Monday, October 23, 2023
Cryptocurrency's role in terror financing and funding militant groups has come under renewed scrutiny following a deadly attack in Israel by Palestinian Hamas.
Israel has seized crypto accounts it says are allegedly linked to Hamas. US lawmakers have urged the government to crack down on the use of cryptocurrencies by Hamas and its affiliates.
Cryptocurrencies have gained attention for their potential use in illicit finance due to several factors.
Firstly, setting up a cryptocurrency wallet address is relatively easy, and it often doesn't require the same identity verification checks as traditional bank accounts.
This pseudonymous nature allows individuals to send and receive cryptocurrency without revealing their true identity.
Another key factor is the global and borderless nature of blockchain technology, which underpins cryptocurrencies. Transactions can occur digitally across international borders, making it an attractive option for moving funds quickly.
Furthermore, cryptocurrencies are subject to less specific regulation than traditional finance, although regulatory measures are being introduced in some regions.
The Financial Action Task Force (FATF), a global body responsible for combating money laundering and terrorist financing, has expressed concerns that cryptocurrencies could become a safe haven for illicit financial transactions.
While cryptocurrencies offer a degree of privacy, transactions on blockchain networks are permanently recorded and publicly visible.
This means that while it may be challenging for outsiders to identify the parties involved in a transaction, blockchain analytics firms have developed tools to track funds and transactions.
To link these flows to specific individuals or groups, researchers typically rely on information not directly recorded by the blockchain, such as customer data from cryptocurrency exchanges.
Crypto mixers and the movement of funds through various exchanges can further obscure the trail of funds, making it difficult to trace the source and destination of cryptocurrencies.
The exact extent of cryptocurrency use in terrorist financing remains uncertain. Experts suggest that while some militant groups have employed cryptocurrencies, they constitute a relatively small portion of their overall funding.
A United Nations official mentioned that a few years ago, around 5% of terrorist attacks were considered to be financed by cryptocurrencies, with the potential for this figure to rise to 20%.
However, the vast majority of terrorist financing still relies on traditional financial methods.
Terrorist financing is just one facet of illicit activities involving cryptocurrencies. Scams, ransomware attacks, and theft constitute a significant portion of cryptocurrency-related crimes.
In 2022, cryptocurrency crime reached a record $20.1 billion, with cyberattacks contributing substantially to this figure.
Cryptocurrency theft via cyberattacks is also reported as a source of funding for North Korea, according to UN reports.
Some banks in the UK have taken measures to restrict customer access to cryptocurrencies due to a surge in crypto-related scams.