December 10, 2020
IntelBrief: Terrorists’ Use of Cryptocurrency
Documented examples of terrorist acquisition of cryptocurrency have been relatively infrequent, especially compared to criminal use. Yet, over the past year, terrorist groups have pivoted to acquiring and storing wealth in virtual currencies like Bitcoin. In August 2020, the US Department of Justice (DOJ) announced the largest seizure to date of crypto-assets associated with terrorist groups. The DOJ announced that it had seized the equivalent of millions of dollars across more than 300 cryptocurrency accounts associated with three U.S. designated Foreign Terrorist Organizations (FTOs), namely Hamas, Al-Qaeda, and the so-called Islamic State. In 2019, Hamas’s military wing started an online cryptocurrency fundraising campaign using social media tools to encourage anonymous donations. Contrary to popular belief, the anonymity often associated with cryptocurrencies is a misnomer. The Hamas scheme consequently unraveled, with 150 cryptocurrency accounts seized. Al-Qaeda has also branched out into using social media tools to generate donor interest with the objective of supporting its activities in Syria through cryptocurrency. In the case of Al-Qaeda, the DOJ seized more than 100 cryptocurrency accounts. Both Hamas and Al-Qaeda’s interest in cryptocurrency, respectively, predated the DOJ announcement, but this funding stream has garnered far less attention relative to other sources of financing.
Like Hamas and Al-Qaeda, ISIS was implicated in the Department of Justice’s August 2020 announcement. And, similar to both Hamas and Al-Qaeda, ISIS-linked individuals being involved in crypto-currency schemes is not novel. In 2017, Zoobia Shahnaz provided $85,000 to ISIS by maxing out credit cards to purchase Bitcoin and then later converting the Bitcoin to cash to obfuscate her activities. Two years prior to Shahnaz’s scheme, Ali Shukri Amin pleaded guilty to providing material support to ISIS by showing people how to acquire and send Bitcoin to the group. The more recent cryptocurrency effort was conducted by Murat Cakar, an ISIS hacker (and connected to Shahnaz) who created a website purporting to sell personal protective equipment (PPE), including N95 facemasks, for profit. Given the COVID-19 outbreak and the difficulties associated with in-person financing ventures, the August 2020 cases could represent a pivot by organized terrorist groups toward the acquisition of virtual assets. ISIS in particular is likely to continue efforts to accumulate wealth through cyber-enabled operations, some of which could involve cryptocurrency.
In 2020, the Financial Action Task Force (FATF), an inter-governmental body, highlighted the possible uptick in terrorist interest in cryptocurrency, especially during the COVID-19 pandemic. In May, FATF released a report arguing that the coronavirus pandemic could lead to an ‘increase misuse of online financial services and virtual assets to move and conceal illicit funds.’ Less than one month after the DOJ announcement, FATF published another report on red flag indicators, noting that virtual assets could be used by terrorist financiers and money launderers. The indicators range from unique transaction patterns to geographic risk profiles that could indicate the misuse of virtual assets. For Financial Intelligence Units, virtual asset service providers, and financial institutions, these indicators provide useful guidelines for countering the use of cryptocurrency by a range of illicit actors. Despite the FATF guidelines and the August 2020 move by the United States to seize and seek the forfeiture of Hamas, Al-Qaeda, and ISIS financial assets, terrorists are increasingly likely to use cryptocurrency to accumulate and store wealth. This path is especially probable due to the likely continued reliance on ‘virtual’ conduct of business even after COVID-19 vaccines are distributed throughout 2021. As more everyday consumers use cryptocurrencies, the opportunities for terrorists will increase, as they seek cover and concealment amidst the increased volume of overall transactions.
Investment in cryptocurrency, of course, is not without risk for terrorist groups given its historic volatility. As of December 4, 2020, one Bitcoin was valued at over $19,000, relative to its approximately $7,000 value at the start of the year. Given that more than ten years ago one could acquire one Bitcoin for thirty cents, it is quite possible that terrorist financiers could earn profits by investing in virtual assets. However, Bitcoin value has crashed multiple times. Most famously in a three-day period in 2013, the virtual asset loss more than 87% of its value. That uncertainty, coupled with private sector strides to crack the code associated with even the so-called privacy coins like Monero, ZCash, and Dash, creates risk for terrorists seeking to rely upon virtual assets. Private sector firms are now playing an important role by assisting the U.S. government in tracking terrorists’ virtual asset activity. Public-private sector developments in tracing cryptocurrency represent the future of fighting high-tech terrorism financing and criminal money-laundering operations.