A new report published September 7 by the U.S. Foundation for Defence of Democracies’ (FDD) Center on Sanctions and Illicit Finance (CSIF) shows that digital currencies are ill-suited for financing terrorist groups.
The report was presented by CSIF director of analysis Yaya Fanusie at a hearing before the U.S. House of Representatives Subcommittee on Terrorism and Illicit Finance. During his speech, Fanusie considered several cases wherein terrorist groups used crypto to raise funds.
The study mentions the “first” terrorism funding campaign — “Jahezona” conducted in 2016 in the Gaza Strip — which was publicly visible on a blockchain. The fundraising campaign was managed by a group of jihadists called Mujahideen Shura Council and aimed to raise $2,500 per fighter, giving an option to pay in Bitcoin (BTC). The group reportedly gained “a little over $500 in Bitcoin.”
Additionally, the decentralized nature of digital currencies, which makes users’ pseudonymous transactions available for public viewing, leaves a track difficult for terrorists to skirt. Fanusie said that by analyzing Jahezona’s transactions on the blockchain, the CSIF was able to identify the exchange through which the transactions were conducted: the now-defunct BTC-e exchange which is known for allegedly facilitating money laundering.
Another example addresses a militant group in Syria called Malhama Tactical, which sought to raise funds on Twitter. The group was found by an Uzbek who served in the Russian military before leaving to join rebels in Syria in 2013. The campaign reportedly received a few transactions and contained less than $100 worth of BTC.
Fanusie further explained that managing large amounts of cryptocurrencies requires specific skills, such as being “extremely savvy in cyber security, ” which terrorists may currently lack. He added that price volatility and vulnerability to hackers make the use of crypto a “fringe activity both among the general public and within the population of global jihadists.”
Fanusie also pointed out that lawmakers recognize cryptocurrencies as a payment method for illicit activities, while terrorists inhabit locations that are not currently conducive for crypto use i.e. they usually need to purchase goods with cash, “which is the most anonymous funding method,” in areas which may be lacking in basic technology infrastructure. Fanusie concluded saying that terrorist use of digital currencies mirrors that of general public:
“But cryptocurrencies and blockchain technology are not innately illicit and should not be feared. Like most technological innovations, they can be utilized for good or ill, depending on the user. Our adversaries, both state and non-state actors, are building blockchain-based tools to advance their interests. The U.S. must keep up with this technology and address new risks emerging from an evolving financial ecosystem.”
