Terrorist Use of Cryptocurrency
By Gargi Das & Bhavna Mudoi
INTRODUCTION
With ever-evolving technology, human invention and creativity are at their peaks today. We have everything at the tip of our fingers with little or no effort required to do all our tasks. With this, we again come to the age-old debate of whether ‘internet is a bane or a boon’; the internet has become a powerful enabler of social resistance and hence a threat to authority due to its decentralized nature. The reach of the internet and technology is far and wide and has enabled revolutionary movements in technology, with the invention of cryptocurrencies providing them anonymity with limited risks. However, the usability of these currencies has shifted from investment and purchase in the stock markets to funding and operating many terrorist organizations to forward their social, political or criminal objectives. In an attempt to understand this shift, we also try to understand how cryptocurrencies work, the link to its terrorist use and also to analyze the viability of its use with stricter law enforcement, shared global goals and further development in cryptocurrency technology.
THE BEGINNING OF AN ERA
In 2008, a document was published online by a man calling himself Satoshi Nakamoto. The document also referred to as a white paper, suggested a way of making a decentralized system called Bitcoin. This white paper formed the idea of the many cryptocurrencies. This method claimed to form digital money without the requirement for a central authority. At its core, Bitcoin can be deemed as a transparent ledger without a central authority. Let's understand this more by comparing Bitcoin to a bank. Since most money is already digital, the bank manages its ledger of balances and transactions. However, the bank's ledger isn't transparent and is stored within the bank's main computer. Only the bank has full control over it. Bitcoin on the opposite hand can be characterized as a transparent ledger where the balances and transactions at any point in time can be accessed by all. The sole thing we won't determine is who owns these balances and who is behind each transaction. This suggests that Bitcoin is pseudo-anonymous and everything is open, transparent and trackable but we won't tell who is sending what to whom. Bitcoin is additionally decentralized. This suggests that no computer holds the ledger. With Bitcoin, every computer that participates within the system is additionally keeping a copy of the ledger, also called the Blockchain. The act of making a decentralized ledger is completed in a very creative way. Anyone who wants to participate in updating the ledger of transactions can do so. The computer must guess a random number that solves an equation generated by the system. These calculations are complicated and energy-intensive. They have to be done by special computers called mining computers (ASIC). If we manage to guess the number, we earn bitcoins and acquire the chance to update the 'next page' of the bitcoin transactions on the Blockchain. This is called the mining process.
Bitcoin provides an alternative to the present system. It's a kind of money that no government or bank can control.
BITCOIN AND TERRORISM
Criminal and terrorist organizations are interested in cryptocurrency because it might be more difficult for law enforcement agencies and counter-terrorism professionals to track cryptocurrency assets. A government cannot stop transactions or freeze cryptocurrency assets as would be the case with regular bank accounts (unless a user holds the cryptocurrency in a cryptocurrency exchange account within the government’s jurisdictions). Moreover, a terrorist group can easily raise funds by accepting cryptocurrency donations from anywhere in the world and from anybody by simply publishing their public cryptocurrency address on a website with no need to rely on third parties.
The process of terrorist use of cryptocurrency can be divided into 3 broad categories: Acquaintance, Management, and Allocation, all of which are subjected to law enforcement and risk pressures. A research by Rand Corporation suggests- “An economic approach to the question of how much support is given to terrorist groups would show that a giver’s willingness to donate can be reduced by an increase in the perceived level of risk to the giver. Conversely, this willingness can increase according to the perceived impact of the funds” Most of the acquiring of funds is done through crowdfunding, sale of illegal drugs, human trafficking supplemented with extensive use of the cryptocurrencies on the dark net. Wealthy charities and countries that raise donations also choose to use digital money given the anonymity factor to avoid global shame. Yet again, the management and transfers of such huge funds can set off the alarm for Counter-Terrorism Forums (CTFs) because of which they are divided into smaller parts and transferred into multiple accounts of the same organization. Finally, operating a terrorist organization is a lot similar to running a business although the end goals are poles apart. Licit expenses include salaries of the members, recruitment, propaganda, social services and the illicit expenses are focused more on planning a terror attack and to counter CTF. This also comes under constraints as cryptocurrencies have limited usability and acceptability among various members, affiliations and regions.
RISE OF CRYPTOCURRENCY IN TERRORIST GROUPS
In recent years, a surge in the use of cryptocurrency to fund illegal terrorist activities has been seen. There has been a transition from Central Bank-backed fiat money to unauthorized cryptocurrencies like bitcoin. According to a report issued by the International Institute of Counter-terrorism titled 'Jihadist's Use of Virtual Currency' , there have been various instances of the use of cryptocurrency for funding terrorist activities, few of which have been listed below:
● In the year 2014, writing named 'Bitcoin wa Sadaqat al-Jihad’ was published on an internet blog which talked about the employment of bitcoin as a way of limiting economic support for the infidels and circumventing the Western banking industry, which restricts donations for jihad through limitations on the financial system; promoting the employment of virtual currency for ideological-religious reasons as well as for its technological characteristics.
● After the act of terrorism at the Bataclan theatre in Paris on 13 November 2015, the hacker group ‘Ghost Security Group’ followed the digital footprints of the culprits of the attack claiming that Islamic State militants are using digital currency to fund their operations, especially for the intention of receiving donations from private donors by distributing the wallet links on the darknet.
● The Jahezona campaign is an ongoing fundraising campaign that was initiated in 2015 and continues until today. Yaya Fanusie, a former analyst within the CIA, is of the view that the organizer of the campaign is a web propaganda unit named the Ibn Taymiyyah Media Centre (ITMC), located within the geographical area of the Gaza strip and is the media wing of Mujahideen Shura Council within the Environs of Jerusalem (MSC). The campaign is the first public record of the use of Bitcoin by terrorists on 24 August 2016 insisting that this method is efficient and secure.
● In January 2017, Bahrun naimm, an Indonesian resident of Syria was suspected of involvement within the Islamic State operations, including assisting and coordinating attacks in his country of origin and financing terrorism through Bitcoin and PayPal leading the terrorist attacks in Jakarta in January 2016, which claimed the lives of 4 civilians.
● In March 2020, Zoobia Shahnaz was sentenced to 13 years in prison on the island, the big apple for providing material support worth over $150,000 to a distant FTO and attempting to trip join ISIS. To fund the extremist Islamic group, Shahnaz has taken out a loan worth around $22,500 further as fraudulently obtained MasterCard numbers to shop for $62,000 in Bitcoin and other cryptocurrencies between March and June 2017. Ultimately, she sent the funds via wire transfers to alleged ‘fronts’ of ISIS in Pakistan, China, and Turkey.
THE COUNTER ACTS AND ITS FUTURE
There has not been any established research on the use of Cryptocurrency by terrorist organizations at an institutional level as funding in the form of cash and kind (arms, ammunition, gold, labour etc) is still dominant. However, given the benefits of its use, the trend might change. On the other hand, there could also be a decrease in cryptocurrency viability for terrorist organizations. Growing infighting, tensions, and blockchain forks between users, miners, investors, and developers has led to uncertainties around the use of cryptocurrency especially with cash and other modes of transactions with known risks and stability. Secondly, shared goals among law enforcement authorities and intelligence agencies have led to the establishment of robust international cybersecurity laws- bringing the system under regulatory observation and making it inhospitable for terrorist organisations. Thirdly, unencrypted wallets on the internet, series of fraudulent exchanges, and improperly secured funds have thus led to distrust in the cryptocurrency system both by netizens and terrorists alike.
“Our research shows that should a single cryptocurrency emerge that provides widespread adoption, better anonymity, improved security, and that is subject to lax or inconsistent regulation, then the potential utility of this cryptocurrency, as well as the potential for its use by terrorist organizations, would increase”- RAND
The reflection on the use of cryptocurrency has been quite unclear as such. Advocates of the system are against the regulation of the market as it goes against the very moral of why it was built upon - anti-establishment. Hackers and money launderers have been asking for ransoms long before the digital currency was in trend; however, governments and law enforcement will have us think it is the only way “evil funding” occurs. Even with high-security factors to transact through Cryptocurrency tech, it is susceptible to various cyberattacks. With the space to evolve, Cryptocurrencies, in general, will create further challenges not just for intelligence unit to track down and stop further money laundering, but also for Terrorist Groups as certainly their technological knowledge and aspirations are not entirely at par with the ever-evolving fintech. Only time will tell what comes next.
Gargi Das is a second year economics student from IP College for Women.
Bhavna Mudoi is a second year undergraduate student currently pursuing Economics from Shri Ram College of Commerce.
References:
Brett, J. (2020, 21 Jan). (Forbes) Israeli Counter-Terrorism Institute Reports Hamas Using Bitcoin As A Funding Source. Retrieved from https://www.forbes.com/sites/jasonbrett/2020/01/21/israeli-counter-terrorism-institute-reports-hamas -using-bitcoin-as-a-funding-source/#1aa848bc4994
Cynthia Dion-Schwarz, D. M. (2019). Terrorist Use of Cryptocurrencies. RAND Corporation.
Malik, N. (2018, Aug 31). FORBES: How Criminals And Terrorists Use Cryptocurrency: And How To Stop It. Retrieved from https://www.forbes.com/sites/nikitamalik/2018/08/31/how-criminals-and-terrorists-use-cryptocurren cy-and-how-to-stop-it/#3a48f8b23990
Krishnan Armin. ''Blockchain Empowers Social Resistance and Terrorism Through Decentralised Autonomous Organisations." Journal of Strategic Security 13, no.1 (2020):41-58
Dr. Eitan Azan, Dr. Michael Barak, Edan Landau, Nadine Liv,(2018) "Identifying Money Transfers and Terror Finance Infrastructure". International Institute of Counter-terrorism https://www.ict.org.il/Article/2488/Identifying_Money_Transfers_and_Terror_Finance_Infrastructur e#gsc.tab=0