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Release peace: the magazine

Release peace: the magazine

Analysis & Background Stories on International Affairs

Financing Terror: How Cryptocurrencies Still Fuel Violence

Article by: Ronan Corley

This article was written by a 2024 Rohatyn Global Fellow as part of a collaboration with the Rohatyn Center for Global Affairs at Middlebury College

The G7 and FATF

Designated terrorist organisations are quickly adapting new technologies to raise funds, reach global audiences, and finance their atrocious acts. International anti-terrorism efforts have focused on restricting access to traditional financial instruments, including banking institutions and government programs. In 1989, G7 countries formed the Financial Action Task Force (FATF) to establish these restrictions at an international level and develop standards for combating terrorist financing. Their intergovernmental task force also evaluates compliance, identifies deficiencies, and creates guidelines to regulate international banking. 

Updated Guidelines

In 2012, official standards addressing terrorist financing were published by the FATF. As of November 2023, these recommendations have been updated with the central focus of protecting Non-Profit Organizations (NPOs). The guidelines aim to prevent misuse of NPOs while avoiding disruption to legitimate organizations. The Task Force has found that terrorist organizations have abused crowdfunding as a method for sourcing online donations globally. Among the most recent recommendations, the FATF is encouraging members to address deficiencies in regulatory systems used to combat cyber-enabled fraud, which is becoming more sophisticated as technology advances. As a result of these restrictions, traditional financing options are limited for designated terrorist organizations and certain flagged individuals. 

Non-Traditional Financing

To circumvent these restrictions, terrorist organizations are leveraging alternative financing strategies. In Syria, the Islamic State collected taxes to finance operations. Secondary fund generators included private business portfolios consisting of real estate, investments, and humanitarian aid fundraising. Likewise, Hamas has seized millions from humanitarian aid efforts. In October 2023, the U.S. imposed sanctions on Hamas to prevent financing and terror operations. They targeted investment funds and individual Iranians responsible for providing financial support in an effort to suppress the funding that has added up to a reported $500 million in assets

The Factor of Digital Currencies

Innovations in digital currencies have changed the regulatory landscape yet again; over the past five years, cryptocurrencies have played an increasingly noteworthy role in investment portfolios. They enable alternative storage and circulation of funds, often undetected. Former CIA analyst Yaya Fanusie already warned in 2019 that cryptocurrency “is going to be a part of the terrorist financing mix, and it is something that people should pay attention to.” Cryptocurrency platforms have created faster and less structured financial gateways. Digital coins lack a central authority capable of blocking transactions or restricting accounts. Exchanges such as Garantex, Chatex, and Suex require very little personal information or identification. Cryptocurrencies offer unregulated, decentralized financing strategies that do not require banks to act as intermediaries. As early as 2019, Hamas provided website visitors with unique Bitcoin addresses for donations. In a 2022 report, the U.S. Treasury warned that “gaps in financial crime controls at crypto exchanges can allow terrorist groups to misuse them.” This misuse will continue to have real-world consequences as cryptocurrency terrorist financing continues to grow rapidly.

The Expansion of the Cryptocurrency Market

While most readers will know of Bitcoin, the global crypto market has in fact expanded to over 25,000 currencies and is now valued at $1.75 trillion, greater than the GDP of Spain. Authorities have linked digital wallets to groups like Hamas, the Palestinian Islamic Jihad, and Hezbollah, totaling $134 million in financial flows since August 2021. Svetlana Martynova, Senior Legal Officer at the United Nations Counter-Terrorism Committee (CTC), estimates that nearly 20% of terrorist attacks can be viewed as crypto-financed. In 2021, around $7.7 million in crypto assets were linked to Hamas, accordng to Israeli authorities. Over $4.1 milliuon of that was transferred througb Tether and just under $3.4 million through Bitcoin. Foreshadowing the October 7th, 2023 attacks by Hamas, London blockchain analysis provider Elliptic wrote: “Arguably the most common form of crypto-based terrorist financing involves the solicitation of donations through social media channels or dedicated sites by providing a single, dedicated crypto donation wallet address.” Over 150 crypto donations to Hamas and affiliated groups have been flagged by Israeli authorities.

Importance of Social Media Networks

Hamas and other militant groups have very publicly requested donations, and specifically encouraged donors to use crypto or social media platforms. Terrorist organizations also use social networks to recruit members, and in some cases, share specifications regarding how prospective followers can bring themselves and their resources to conflict zones. Alongside a link for cryptocurrency donations, Hamas supplied a professionally developed video with directions on how to obtain and donate digital currencies. As these organizations navigate slow-emerging regulatory and technological environments, they deploy new strategies to stay ahead of policymakers. Significantly, a Hamas official stated: “Our fundraising strategies keep on evolving as more restrictions are being placed on us.” Even minors, like the case of the seventeen-year-old American Shukri Amin, have provided illegal support to groups like the Islamic State, facilitating the movement of followers and crypto to Syria using social media platforms.

Challenges and Countermeasures 

Following the October 7th attacks by Hamas, the U.S. Deputy Treasury Secretary Wally Adeyemo announced that: “The United States will go after cryptocurrency firms that fail to stop terrorist groups from moving money.” The key to prevent crypto from becoming weaponized is to cut off their ability to turn the currencies into cash. Terrorist groups still struggle to convert cryptocurrencies into established currencies, including local ones in their areas of operation. Without this ease of transferability, buying tangible goods remains challenging. Furthermore, cryptocurrency exchanges are not necessarily anonymous. Contrary to popular belief, most transactions are recorded by the exchange. Ari Redbord, head of legal affairs at blockchain intelligence company TRM Labs, stated that cryptocurrencies allow to “trace funds and financial flows along the blockchain in ways that we could never do with cash.” Authorities are also becoming more proficient in tracking these transactions.  “Crypto is another string in their bow,” said Joby Carpenter, a specialist on cryptocurrencies and illicit finance. However, the use of crypto transaction methods is just one method of financing terrorism within a vast, complex network of non-traditional systems.

 

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