As pointed out during the International Conference on terrorism financing “No Money for Terror” held in Paris the 25-26th of April 2018, which has gathered Ministers from 80 countries and nearly 500 experts, a growing number of States is criminalizing terrorism financing as a standalone offense but the number of terrorism-financing cases being successfully prosecuted by UN Member States’ judicial systems is still limited, due to the difficulty of proving the intent that the funds would be used for terrorism purposes[i].
Undoubtedly, the most undetectable types of terrorism funding are related to the illegal use of crypto-values, which allow the perpetration of untraceable donations or money laundering to finance terrorist organizations.
Online Illegal Money Transfers to Finance Terrorist Groups
About terrorism financing by cryptocurrencies there are, so far, a few cases related to a relatively big amount of money transactions as the one of Zoobia Shahnaz: a 27-year-old lab technician, US citizen born in Pakistan, arrested in December 2017 while trying to fly from the United States to Istanbul and from Turkey to Syria[ii]. After allegedly being radicalized online since 2015 and have been in contact with IS members while volunteering for the Syrian American Medical Society in Jordan in the Zataari refugee camp, in the city of Amman in 2016, she came back in the US and provided fake information to obtain bank loans and over a dozen credit cards in order to transfer the money into Bitcoin and other cryptocurrencies to IS[iii]. As prosecutors alleged, between March and August 2017 she scammed various financial institutions out of roughly $85,000, then purchased approximately $62,000 worth of Bitcoin and other cryptocurrencies subsequently transferred to shell entities in Pakistan, China, and Turkey to benefit the terrorist group while “concealing the identity, source and destination of the illicitly obtained monies”[iv].
There are also cases of transactions of a relatively small amount of money connected to terrorism, which represent the majority of them.
Bahrun Naim, the alleged planner of the 2016 attacks in Jakarta that killed eight people including four militants, who in 2017 was reported to have used Bitcoin to transfer money to the wife of Arif Hidayatullah (a militant who was arrested by Indonesian counter-terrorism police unit) and to send money to militants and fund terrorist activities[v].
The case of a computer intruder with ties to Islamic State Hacking Division, one of Daesh’s cyber unit, Ardit Ferizi: an ethnic Albanian who was raised in Kosovo, also known by the username “Albanian hacker”, who in August 2015 demanded payment of two bitcoins (approximately $500 at the time) from an Illinois Internet retailer, in exchange for removing bugs from its computers[vi]. Using the data extracted from the retailer’s server, the Albanian hacker put together a “kill list” for IS with identities of 1.351 US government and military personnel[vii].
These cases, and many others, show that the exploitation of cryptocurrencies by terrorist supporters present some aspects as a common denominator:
- A global and decentralized network: Islamic terrorist organizations have become fully recognized actors of globalization, making hard to draw borders to group their activities, except through their ideology rooted in the Islamic extremism. The same happens with their financial resources, which branch out in a global network through the disuse of modern means of communication, cooperation with criminal organizations, and donations or, even more nowadays with Daesh’s fragmentation after being forced out of its strongholds and the subsequent reinforcement of the Virtual Caliphate, in the online realm[viii].
- The threat behind an improved online radicalization process: usually requests for donations to terrorist groups are explained to their supporters by the principles of zakāt[ix] or sadaqah[x] in order to justify their actions by exploiting the Sharia This aspect highlights that in the most majority of the cases sympathizers or followers of Islamic extremist ideologies are usually brought closer and closer to finance terrorist organizations by passing through a well-structured radicalization process. Furthermore, nowadays radicalization is a process that can also take place entirely online[xi], suggesting that the group will push more and more efforts in order to optimize effective methods to get economic support from small or wealthy donors or to launder money raised from illegal activities, by exploiting the spread of their extremist religious ideologies through the web-space[xii].
- Modern terrorism is a low-cost investment: in a 2007 video, Mustafa Abu al-Yazid, Al Qaeda’s finance chief, claimed: “there are hundreds wishing to carry out martyrdom-seeking operations, but they can’t find the funds to equip themselves.”[xiii]. Since a few years ago terrorist attacks don’t cost anymore a prohibitive amount of money as used to be for Al-Quaeda in the 2000s given that they don’t require anymore the use of complex operative or tactical planning. In fact, the lesson learned by lone wolves attacks has taught that a terrorist attack in the hybrid warfare is a low-cost investment: they can be carried out by one individual with rudimental tactical knowledge and no operative skills, using extremely cheap weapons as knives or amateur bombs. Thus the most urgent issue is related to stopping terrorist groups from establishing a transnational network able to transfer from the larger to the smallest amount of money. This approach would either cut decisively terrorists’ financial resources or prevent them from easily planning a large number of terrorist attacks around the globe.
From this perspective, it comes clear the crucial importance of a regulatory framework of cryptocurrency to improve customer identification programs, sanctions, and establish suspicious activity reporting systems, able to detect and prevent Islamic extremist organizations from getting financial support by reinforcing their global network and spreading their narrative of terror.
Anti-Money Laundering and Counter-Terrorist Financing: Governmental and Religious Approaches to Tackle the Issue
As virtual currencies become more widely accepted and play an expanding role in trading, governments have increasingly come to recognize that they are a potentially enduring reality, which still needs to be properly regulated in order to prevent its illegal use.
The following decisions or regulations at either governmental or religious level, highlight the most recent developments regarding counter-terrorism financing by cryptocurrencies:
- United States – Financial Technology Task Force: in January 2018 US lawmakers introduced a bill aimed to form a new task force. Its purpose would be to provide rewards for information leading to convictions related to the terrorist use of digital currencies and to encourage the development of tools and programs to combat terrorism and illicit use of digital currencies[xiv]. The task force would primarily focus on researching ways that terrorism can be financed through cryptocurrencies and subsequently propose regulations to counter these illegal activities[xv].
- Australia – Anti-Money Laundering And Counter Terrorism Financing Act (AML/CTF): in April 2018 AUSTRAC (Australia’s financial intelligence agency) implemented new AML/CTF laws to cover, for the first time, regulation of service providers of cryptocurrencies, including Bitcoin. The new laws will strengthen the agency’s compliance and intelligence capabilities to help implement systems and controls aimed at minimizing the risk of money laundering, terrorism financing, and cybercrime[xvi].
- South Korea and Korea Financial Intelligence Unit (KFIU)[xvii]: The new South Korean cryptocurrency account system has entered into force nationwide on January 29, 2018, ending the practice that allowed anonymous trading of cryptocurrencies, by converting existing virtual cryptocurrency accounts to real-name accounts[xviii]. Moreover, during the Policy Advisory Council meeting held on June 8, the head of KFIU, Kim Geun-ik, spoke about existing money laundering and terrorist financing prevention regulations and proposed to regulate crypto exchanges in the same way the governments does with banks. The KFIU, following leading economies such as the US or Japan, will implement stricter rules for independent financial service providers to prevent money laundering and terrorist financing with rigorous verification processes for large transactions and monitoring of users[xix].
- Estonia: as other small and fast-moving European countries (e.g. Malta) that in recent times are attracting cryptocurrencies businesses, the Estonian government has recently allowed CoinMetro[xx] (a company operating in virtual currencies market) to secure two licenses for cryptocurrency trading activities: “Wallet license” to store cryptocurrencies and “Exchange license” to trade cryptocurrenciesfor other assets or other types of digital currencies[xxi]. This initiative has the purpose to create a virtual safe space for businesses with cryptocurrencies that will help to provide a framework for establishing robust checks for anti-money laundering, counter-terrorism financing, and more detailed customer information.
- Financial Crime Task Force (FATF): The FATF is an intergovernmental organization based in Paris, which currently comprises 35 member States and two regional organizations, has the duty to develop policies to combat financial crimes. The organization published non-binding guidelines in June 2015 to promote a risk-based approach to cryptocurrencies, giving advice about exchanges to be registered or licensed, to verify customers’ identities to prevent money laundering, and for suspicious trading to be reported[xxii]. At the FATF meeting in Paris, held between February 18-23 2018, member countries asked to improve the understanding of money laundering risks relating to cryptocurrencies. Furthermore, even though it is not yet officially confirmed, following the member countries requests, within June 2018 the FATF will start a discussion aimed at introducing binding rules to govern cryptocurrency exchanges. In particular, the next step will take into account whether the 2015 rules are still appropriate and how to work with countries that have moved to ban cryptocurrency trading.
- Muslim communities on the illegal use of cryptocurrency: a counter-narrative to terrorism propaganda: While there are attempts to make cryptocurrencies more Shariahcompliant, it is still not widely clear whether they are permissible in accordance to the Shariah The clearer answer to this debate came from the Mufti Shauqui Alam, the most influential religious authority of Egypt, in January 2018[xxiii]. Even though in Egypt the use of cryptocurrencies is not forbidden, recognizing their illicit use perpetrated by terrorist groups, the Mufti issued a fatwa[xxiv] prohibiting the use of Bitcoins. Shauqui Alam motivated his decision on the ground that exists a similarity between cryptocurrencies and gambling (strictly forbidden by the Quran) due to their price volatility[xxv].
In the case of the Mufti Shauqui Alam, the Muslim community developed a counter-narrative to Islamic extremism, able to dismantle its ideology and find an alternative path to combat its financial resources.
The increasing developments of modern technologies in the financial sector are forcing governments to constantly try to understand and adapt to them as fast as they can, in order to avoid risks and threats to legality. A more collaborative industry-government partnership could bring faster results in countering terrorist use of virtual currencies. In fact, this lack of cooperative measures and schemes, which can be noticed even in the most recent governmental decisions, could slowdown financial innovation without even decisively cut terrorist economic resources.
Cooperation could bring a more cohesive system, able to promote new and effective solutions to counter-terrorism financing while still encouraging progress in the financial or technological sector.
This could represent a primary condition to ensure that institutions will not have to keep on adapting their policies to modern technological improvements, innovative companies will not have to operate into a grey legal area, and terrorist organizations will not find an ideal ecosystem to perpetrate their illegal activities.
You can read our first contribution here: Bitcoin and other types of cryptocurrency: modern and undetectable ways to finance terrorism
REFERENCES
[i] Security Council Counter-Terrorism Committee (April, 30 2018) CTED Executive Director participates in international conference on terrorism financing. Available at https://www.un.org/sc/ctc/news/2018/04/30/cted-executive-director-participates-international-conference-terrorism-financing/
[ii] The Meir Amit Intelligence and Terrorism Information Center (December 14-20, 2017) SPOTLIGHT ON GLOBAL JIHAD. Available at http://www.terrorism-info.org.il/en/spotlight-global-jihad-december-14-20-2017/
[iii] H. Alexander (December 14, 2017) New York woman charged with sending $85,000 in Bitcoin to support Isil. The Telegraph. Available at https://www.telegraph.co.uk/news/2017/12/14/new-york-woman-charged-sending-85000-bitcoin-support-isil/
[iv] Department of Justice – U.S. Attorney’s Office – Eastern District of New York (December 14, 2017) Long Island Woman Indicted for Bank Fraud and Money Laundering to Support Terrorists. Defendant Stole and Laundered Over $85,000 Using Bitcoin and Other Cryptocurrencies. Available at https://www.justice.gov/usao-edny/pr/long-island-woman-indicted-bank-fraud-and-money-laundering-support-terrorists
[v] I.L. Tisnadibrata (September 01, 2017) Indonesia Tracks Online Funding of Terror Groups. Benar News. Available at https://www.benarnews.org/english/news/indonesian/online-payments-01092017155456.html
[vi] T. Johnson (July 20, 2016) Computer hack helped feed an Islamic State death list. Mc Clatchy DC Bureau. Available at http://www.mcclatchydc.com/news/nation-world/national/article90782637.html
[vii] Z. K. Goldman, E. Maruyama, E. Rosenberg, E. Saravalle, J. Solomon-Strauss (May 2017) TERRORIST USE OF VIRTUAL CURRENCIES: Containing the Potential Threat. Center for a New American Security (CNAS). Available at https://s3.amazonaws.com/files.cnas.org/documents/CNASReport-TerroristFinancing-Final.pdf
[viii] E. Azani (March 06, 2018) Global Jihad – The Shift from Hierarchal Terrorist Organizations to Decentralized Systems. International Counter Terrorism Institute – Herzliya. Available at https://www.ict.org.il/Article/2210/Global_Jihad_Shift_from_Hierarchal_Terrorist_Organizations#gsc.tab=0
[ix] An Arabic word referring to a payment made annually under Islamic law on certain kinds of property and used for charitable and religious purposes, one of the Five Pillars of Islam. The word “Zakat” origins comes from Persian and Kurdu languages, meaning “almsgiving”
[x] An Islamic term for “voluntary charity”
[xi] I. von Behr, A. Reding, C. Edwards, L. Gribbon (2013) Radicalisation in the digital era The use of the internet in 15 cases of terrorism and extremism. RAND Europe. Available at https://www.rand.org/content/dam/rand/pubs/research_reports/RR400/RR453/RAND_RR453.pdf
[xii] Il Sole 24 Ore (May 10, 2018) Money transfer illegali per finanziare la Jihad: arrestati 14 fiancheggiatori. Available at http://www.ilsole24ore.com/art/notizie/2018-05-10/terrorismo-arrestati-14-fiancheggiatori-formazioni-jihadiste-081156.shtml?uuid=AEGPd1lE
[xiii] E. Serravalle, E. Rosenberg (January 09, 2018) Bitcoin can help terrorists secretly fund their deadly attacks. FoxNews. Available at http://www.foxnews.com/opinion/2018/01/09/bitcoin-can-help-terrorists-secretly-fund-their-deadly-attacks.html
[xiv] Financial Technology Innovation and Defense Act 115th CONGRESS – 2d Session (January 10, 2018) Available at https://www.congress.gov/bill/115th-congress/house-bill/4752/text?q=%7B%22search%22%3A%5B%22congressId%3A115+AND+billStatus%3A%5C%22Introduced%5C%22%22%5D%7D&r=66
[xv] W. Zhao (January 17, 2018) Proposed US Task Force Would Tackle Crypto Use in Terrorism Financing. CoinDesk. Available at https://www.coindesk.com/proposed-us-task-force-would-tackle-crypto-use-in-terrorism-financing/
[xvi] Australian Government – AUSTRAC (April 11, 2018) New Australian laws to regulate cryptocurrency providers. Available at http://www.austrac.gov.au/media/media-releases/new-australian-laws-regulate-cryptocurrency-providers
[xvii] http://www.kofiu.go.kr/eng/sub1/1.jsp
[xviii] K. Helms (January 30,2018) South Korea Ends Anonymous Cryptocurrency Trading Today. bitcoin.com. Available at https://news.bitcoin.com/south-korea-ends-anonymous-cryptocurrency-trading/
[xix] (June 12, 2018) South Korea to Impose Stricter Regulation of Cryptocurrency Exchanges. Sputnik. Available at https://sputniknews.com/science/201806121065344133-south-korea-regulation-crypto-exchanges/
[xx] https://coinmetro.com/about
[xxi] A. Mizrahi (June 07, 2018) Estonia Grants Licenses for Wallet and Exchange Services to Coinmetro. bitcoin.com. Available at https://news.bitcoin.com/estonia-grants-licenses-for-wallet-and-exchange-services-to-coin-metro/
[xxii] FATF/OECD (June 2015) GUIDANCE FOR A RISK-BASED APPROACH VIRTUAL CURRENCIES. Available at http://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-RBA-Virtual-Currencies.pdf
[xxiii] A. Helmi B. M. Hasbi, R. Mahzam (April 2018) Cryptocurrencies: Potential For Terror Financing? S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore. Available at https://www.rsis.edu.sg/rsis-publication/icpvtr/co18075-cryptocurrencies-potential-for-terror-financing/#.WyNd_RIzaqQ
[xxiv] A Religious edict in the Islamic faith
[xxv] M. Sabella (January 01, 2018) Bitcoin, il Mufti del Cairo lancia una fatwa contro la criptovaluta. Corriere della Sera. Available at https://www.corriere.it/economia/18_gennaio_01/bitcoin-mufti-cairo-lancia-fatwa-contro-criptovaluta-a7c062d0-ef18-11e7-97e1-31c2bf5f7cef.shtml