How are terrorists using cryptocurrency?

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There is now great concern about the possibility of financing terrorism through cryptocurrencies, as well as the possibility of money laundering and facilitating other illegal activities. Cryptocurrencies are growing exponentially in popularity in Africa between 2022 and 2023, with the region being very volatile. At the beginning of June this year, instability in Egypt started to gain momentum and such a phenomenon is popping up all the time. Therefore, it is important both for this region and in general to make the public aware of the magnitude of the problem and to talk about hypothetical solutions to the problem. Hamas' October 7 terror attack on Israel happened in part due to funding Hamas received through a Russian cryptocurrency exchange.

Financing terrorism

Financing terrorism through cryptocurrencies is a complex and controversial topic, especially in the context of the Middle East, where countries like Saudi Arabia and Qatar are often mentioned in this context. Cryptocurrencies such as Bitcoin provide a relatively high level of anonymity and make transactions difficult to trace. This makes them attractive for use for illicit purposes, including terrorist financing. The decentralized nature of cryptocurrencies allows transactions to take place without the involvement of banks and financial institutions that could report suspicious activity. In addition, cryptocurrencies can be used anywhere in the world, facilitating international transfers of money needed to finance terrorist operations.
ISIL has been known to use cryptocurrencies to fund its operations. In 2015, it was reported that ISIL used Bitcoin to transfer funds from Syria to other countries.

Authorities in Saudi Arabia and Qatar face difficulties in regulating and controlling the use of cryptocurrencies. Despite attempts to tighten controls on financial flows, terrorists are finding new ways to circumvent these measures. Some wealthy Gulf individuals are suspected of supporting terrorist groups by using cryptocurrencies to anonymize their transfers.
International cooperation is a key element in the fight against terrorist financing through cryptocurrencies.

Countries are cooperating internationally to create and implement measures to track cryptocurrency transactions linked to terrorism. New technologies, such as blockchain analytics, are being developed to track and analyze suspicious cryptocurrency transactions. Laws and regulations are being passed to increase scrutiny of cryptocurrency exchanges and require them to comply with KYC (Know Your Customer) and AML (Anti-Money Laundering) standards.

Terrorist financing through cryptocurrencies in the Middle East remains a pressing issue that requires continuous attention and efforts from the international community and national authorities. Measures to prevent the use of cryptocurrencies for illicit purposes continue to evolve, but terrorists are also finding new ways to circumvent these measures.

The positive trend is that at the governmental level, many major geopolitical players are now aware of the problem, but this is not enough and not all leaders are truly concerned. The numbers speak for themselves, the government can track less than one percent of all uninvited transactions and in 2021 this figure according to the Basel Institute is 14 million dollars in the US.

What methods can be used?

Combating terrorist financing through cryptocurrency requires a variety of technological solutions to help track and block illicit financial flows. Governments can use several approaches to accomplish this.

First, blockchain analytics technologies can track transactions and identify suspicious activity. With data analysis tools such as Chainalysis or Elliptic, law enforcement can conduct detailed analysis of blockchain transactions, identify patterns that indicate terrorist financing, and link them to real people or organizations. These tools use machine learning and artificial intelligence algorithms to analyze massive amounts of data and identify anomalies.

Secondly, there are technologies to enhance the identification of cryptocurrency users. The use of KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures when registering with cryptocurrency exchanges helps to reduce user anonymity. The use of biometrics and multi-factor authentication increases security and makes it harder for terrorists to hide their identity.

A third promising trend is the introduction of decentralized identification systems (DID). These systems allow the creation of verifiable digital identities that are stored on the blockchain. Thus, even with decentralized financial platforms, users can remain identifiable, making illicit transactions more difficult.

Governments can also work with international organizations and private companies to create global networks to share information about suspicious transactions and users. This requires the development of standards and protocols for the secure and rapid exchange of data across jurisdictions.

In the future, new technologies, such as quantum computing, may emerge that will significantly increase the power to analyze and encrypt data. These technologies could significantly improve the ability to detect and prevent terrorist financing using cryptocurrencies, providing law enforcement with new tools to combat this threat.

Jonathan Rowe

Jonathan Rowe

The creator and main author of the site is Jonathan Rowe. Trader and investor with many years of experience. A graduate of the Massachusetts Institute of Technology with over a decade of experience developing applications for financial and investment institutions.

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