October 13, 2022
IntelBrief: Distracted by the Bright Shiny Object: Trends in Terrorism Financing
With the recent news that supporters of the so-called Islamic State were trying to mint non-fungible tokens (NFTs) to finance their activities, there has been a significant focus on the nexus between terrorism financing and emerging technologies. Several UN Security Council members - including India, Kenya, and the United Arab Emirates - have sought to shine a spotlight on the intersections of terrorism and emerging technologies, including drones or unmanned aerial systems. In just a few weeks, India will host a special meeting of UN Security Council members and experts on these issues. The proliferation of cryptocurrencies and other forms of virtual payment, NFTs, and gaming platforms like Discord has prompted counterterrorism authorities to closely scrutinize terrorists’ interest in these new methods of raising, moving, storing, obscuring, managing, and using funds. More recently, the Financial Action Task Force (FATF) highlighted concerns regarding the possibility of expanding interest by illicit actors to acquire virtual assets, potentially amplified by the COVID-19 pandemic. Yet, taken as a whole, cryptocurrencies still represent an extremely small percentage of revenue for terrorist groups and will likely continue to be so in the near future. According to Pew Research, only 16% of Americans have invested in, traded, or used cryptocurrencies. Lack of widespread adoption by the broader population makes it more difficult for nefarious actors to use Bitcoin or other virtual currencies to fund their activities, since they lack the cover and concealment provided by mainstream licit financial transactions.
Cryptocurrencies and other digital technologies are and will remain a concern. In August 2020, the United States announced it had seized millions of dollars of worth of cryptocurrency associated with three terrorist groups. Hamas, Al-Qaeda, and the Islamic State have a history of engaging in cyber-enabled criminal activities. Further, as some UN agencies and humanitarian organizations continue to utilize and expand their use of such technologies for delivering aid, monitoring and understanding how digital tools can be used by terrorist groups remains crucial to protecting principled humanitarian aid. But the focus on emerging technologies should not distract from countering terrorism financing from traditional sources of illicit and criminal activities, including smuggling and trafficking, kidnapping for ransom (KFR), and mafia-style actions like extortion. Human trafficking activities often serve as a source of revenue for terrorist organizations, whether through the sale of women and children into sexual slavery or by facilitating the movement of people across a border. Increased border controls, typically invoked in the name of national security and counterterrorism objectives, can counterintuitively fuel riskier behavior, as vulnerable individuals often fleeing violence or conflict turn to traffickers to help them cross borders. As hardliners on immigration experience increasing electoral success in the West, the prospect of increased border restrictions, without concurrent legal pathways, could only serve to expand trafficking operations as a lucrative source of income for terrorist groups. Further, $49 million on average is paid in ransoms to terrorist groups yearly, more than enough for a “rainy day” fund. In 2015, the amount paid to terrorist groups eclipsed $300 million, although that year remains anomalous. Groups like al-Qaeda, the Islamic State, and their various affiliates, including al-Shabaab and Islamic State West Africa Province (ISWAP), regularly engage in KFR, and it was also a primary method of generating revenue for the Taliban and the Haqqani Network in Afghanistan. Combating these forms of terrorism financing remains difficult, particularly because they rely on other forms of capacity-building and security cooperation—border security, a police force untainted by corruption, and a judicial system that upholds the rule of law.
As evidenced by the training and equipment that the United States and its allies are providing to the Ukrainian military, Western countries can be effective at security cooperation with a highly motivated partner, particularly in some of the more kinetic aspects of conflict. But major challenges remain in excelling at the “softer” side of security cooperation—institution building, security sector reform, and assisting a country with developing gendarmerie-style forces that can work against a range of threats, including terrorists, criminals, militias, and other violent non-state actors can rarely succeed unilaterally and often requires contributions and expertise from a range of international partners, including multilateral and regional organizations. The non-kinetic aspects of building partner capacity are expensive, require years-long commitments of resources, uncertain results, and often have elusive or difficult to define metrics of success. The list of security cooperation failures is long and efforts to help partner nations build the capacity to counter terrorism financing have been plagued by a myriad of challenges, not least of which has been political will.
An obsessive focus on emerging technologies can also be counterproductive because it obscures developing trends, including a return to state sponsorship of terrorism and the linkages between nation-states and the funding of violent non-state actors. Iran’s regional network of proxy forces—in Lebanon, Iraq, Syria, and Yemen—is just one example. There should also be a focus on how the range of far-right extremists raise funds, particularly after two decades of the Global War on Terrorism and almost exclusive concentration on jihadist groups. Effectively countering terrorism financing requires a true multilateral effort, bringing together nation-states, international bodies, multinational corporations, and non-governmental organizations to forge public-private partnerships that can undergird a comprehensive approach, break down silos, and share best practices and lessons learned.