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Cryptocurrencies
A Blockchain Compliance White Paper
Simone D. Casadei Bernardi April 2019
Terrorist Use of Cryptocurrencies
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Terrorist Use of Cryptocurrencies
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Terrorist Use of Cryptocurrencies
What Makes
Cryptocurrencies
Appealing to Terrorists?
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sible to tell whose money is whose— these issues. They allow you to send
dirty money is made clean. money internationally without making
your identity known to anybody. Pro-
vided that the person or group uses a
International Reach pseudonym on an exchange, and the
transaction wasn’t publicly solicited,
Terror groups have relied on for- then their identity isn’t public.
eign funding for years. The IRA, for
example, was funded by Irish herit-
age associations in the U.S. from the Shifting Model of Terrorist
early 20th century onwards. ISIS and Funding
similar groups are funded by dona-
tions, too, whether from the Syrian or Besides these advantages, the way
Iraqi diaspora or from sympathisers that terrorists raise funds is changing.
in other countries, in the region or far Groups intent on violent political ac-
from it. tion have historically been funded by
government sources—foreign govern-
The issue with sending payments ments, that is. Hezbollah were trained
internationally is that they are easily and funded by Iran’s Islamic Revolu-
traceable. There is no way to anony- tionary Guard Corps. Iran have also
mously send a payment through a been accused of funding Shia militias
bank, for example. Even global mon- in Iraq.
ey transfer companies often involved
in scams, like Western Union, require But state-sponsored terrorism is
your identity before they send your far from the only kind. Other terror
money onwards. groups rely almost exclusively on
donations. Al-Qaeda was formed in
Shipping physical cash internationally 1988, and bankrolled by Osama bin
is anonymous. But the risks involved Laden. But with increased exposure
are too great—at any point between on the world stage, they grew to rely
the sender and the recipient, the on donations to keep afloat. The CIA
package could go missing, or customs estimated that prior to the 9/11 at-
authorities could confiscate it; in oth- tacks, al-Qaeda had an annual budget
er words, there’s more than a chance of $30 million, and that the majority
that the cash inside never reaches its of this was brought in through dona-
destination. tion.
Cryptocurrencies neatly sidestep ISIS, too, diversified the way that they
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Terrorist Use of Cryptocurrencies
Terrorism
and the Online Age
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Terrorist Use of Cryptocurrencies
Why Cryptocurrency?
To be clear, there’s no absolute need
to use cryptocurrency in order to
do so. Anybody with an account can
spread their message on Facebook or
Twitter, and receive many followers.
However, there are suggestions that
terror groups use cryptocurrencies to
purchase website domains, for exam-
ple.
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Terrorist Use of Cryptocurrencies
Examples of
Cryptocurrency’s
Use in Terrorism
Risk Factors: Who Might Use But how do these risks bear out in
Cryptocurrencies? reality? Have terrorist groups actually
taken up cryptocurrency, or have we
Modern terror is decentralised. While yet to see them make full use of it?
large groups still exist, most networks The truth is a lot more piecemeal and
are spread thinly—with one or two haphazard than you might imagine.
leaders forming a web of sorts, and
their individual followers spread out
across the country. Cryptocurrency Origins
could be used at any of these levels.
Perhaps the first example of cryp-
Risk factors with regards to cryptocur- tocurrency funding terrorists was in
rency include: the Gaza Strip—and was unrelated
to ISIS. The group involved was the
• Lone wolf attackers. At the lowest Mujahideen Shura Council (MSC),
level, these actors typically only founded in 2012.
have one or two connections with
a terror group, and solely online. The organisation has used both im-
These attackers can use cryptocur- provised explosive devices (IEDs) and
rency to securely buy terror sup- rocket attacks against Israel since
plies. then, and had an effective social me-
• Small terror cells located away dia presence until their account was
from the main group. These cells closed by Facebook.
aim to recruit on a local level,
while maintaining links with the The Ibn Taymiyyah Media Center,
larger group in their host country. or ITMC, is their propaganda unit.
The group could either receive It seeks first to raise donations, but
cryptocurrencies securely from also to raise awareness of what the
the central group, or assist lone MSC does and how. Their Facebook
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Terrorist Use of Cryptocurrencies
The Limitations of
Cryptocurrency
Despite much fanfare over terrorist with cash often in areas with weak
organisations using novel means of technology infrastructure.”
acquiring funding, uptake is still lim-
ited. In part, this is a reflection of the The Middle East’s data network cov-
generally still limited scope of crypto- erage isn’t as complete or as fast as
currencies, even after Bitcoin shot to that in the West. And even where it
fame. But it’s also due to the nature may have been—for example in large
of cryptocurrency, as an online, tech- cities—this infrastructure is itself one
heavy and volatile way of sending or of the first targets for terrorists. For
receiving funds. groups operating out of rural areas,
the situation is even more difficult.
So, what are the limitations of crypto- Cash and bank transfers offer no
currencies? And for what reasons do such limitations.
they discourage terrorist groups?
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Terrorist Use of Cryptocurrencies
intent on keeping most of their mon- damaged, or the group may have to
ey in Bitcoin would become aware of abandon them.
this issue, and could therefore decide
against it. This also prevents terrorists from
being able to mine coins. A terror
There’s no such learning curve related group’s hideout is likely to be raided
to the use of cash or electronic mon- or destroyed, and given that mining
ey bank transfers. While these meth- operations are exceptionally expen-
ods of acquiring funding have their sive since Bitcoin’s boom, this kind of
drawbacks too, they’re at least easy to investment is unappealing to groups
understand. And while online security like these—even if they can access
is difficult to maintain, keeping cash the required tech.
securely is simple too, provided that
you have access to weapons.
Cryptocurrency Volatility
Lack of Access to Required Whatever your opinion on investing,
Tech it’s true that cryptocurrency has a
reputation for volatility. Price fluc-
Without technology, there’s no cryp- tuations, both up and down, make it
tocurrency. Without access to tech- equal parts attractive and dangerous.
nology, there’s no access to your Whatever organisation you look to
wallet. As noted above, many areas fund, be they legal or not, they will
where terrorists operate lack the in- need a steady and secure form of in-
frastructure necessary to support an come. Cryptocurrency doesn’t fit that
always-online means of funding. bill as of yet.
A terrorist group may also lack access As such, asking for donations in
to the necessary technology itself. Bitcoin or another cryptocurrency
While it is possible to manage crypto- may be a good idea for short-term
currency on a smartphone, the lack campaigns. It allows terror groups
of consistent network signal makes to reach more people, and leverage
doing so difficult; but at the same their online following. But as a long-
time, consistent access to a desktop term solution to funding, it makes a
or laptop computer isn’t a given. And poor choice.
even if a group does have access to
actual computers, they may become Consider the needs of a large group
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Terrorist Use of Cryptocurrencies
like ISIS. On the one hand, they do for a terrorist group. Movements of
need to fund lone wolves working money can be tracked when dona-
abroad—cryptocurrency allows them tions are solicited through public
to do that. But in terms of money advertisements. This allows law en-
management, ISIS’ budget stretched forcement officers to identify the wal-
into the millions or perhaps billions, let belonging to that particular group.
and dollars or gold are preferable be- They can then track the amount of
cause of their stability for such large money they receive, and when they
amounts of money. spend it. This information could be
used to predict upcoming terror
threats.
The Blockchain
Furthermore, through tracking the
While deposits to a wallet are anony- payments made from the terrorists’
mous, the technology behind Bitcoin wallet, investigators could incrimi-
and other cryptocurrencies is none- nate the wallets they regularly send
theless disruptive. The blockchain is payments to. If the security services
public, and while the founding ideal have identified a number of groups’
behind cryptocurrencies is their ano- addresses, they could unearth previ-
nymity, it is possible to figure out who ously unknown links between terror-
a wallet belongs to. ist groups.
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Terrorist Use of Cryptocurrencies
traces, which terrorist groups natu- cryptocurrency. It’s that any terror-
rally seek to avoid. And withdrawing ist group can make far more money
through peer-to-peer leaves them through alternative means. ISIS, as we
open to fraud. saw above, sought funds through a
variety of manners.
Whatever the case, turning cryptocur-
rency into cash is much more difficult But whatever donations they may or
than using regular currency. may not receive, nothing came close
to the money they made from com-
modities.
The Heat
Their stranglehold on the region’s
Besides each of these reasons, one oil production was the driver behind
far more simple limits the use of cryp- their success. The Washington Post
tocurrency by terrorists: the weather. estimated that ISIS were generating
While the media were happy to drum $20 million per month from oil alone.
up reports that ISIS had taken small Aside from oil, ISIS requisitioned cash
donations in Bitcoin, it would have and gold from banks in occupied
been difficult-to-impossible for them regions.
to actually mine cryptocurrencies.
According to the U.K.-based Syr-
Put simply, the region is too hot. ian Observatory for Human Rights
Mining cryptocurrencies to a mean- (SOHR), ISIS reportedly hoarded 40
ingful extent requires a large volume tonnes of gold bars in Syria. These
of high-quality equipment, but that’s had mostly been stolen from the
not all that’s needed. To mine effec- Bank of Mosul, but there were many
tively requires cooling systems, as the more banks besides in occupied re-
necessary hardware quickly heats up. gions.
Keeping that hardware cool is difficult
enough in a regular environment; in Once Mosul was recaptured, 50
hotter parts of the world, it’s practi- tonnes—ten tonnes more than esti-
cally impossible. mated—were found by U.S. forces. In
context, the bars were worth at least
But none of these are the most im- $2.1 billion in total. The U.S. suppos-
portant reason why terrorists don’t edly cut a deal with the terror group,
use cryptocurrency. There’s one such that hundreds of field leaders
key-reason that terrorists have yet to were allowed safe passage from their
rely on Bitcoin, or any other form of stronghold in Deir Ezzor, in exchange
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