed groups finance their activities.

As part of the process of monitoring and combating the threat posed by terrorism, experts and representatives focused on major ways by which groups like the al Qaeda and the Islamic State financed their activities.

The committee hearing discussed means of accessing and transferring funds, including through cryptocurrency. Although cryptocurrency presented a new threat, the groups still favored the use of traditional financial institutions like banks.

In many other instances, the illicit groups and networks have used semi-formal means like the hawala exchange system. The hawala system is a network of brokers that allow for the exchange of money without physically exchanging it, therefore not being subject to the traditional financial systems. 

Crypto can be an attractive financing channel and many groups have explored its use over the years and continue to do so at the moment.

However, FDD’s Yaya Fanusie emphasized that for most terror networks, cash still represented the easiest way to move funds. He noted that many jihadist groups find the use of cryptocurrency an unattractive proposition due to the nature of their environment.

Lack Of Infrastructure Make Cryptos Unpopular For Terrorist Financing Says CSIF Analyst
Source: Coin Center

In these “jihadist battlefield” areas, using crypto is infeasible due to lack of necessary infrastructure. Cryptocurrency, Fanusie explained, is, therefore, a “poor form of money” for most of these outlawed networks and jihadists.

This unattractiveness of crypto leaves fiat as the most commonly used way of moving funds and buying goods.

And according to him, “cold hard cash is still king” in these environments and represents the best chance of staying anonymous.

Terrorist use of crypto still a threat

The Foundation for Defense of Democracies Center on Sanctions and Illicit Finance believes that many jihadist groups prefer hard cash to crypto.

However, the organization acknowledges that there still are numerous examples of attempts by terrorists to use cryptocurrency in their funding campaigns. In a prepared testimony, the FDD’s Fanusie said that cryptocurrency wasn’t just meant for supporting terrorist fighters.

The lure of digital assets has also seen an increase in the number of terrorist-affiliated media sites that are integrating cryptocurrencies in their campaigns.

These prospects present a threat and need countering measures. The expert urges that all government agencies tasked with counter-terrorism should examine these threats and develop strategies to counter crypto use by the jihadist groups.

Fanusie noted that:

 “By preparing now for terrorists’ increasing usage of cryptocurrencies, the U.S. can limit the ability to turn digital currency markets into a sanctuary for illicit finance.”

There is already an example of how crypto can easily make it to such networks. Stormfront, among the oldest white supremacist sites in the world, has integrated Bitcoin payment as its preferred mode of payment.

A representative of the Anti-Defamation League noted during the hearing that while the use of crypto by terrorists hasn’t caught on, it represented an angle authorities have to focus on going forward.

The authorities may also need to consider monitoring smaller cryptocurrency exchanges offering altcoin and privacy coins. These sites are likely not to have Anti-Money Laundering (AML) and Know-Your-Customer (KYC) safeguards in place.

Cryptocurrencies are gaining traction and their use by terrorists will only increase with time. Increased monitoring and investigations into all suspicious transactions may help counter the threats.

Leave A Reply

Your email address will not be published.