Blockchain and bloodshed: the role of cryptocurrencies in financing terrorism

(AP Photo/Kin Cheung)

Jihadist terrorist groups are increasingly relying on virtual assets to finance their operations. The solicitation of cryptocurrencies via social media in particular has become more prominent among terrorist groups such as Hamas, Hezbollah, Palestinian Islamic Jihad (PIJ), and the Islamic State of Khorasan (ISK) to circumvent security measures. detection and fight against the financing of terrorism (CFT). As the U.S. Treasury, Israel’s National Counterterrorism Financing Office, and various counterterrorism funding agencies around the world, such as the Financial Action Task Force (FATF), have sought to seize the wallets cryptographic assets of terrorist organizations and cracking down on cryptocurrency addresses known to have been used for years to finance terrorist organizations, the challenge of blocking donations to terrorist groups and the financing of terrorist group attacks in decentralized and encrypted virtual currencies remains a major challenge. Most recently, the ISK attackers who carried out the Crocus City Hall attack in Moscow in March received approximately $2,000 in virtual assets just before carrying out the massacre that left 140 people dead. After the October 7 Hamas attack that killed about 1,200 people, the U.S. Treasury Department authorized a Gaza-based virtual currency exchange, Buy for cash, for financing the Al-Qassam Brigades, the military wing of Hamas, in various cryptocurrencies. In May, Alexey Pertsev, a Russian programmer, was sentenced to five years in prison in the Netherlands for creating the crypto mixer. Tornado Cashwhich has been used to launder money for various illicit activities, including terrorism.

The virtual nature of cryptocurrencies and the fact that they are encrypted make them an interesting alternative for terrorist groups and sympathizers. Although cryptocurrencies are significantly more traceable than money transfers, cryptocurrencies can be a faster alternative to cash and offer much more privacy than wire transfers. Cryptocurrencies rely on blockchain technology, a type of distributed ledger that records transactions across multiple computers so that the record cannot be changed retroactively without changing all subsequent blocks. Simply put, a blockchain is made up of blocks, each containing a list of transactions, linked to each other via cryptographic hashes. Thanks to blockchain technology, cryptocurrencies are inherently decentralized: control over blockchains is distributed among participants and data is not stored on a single server but on a network of computers (i.e. nodes). Cryptocurrencies are also transparent thanks to their blockchain foundations; every transaction is recorded on the blockchain and cannot be modified or deleted. The generally trouble-free principles of cryptocurrencies – decentralization, security, transparency and financial autonomy – have thus been effectively co-opted by malicious actors who use these privacy and security features to their advantage.

Although terrorist organizations are increasingly exploiting social media to solicit cryptocurrency donations, this is not a new phenomenon. Hamas solicited Bitcoin donations as early as 2019. The Islamic State (ISIS) and its affiliates were also early adopters. In 2015, Ali Shukri Amin, a Virginia teenager, pleaded guilty to providing material support to ISIS by telling people how to use Bitcoin to channel support to the group. Cryptocurrencies remain a source of financing for terrorist organizations. While Hamas’ Al-Qassam Brigades announced in April 2023 that it was abandoning Bitcoin fundraising, the military wing continued to receive significant amounts of cryptocurrencies such as Ethereum, XRP and Tether . After October 7, the Israeli Defense Ministry said it seized approximately $41 million between 2019 and 2023 in cryptocurrencies from Hamas and $94 million from PIJ. Many terrorist organizations have also moved from using the Bitcoin blockchain to the TRON blockchain to raise funds.

Regionally, West Africa and Central Asia appear to be the center of cryptocurrency activities of ISIS and its affiliates. The Counter ISIS Finance Group reported that West Africa has become a focal point for cryptocurrency transfers, likely linked to Nigeria being the world’s largest adapter of cryptocurrencies after India. In Central Asia, ISK has also become very active in cryptocurrency fundraising. Animesh Roul, research director of the Society for the Study of Peace and Conflict, notes that ISIS has moved away from Bitcoin and Tether and is increasingly soliciting donations in Monero, notably through appeals for donations in its flagship magazine Voice of Khurasan. Monero is a privacy-focused cryptocurrency designed to ensure transactions are untraceable, leveraging different technologies such as stealth addresses and ring signatures to hide the amount sent but also the address of the sender and recipient. RECIPIENT. It’s not just ISIS adapting to the realities of non-privacy-focused token traceability. Hamas, for example, is becoming increasingly proficient at ensuring that its crypto wallets are not seized by protecting their addresses through various address generation techniques. The use of virtual currency mixing services such as Tornado Cash is another significant loophole exploited by terrorists. Virtual currency mixing improves user privacy by pooling and mixing multiple users’ cryptocurrencies, thereby hiding the links between deposits and withdrawals. This makes tracing terrorist financing incredibly complex.

Cryptocurrencies are not the primary stream of terrorist financing, but their growing importance requires increased attention and stronger partnerships between government agencies and private financial institutions, especially as groups shift to crypto-focused currencies. privacy such as Monero. The short history of the use of cryptocurrencies by terrorist groups shows their resilience and ability to adapt to terrorist financing measures. It will therefore be essential to involve all stakeholders, including those responsible for counter-terrorism, the banking sector and financial institutions, as well as international organizations, among others, and plug all loopholes before they are not exploited. Even though major, leading cryptocurrency companies like Tether have collaborated with governments and anti-terrorism task forces to crack down on terrorist use of their cryptocurrencies, there is still much work to be done to not only keep pace of the evolution of technologies, but also to adapt their use. by terrorist actors.