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How Criminals And Terrorists Use Cryptocurrency: And How To Stop It
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How Criminals And Terrorists Use Cryptocurrency: And How To Stop It

Last November, doing research for a new report on the prevalence of terrorism on the Darknet, and came across an al-Qaeda linked organization by the name of al-Sadaqah (which means voluntary giving in Arabic). The group were using Facebook and Telegram to campaign for bitcoin funding.

That month, a donation of BTC0.075 ($685 at the time) was sent by an unknown individual to the organization’s advertised bitcoin address. Shortly afterwards, the funds (which rose to $803 overnight) were forwarded onto another address. This group is still active on Twitter.

There is no doubt that digital currencies provide benefits to individuals, financial organizations, governments, and public sector institutions by facilitating better access to financial products, aiding financial empowerment, and reducing the risks of corruption and fraud. But one of the significant risks associated with digital currencies is the ability of criminals and terrorists to use these new technologies for their own benefit.

While there is still no indication that digital currencies have been adopted by any terrorist organization on an institutional level, cases where terrorists have used digital currencies highlight a distinct possibility that risks could develop in the future. I will briefly illustrate why this is the case below.

First, digital currencies are created through a process of ‘mining’ to verify each transaction on a blockchain. While information on each transaction is recorded on the blockchain, this data is not directly linked to names, physical addresses, or other identifying information. This makes digital currencies anonymous to a certain degree, and complicates efforts by law enforcement agencies to identify individual transactions and link them to users.

Second, according to a 2015 Europol report, bitcoin has featured in high-profile investigations involving payments between criminals, and was used in over 40% of illicit transactions in the European Union. It is therefore unsurprising that terrorists and criminals would use digital currencies for illicit transitions, given they offer similar benefits of trust and credibility as the traditionally used hawala system of finance.

Third, Bitcoin provides financial security, as the blockchain acts as an impartial intermediary, ensuring that coins are irrevocable once spent. Or, the blockchain network hampers attempts to recall a verified bitcoin transaction unless the recipient returns coins back to the sender. In this context, digital currencies such as bitcoin prevent double spending and ensure that money cannot be duplicated within the network. If an attempt at duplication is made, the blockchain rejects the transaction as faulty or forged. Therefore, digital currencies can aid both criminals and terrorists purchasing goods and services on the Darknet, who would otherwise be at risk of scamming by rival criminal organizations.

There have been some reports of these benefits being used by terrorist groups like Islamic State. In 2014, reports emerged of Islamic State fighters in Raqqa, Syria facilitating small or domestic purchases in money transfer offices, and conducting long-distance international transactions using digital currencies like bitcoin. In January 2015 a key Islamic State fundraiser by the name of Abu-Mustafa argued that because the United States law enforcement authorities had begun to crackdown on mainstream financial platforms, the Darknet should be used to raise funds through digital currencies like bitcoin. Abu-Mustafa raised five bitcoins, valued at approximately $1,000, before the account was closed.

In June 2015, US authorities convicted Shukri Amin, a 17-year-old from Virginia, for material support to IS. Amin was charged with helping Islamic State supporters travel to Syria through the use of social media sites, where they were encouraged to contribute bitcoin to the group.

In December 2017, a woman was arrested in New York for obtaining $62,000 in bitcoin to send to Islamic State. After a failed attempt to join Islamic State herself in January 2016, the woman used false information to acquire loans and multiple credit cards, which she transferred into bitcoin and other digital currencies prior to sending it via Pakistan, China, and Turkey to fund the terrorist group. Prosecutors accused the woman of fraud and providing material support to a terrorist organization. Around the same time, an Islamic State-affiliated Darknet site called Isdarat, accessible through The Onion Router (Tor) browser, sought bitcoin contributions from supporters.

These events, while anecdotal in nature, point to the possibility that digital currencies may be used to fund terrorism if not countered effectively.

The first way to counteract this trend  is by tapping into criminal error. Bitcoin is not as anonymous as is commonly perceived, given it uses a blockchain system that serves as a virtual record of all transactions on the network. The blockchain is publicly accessible, meaning anyone with a sufficient level of computer-literacy is able to trace digital footprints of anonymous traders. Due to this, bitcoin is often used on the Darknet with the anonymizing software The Onion Router (Tor) for increased security and anonymity.

The second option is better regulation. In 2017, the United States government proposed that the Department of Homeland Security study the link between bitcoin and terrorism, because the anonymity offered by digital currencies provides terrorists with the privacy they seek. Her Majesty’s Treasury in the United Kingdom has also sought to increase regulation by requiring digital currency exchange users to disclose their identities. Further measures are being taken to bring digital currencies in line with existing Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) legislation.

By combining the two, we can disrupt financial flows to criminal and terrorist groups online.

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