Criminals have historically used cash as a tactic because it is anonymous and liquid. Despite illegal transactions making up less than 0.5% of Bitcoin’s annual volume in 2020, cryptocurrency may need help to minimize its bad reputation. VASPs (Virtual Asset Service Providers) are essential in detecting bad actors and stopping financial crime. However, a VASP’s insufficient anti-money laundering procedures can make it easier for criminals to move money around the globe.
Digital Currencies and their Link to Illicit Activities
The advantages that digital currencies offer to people, financial institutions, governments, and public sector organizations include improved access to financial products, financial empowerment, and a decreased risk of fraud and corruption. However, one of the grave risks of digital currencies is that criminals and terrorists could take advantage of them for their ends.
While there are no signs that any terrorist organizations have institutionalized digital currencies, instances of terrorists using these currencies point to a real likelihood that concerns may arise in the future.
Cryptocurrency & Blockchain
Mining is a method used to create digital currencies that verifies each blockchain transaction. Although each transaction’s details are stored on the blockchain, names, addresses, and other identifying information aren’t connected to this data. As a result, using digital currency becomes anonymous, and more difficult for law authorities to track down specific transactions and connect them to particular people.
Europol Report
Over 40% of illegal transactions in the European Union used bitcoin in high-profile cases involving transfers between criminals, according to a 2015 Europol report. Therefore, given that digital currencies offer comparable advantages of trust and credibility to the historically employed hawala method of finance, it is not surprising that terrorists and other criminals would use them for nefarious transactions.
Financial Security
Because the blockchain serves as an unbiased intermediary and ensures that coins are irrevocable once spent, Bitcoin offers financial stability. Alternatively, the blockchain network prevents attempts to undo a confirmed bitcoin transaction unless the recipient returns the sender’s money. Digital currencies like bitcoin ensure that money cannot be replicated within the network and prevent double-spending. The blockchain rejects the transaction as defective or forgery if a replication attempt is attempted. Digital currencies can help terrorists and criminals who would otherwise be vulnerable to exploitation by other criminal organizations when buying products and services on the Darknet.
Recent Incidents
In 2014, reports claimed that Islamic State fighters used bitcoin and other digital currencies to carry out remote international trades from Raqqa, Syria. A critical Islamic State fundraiser, Abu-Mustafa, suggested in January 2015 that the Darknet should be used to raise money using virtual currencies like bitcoin since US law enforcement agencies had started to target banking systems. Before the account was closed, Abu-Mustafa raised five bitcoins worth $1,000.
Shukri Amin, a 17-year-old from Virginia, was found guilty by US authorities in June 2015 of providing material support to IS. Amin was accused of using social media to persuade followers of the Islamic State to donate bitcoin to the organization to facilitate their travel to Syria.
A lady was detained in New York in December 2017 for getting $62,000 in bitcoin to give to the Islamic State. The woman used fictitious information to obtain loans and numerous credit cards after making an unsuccessful attempt to join Islamic State herself in January 2016. She then converted these funds into bitcoin and other digital currencies before sending them to terrorist organizations via Pakistan, China, and Turkey.
These events, while anecdotal, point to the possibility that digital currencies may be used to fund terrorism if not countered effectively.
Mitigation of the Growing Trends
The first step in reversing this tendency is to capitalize on criminal error. Bitcoin has a blockchain technology that acts as a virtual record of all transactions on the network. Therefore, it is not as anonymous as is frequently believed. Anyone with a reasonable level of computer competence can track the digital footprints of unknown merchants thanks to the blockchain’s open access. As a result, Tor, an anonymizing program, is frequently used with bitcoin on the Darknet to boost security and anonymity.
Better Regulation
Better regulation is the second choice. The Department of Homeland Security investigated the relationship between bitcoin and terrorism in 2017, as the anonymity provided by digital currency gives terrorists the seclusion they crave. By asking users of digital currency exchanges to reveal their names, Her Majesty’s Treasury in the UK has also attempted to tighten regulations. Further steps are being taken to bring digital currencies into compliance with current Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws.
Combining the two will allow authorities to stop online money transfers to criminal and terrorist organizations.
