Jazmin Wright | Cyber and Tech Fellow
The development of blockchain technologies and cryptocurrency has been touted as revolutionary for the global payments system. The media and public discourse mostly focuses on cryptocurrency trading and how crypto-assets can integrate with existing financial institutions, and their legitimacy and volatility.
While these are important points, it is critical that mainstream discussions do not fixate solely on the upsides. As well as transforming the payments system, crypto also has the potential to change how criminals do business — specifically, by making it easier to fund terrorism. The UN Counter-Terrorism Committee Executive Directorate estimates that cryptocurrencies are financing as many as 20% of terrorist attacks.
Before discussing this troubling nexus, it is essential to understand the basics of cryptocurrency. Cryptocurrencies are a peer-to-peer digital payment system which enables anyone to send and receive payments regardless of location. Unlike traditional currencies, they are completely digitised and have no physical form. The Australian Transaction Reports and Analysis Centre (AUSTRAC) notes that cryptocurrencies can be exchanged for goods, services, and physical currencies.
However, the key difference between fiat money and cryptocurrencies, particularly in the Australian context, is that cryptocurrencies are not issued by or under the authority of the government. This means that crypto is not subject to the same scrutiny, regulation, and oversight as fiat money.
As a result, cryptocurrencies have garnered significant attention from law enforcement, with AUSTRAC’s deputy chief executive and head of intelligence, John Moss, revealing they are no longer considered a ‘niche option’ for criminal activity. Naturally, a payments system that is detached from traditional government institutions and can operate without borders would be prized by threat actors and terrorists.
Depending on the terrorist organisation’s activities and objectives, the use of cryptocurrencies may vary. For some, it offers a way to fundraise without being confined to the limitations of legal tenders and alerting law enforcement. For example, Al-Qassam Brigades (AQB), the military wing of Hamas, used cryptocurrency as a means of operational funding. In early 2019, AQB solicited donations through Bitcoin, bringing in tens of thousands of dollars to the organisation.It was dubbed one of the largest and most sophisticated cryptocurrency terrorism financing campaigns by Chainalysis and the first verified example of cryptocurrencies being deployed by a terrorist organisation. AQB’s decision to opt for cryptocurrency donations, rather than fiat money, reduced the likelihood of law enforcement being alerted when supporters made donations.
The phenomena of using cryptocurrencies for terrorist fundraising and financing is not unique to ABQ. The terrorist group Neo-Jamaat-ul Mujahideen Bangladesh (Neo-JMB) has been collecting funds for their planned terrorist attacks through cryptocurrencies on the dark web. For Neo-JMB, this means that they are able to finance themselves without being restricted to their operating area near West Bengal.
Another attractive element of cryptocurrency is its pseudonymous nature. Traditional payments systems tie an individual’s identity to their financial transactions. However, cryptocurrencies are traded using a wallet with an alphanumeric address that allows crypto to be sent and received via the blockchain. It is important to note that this does not offer anonymity, but rather pseudonymity. However, it does make it more difficult for law enforcement to track the sender and can be used as a means to evade sanctions.
As the United States is a global hegemon, which consequently means that the US dollar is the universal base currency, the US has unrivalled power to impose heavy economic sanctions — and state-based actors are increasingly noticing the value cryptocurrencies bring. For states like Iran, cryptocurrencies can be a tool to evade or minimise the impacts of sanctions. Iran, which has been under US sanctions for nearly 40 years, has turned to cryptocurrencies as a workaround. Crypto exchange entity, Binance, has processed Iranian transactions since 2018, despite the US sanctions seeking to exclude Iran from the global financial ecosystem. Approximately USD$7.8 billion was transacted between Biance and Nobitex, Iran’s largest crypto exchange entity, essentially permitting Iran to engage in international trade. Coupled with the fact that transactions can occur beyond the borders of one country with such ease, the adoption of cryptocurrencies by terrorist organisations, or by state-based actors, is a logical step.
As the rest of the world is learning how to adopt emerging technologies like blockchains and cryptocurrency, so too are threat actors and terrorists. The same benefits that cryptocurrencies offer to legitimate enterprises are also available to criminals. Despite that, cryptocurrency should be embraced and society should seek to understand it, particularly law enforcement and governments. All emerging technology has the potential to indirectly and directly contribute to harmful activities, but understanding the risks it poses and how it can be exploited is the first challenge law enforcement, and society as a whole, must navigate.
Jazmin Wright is the Cyber and Technology Fellow for Young Australians in International Affairs.