In April this year, the European Parliament’s members voted by a large majority (574 yes votes to 13 no votes, with 60 abstentions[i]), to support a December 2017 agreement with the European Council, for measures aimed to prevent the use of cryptocurrencies in terrorism financing. The directive has already come into force, while member countries of the EU will have 18 months to bring the new rules into national law. In particular, the legislation will help to address the threats to both individuals and the financial sector, in a bid to end the anonymity associated with virtual currencies, by tightening rules regulating virtual currencies[ii] and widening the duty of financial entities to undertake customer due diligence[iii].
Even though this directive shows an increasing interest from institutions, at both national or international level, in countering online terrorism financing, could the exploitation of this modern financial tool for terrorism purposes be stopped only by relying on the financial sector?
In order to answer this question, it is relevant to understand the reasons why virtual currencies are so untraceable and how terrorism (global Islamic extremist groups in particular) have exploited them at their own advantage until nowadays and what could be the future prospects.
Cryptocurrencies: a free and undetectable network
Bitcoin is the largest and best-known cryptocurrency. Other versions of cryptocurrency had been launched but never fully developed when Bitcoin became available to the public in 2009. Nowadays different types of cryptocurrency are also available (e.g. Ethereum or Zcash or Litecoin) and all of them, so far, have as a common denominator the possibility to store or transfer money in a cyber-space characterized by a lack of traceability or control[iv].
Cryptocurrencies work in a different way compared to other traditional e-payment networks, as Visa or Paypal, given that they are not run by a single company or person[v]. Their system develops itself through a network where there is no government, financial institution or any other authority able to have control over it, thus it is completely decentralized. Furthermore anyone who owns cryptocurrency operates in anonymity: there are no account numbers, names or any other identifying features that connect the e-value to their owners[vi].
E-values overcome the principle of trust on which payment in cash (and world economy) rely upon, by ensuring a system based on an encrypted network of users which establishes the reliability of the transactions through a chain of digital signatures[vii].
Being a system which runs through a network, there’s the necessity to announce all transactions publicly. Hence, the public can see that someone is sending an amount of money to someone else, but without information linking the transaction to anyone, same as the level of information released by stock exchanges, where the time and size of individual trades is made public but without telling who the parties are.
The peer-to-peer authentication process is encrypted as senders and receivers are identified only by digital public-key cryptography (i.e. pseudonyms) and every message is signed by its sender and encrypted to its receiver (i.e. private-key cryptography)[viii].
It is very easy to open an e-wallet for crypto-values which allows to earn cryptocurrencies by exchanging real money with crypto-values[ix], by accepting them as a mean of payment or by “mining” them by solving extremely challenging mathematical problem[x] or use them to purchase goods or services, allowing transactions of large amount of money within an hour at most[xi].
Terrorism and cryptocurrencies: from early stages till the most recent use
Sporadic evidence of terrorists’ use of digital currency has been found since 2012 and in the last months, with the increasing efforts of Daesh aimed to establish the “Virtual caliphate”, this trend has been growing.
Those cases which were found relevant are set out below
- Hawala: prior to the invention of cryptocurrencies, for the past couple of decades, foreign donations to terrorist organizations have been delivered by another method used to transfer money anonymously, which is still active today: the hawala[xii]network[xiii]. Hawala is a decentralized network which allows individuals or groups to pass money through an hawaladar in their country, to another hawaladar in the destination country who delivers the money to the addressee, allowing also terrorist groups to transfer their own funds or resources from one location to another.
Cryptocurrencies, bitcoin as first, made anonymous transactions faster and more secure, overlapping the need of basing the whole operation on people’s trust.
- “Fund the Islamic Struggle Without Leaving a Trace”: The first known case of exploitation of cryptocurrency for Islamic terrorism purposes was allegedly registered in 2012, when an anonymous website was uploaded in the deep web for the purpose of raising money anonymously through sadaqah[xiv] to support the Islamic fight against the United States, by using Bitcoins. Even if it is not sure that the website presented by the explanatory title “Fund the Islamic Struggle Without Leaving a Trace”[xv] was made by a terrorist group’s affiliated or was only a scam, it has been registered that it had received an amount of 5 bitcoins when the bitcoin exchange rate was more or less $10[xvi].
- Ghost Security Group investigations: not verified reports made by the hacker group “Ghost Security Group” following IS terrorist attack at Bataclan in November 2015 showed that, since 2012, other bitcoins addresses in the dark web where found being connected to Daesh[xvii]. In one of these accounts one were found having the equivalent of almost $3million which, according the hacker group, were earned mostly by donations[xviii].
- Golden coins from occupied territories: digital currencies has not being used only for donations to the terrorist organization through the dark web, but also to sell items. A topic example is related to the deep web website, also advertised on Dabiq, which appeared for the first time in 2014, to sell the golden, silver, and copper coins, used in the areas under IS control in Iraq and Syria as means of payment, as souvenirs[xix].
- Bitcoin wa Sadaqat al-Jihad: in the summer of 2014, an article titled “Bitcoin wa Sadaqat al-Jihad” was published in an online blog. The article explained the various strategic and religious reasons for jihadists to use Bitcoin. It promoted the use of Bitcoin virtual currency as a means of limiting economic support for infidels and circumventing the Western banking system.[xx]
- Jahezona: the first reliable case of fundraising by using crypto-values, directly connected to a terrorist organization, began in July 2015 when the Ibn Taymiyya Media Center (ITMC)[xxi]. The fundraising campaign was arguing that such donations fulfilled a religious obligation to fight for Islam[xxii].. The campaign regularly posted graphics showing the group’s desired weapons and ammunition and their respective costs. In late June 2016 the campaign added the option to pay in bitcoin, posting infographics on Twitter with QR codes linking to a bitcoin address[xxiii].
- Akhbar al-Muslimin fundraising campaign: in November 2017, one month after the fall of Raqqa, a banner for donations of Bitcoins was launched on the IS-affiliated website which publishes news from the Islamic State, Akhbar al-Muslimin. The website has posted a link for Bitcoin donations claiming “Click here to donate Bitcoins to the (Akhbar al-Muslimin) website – do not donate fromzakāt[xxiv] funds”. The donations are presented as a support for the website, but may probably have been used by Daesh to restore its propaganda machine or fund terrorist attacks abroad[xxv].
- Al Sadaqah donation campaign: in November 2017 the Al-Sadaqah organization, presenting itself as a charity organization, began a still ongoing fundraising campaign on Telegram and other social media such as Twitter[xxvi] to raise money, in Bitcoin[xxvii], from Western supporters, to finance the mujahideen fighting against the Assad regime in northeastern Syria. The campaign has been circulated on channels identified as close to Hay’at Tahrir Al-Sham (HTS), Al-Qaeda, and the global jihad in general[xxviii].
- Telegram Open Network (TON): The team of Telegram announced in December 2017, that within 2018 will develop and make available a faster, with more advanced capabilities and user-friendly new type of crypto-value called Gram[xxix]. Since 2015, when it was used in the planning of the Paris attacks, Telegram has emerged as jihadist groups’ preferred app for encrypted communications, including planning or claim of responsibility for its attacks[xxx]. Indeed, Telegram founder and CEO, Mr Durov, in 2016, has been officially asked by the Congress of the United States, after noting that hundreds of channels affiliated with Daesh and other terrorist organizations still find refuge in Telegram’s encrypted service, to do all in his power to prevent terrorists from exploiting Telegram to advance their lethal cause[xxxi]. Even though the right path to follow in the policies filed shouldn’t accept to stop progress in order to avoid terrorist undetectable activities, given the exploitation of the encrypted chat services and the technical skills that jihadists have proven to have in using dark web and cryptocurrencies at their own advantage, it comes quite clear that such a user-friendly blockchain technology, as the one proposed by Gram, would put another potentially very powerful tool in the hands of terrorists. If it will still not be clear which are going to be the precise measures aimed to avoid terrorist exploitation provided by TON blockchain, then it will be impossible to foresight how many and how dangerous will be terroristic methods to exploit this new encrypted communication and financial tool.
A multidisciplinary approach to counter terrorism financing
As pointed out by Dr Peter R. Neumann on its paper Don’t Follow The Money, “…governments should integrate their efforts to restrict terrorist financing into their wider counterterrorism strategies instead of delegating this mission to finance ministries… actions aimed at countering terrorist funding may involve the financial system, but on other occasions, governments should use the military and law enforcement instead”[xxxii].
Then, an intervention aimed to avoid online terrorism financing implies the cooperation among apparently different sectors at a global level, which would allow filling the gap represented by three main elements:
- Lack of control over the online realm: by exploiting the surface and the deep web, the terrorist organizations have the ability to either disseminate public messages or have a one-to-one type of communication with followers or sympathizers. Their economic resources in the online realm work in the same way of their online communication strategies: there are cases related to public links, in the most majority of them lightly-disguised, to fundraising campaigns or encrypted chats aimed to directly ask their followers an economic support. These aspects inevitably show a lack of control over online platforms[xxxiii] thus, the absence of a regulatory framework able to reduce the exploitation of the web by terrorist organizations in terms of communication, is inevitably pouring onto the impossibility to detect terrorism’s online economic resources.
- The ideological factor: the ability that terrorist groups have to turn even the most practical issues into a religious rule is quite a unique feature of these sort of organizations. Fundraising campaigns for sadaqah or extortions under the principle of zakāt or present the use of cryptocurrencies “for ideological-religious reasons”[xxxiv], are just some examples of how they can convince people to strengthen them financially while emphasizing their ideological narrative. Fundamentally terrorism is communication, thus Counter-narratives, Alternative Narratives, and Government Strategic Communications[xxxv] have to be added in a strategy aimed to stop terrorist propaganda and prevent people from taking part to their fundraising campaigns.
- A global counter-terrorism strategy: the global reach of modern terrorism is developing a new warfare scenario which imposes to governments and supranational institutions a multidisciplinary approach that has to be reinforced by a transnational level of cooperation[xxxvi]. Terrorist groups have understood how to exploit their global networks either with organized crime or with like-minded terrorist organizations, making full use of transversal methods and skills able to reinforce their ranks and their funding. Governments should increase their level of cooperation in order to reach those undetectable areas (both online (e.g. deep web, encrypted chats, cryptocurrencies) and offline (e.g. LDCs, marginalized people or communities) where terrorism finds fertile ground to proliferate. Hence, an improved and permanent cooperation at an international level with a cross-cutting competencies approach (e.g. military, sociological, economic, political, religious, digital) seems to be the only way to detect and decisively cut Daesh’s financial resources.
As claimed by Dr. Jehangir Khan, Officer-in-Charge and Director of the Office of Counter-Terrorism at the UN “Since 9/11 we have had numerous resolutions, numerous meetings in the security council and other forums, we have built a whole international legislative framework. A lot is being done, but if we look at the state of the world today… are we winning the war against terrorism or are we winning a few battles?”[xxxvii]. Of course governments are making many steps forward to stop terrorism financing, but are we really able to counter its global reach?
[i] News European Parliament (April 19, 2018) Anti-money laundering: MEPs vote to shed light on the true owners of companies. Available at http://www.europarl.europa.eu/news/en/press-room/20180411IPR01527/anti-money-laundering-meps-vote-to-shed-light-on-the-true-owners-of-companies
[ii] S. Sundararajan (April 20, 2018) EU Parliament Votes for Closer Regulation of Cryptocurrencies. CoinDesk. Available at https://www.coindesk.com/eu-parliament-votes-for-closer-regulation-of-cryptocurrencies/
[iii] Ansa (June04, 2018) Bitcoin: Pe, cresce il rischio di finanziamento terrorismo. Available at http://www.ansa.it/europa/notizie/rubriche/altrenews/2018/06/04/bitcoin-pe-cresce-il-rischio-di-finanziamento-terrorismo_68cda157-e39e-41aa-a24f-e42d84ac0b94.html
[iv] M.Jain (December 14, 2017) HOW TO USE EVERYDAY ACCOUNTING TOOLS TO UNDERSTAND CRYPTOCURRENCY. HBX Business Blog – Harvard Business School. Available at https://hbx.hbs.edu/blog/post/how-to-apply-everyday-accounting-tools-to-understand-cryptocurrency?utm_source=linkedin&utm_medium=social&utm_campaign=FA
[v] N. Popper (October 1, 2017) What is Bitcoin and How Does It Work? The New York Times. Available at https://www.google.it/amp/s/mobile.nytimes.com/2017/10/01/technology/what-is-bitcoin-price.amp.html
[vi] B. Marr (January 17, 2018) A Complete Guide to Bitcoin in 2018. Forbes. Available at https://www.forbes.com/sites/bernardmarr/2018/01/17/a-complete-beginners-guide-to-bitcoin-in-2018/#3484762b4418
[vii] “Blockchain acts as a public ledger showing all transactions, though the identities of participants are obscured. Each block has a cryptographic link to the previous one. Every addition of a new, linked block to the chain makes it harder for a rogue miner to steal bitcoin by rewriting the sequence of transactions.” O.Kharif M. Leising (January 29, 2018) Bitcoin and Blockchain. Bloomberg. Available at https://www.bloomberg.com/quicktake/bitcoins
[viii] G.F. (January 27, 2014) Cryptographic Currency – Washing virtual money. The Economist. Available at https://www.economist.com/2014/01/27/washing-virtual-money
[ix] “Exchanges such as Coinbase, founded in 2011, offer the easiest way for the general public to buy and sell mainstream cryptocurrencies like bitcoin, Litecoin, and Ethereum. But users have to register with their real identities and prove their cryptocurrency was acquired legally. That makes them less appealing for criminals. Cashing out small amounts of bitcoin is still possible, but it’s becoming more difficult to do so without attracting law enforcement attention.” D. Gilbert (March 19, 2018) Criminals are racing to cash out their Bitcoin – Here’s How They’re Doing It. Vice. Available at https://news.vice.com/en_ca/article/7xdzqa/criminals-are-racing-to-cash-out-their-bitcoin-heres-how-theyre-doing-it
[x] A. Rosic (December 21, 2016) What is Bitcoin Mining? A Step-by-Step Guide. Huffington Post. Available at https://www.huffingtonpost.com/ameer-rosic-/what-is-bitcoin-mining-a-_b_13764842.html
[xii] “Transfer or Remittance” in Arabic. “A system of money transfer based on promises and honor, practiced in the Middle East and parts of Asia and Africa” Collins English Dictionary – Complete and Unabridged, 12th Edition 2014 © HarperCollins Publishers
[xiv] An Islamic term for “voluntary charity”. Collins Dictionary
[xv] Krypt3ia (October 14, 2013) Darknet Jihad. Available at https://krypt3ia.wordpress.com/2013/10/14/darknet-jihad/
[xvi] ICT Cyber-Desk Periodic Review (October-November 2013) Cyber-Terrorism Activities Report No. 6. IDC Herzliya – International Institute for Counter-Terrorism (ICT). Available at https://www.ict.org.il/UserFiles/Cyber%20Report%206.pdf
[xvii] E. Azani N. Liv (January 30, 2018) Jihadists’ Use of Virtual Currency. IDC Herzliya – International Institute for Counter-Terrorism (ICT). Available at https://www.ict.org.il/images/Jihadists%20Use%20of%20Virtual%20Currency.pdf
[xviii] J. Sagar (November 14, 2015) Bitcoin 3 Million Dollars. News BTC. Available at https://www.newsbtc.com/2015/11/14/isil-militants-linked-to-france-terrorist-attacks-had-a-bitcoin-address-with-3-million-dollars/
[xix] E. Azani N. Liv (January 30, 2018) Jihadists’ Use of Virtual Currency. IDC Herzliya – International Institute for Counter-Terrorism (ICT). Available at https://www.ict.org.il/images/Jihadists%20Use%20of%20Virtual%20Currency.pdf
[xx] Bitcoin wa Sadaqat al-Jihad. Available at https://krypt3ia.files.wordpress.com/2014/07/btcedit-21.pdf
[xxi] The media wing of the Mujahideen Shura Council in the Environs of Jerusalem (MSC), a collection of Salafi-jihadist groups in Gaza
[xxii] “Equipe us” in Arabic
[xxiii] E. Azani N. Liv (January 30, 2018) Jihadists’ Use of Virtual Currency. IDC Herzliya – International Institute for Counter-Terrorism (ICT). Available at https://www.ict.org.il/images/Jihadists%20Use%20of%20Virtual%20Currency.pdf
[xxiv] An Arabic word referring to a payment made annually under Islamic law on certain kinds of property and used for charitable and religious purposes, one of the Five Pillars of Islam. The word zakāt origins comes from Persian and Kurdu languages, meaning “almsgiving”
[xxv] The Meir Amit Intelligence and Terrorism Information Center (December 06, 2017) DRIVE FOR BITCOIN DONATIONS ON AN ISIS-AFFILIATED WEBSITE. Available at http://www.terrorism-info.org.il/en/drive-bitcoin-donations-isis-affiliated-website/
[xxvii] M. Del Castillo (December 21, 2017) Think Tank Links Rising Bitcoin Price to Terrorist Use. Coindesk. Available at https://www.coindesk.com/u-s-think-tank-finds-rising-bitcoin-price-linked-terrorist-interest/
[xxviii] MEMRI Cyber & Jihad Lab (November 13, 2017) Online Campaign In English Raising Funds For The Jihad In Syria In Bitcoin. MEMRI. Available at http://cjlab.memri.org/latest-reports/online-campaign-in-english-raising-funds-for-the-jihad-in-syria-in-bitcoin/
[xxx] J. Warrick (December 23, 2016) The ‘app of choice’ for jihadists: ISIS seizes on Internet tool to promote terror. The Washington Post. Available at https://www.washingtonpost.com/world/national-security/the-app-of-choice-for-jihadists-isis-seizes-on-internet-tool-to-promote-terror/2016/12/23/a8c348c0-c861-11e6-85b5-76616a33048d_story.html?utm_term=.0a8b5bf40b52
[xxxi] S. Stalinsky (March 30, 2018) The Imminent Release Of Telegram’s Cryptocurrency, ISIS’s Encryption App Of Choice – An International Security Catastrophe In The Making. MEMRI. Available at https://www.memri.org/reports/imminent-release-telegrams-cryptocurrency-isiss-encryption-app-choice-%E2%80%93-international
[xxxii] P.R. Neumann (July/August 2017) Don’t Follow the Money – The Problem With the War on Terrorist Financing. Foreign Affairs. Volume 96 – Number 4. Available at http://icsr.info/wp-content/uploads/2017/06/Foreign-Affairs-Dont-Follow-the-Money-Peter-R.-Neumann.pdf
[xxxiii] K. Leetaru (May 15, 2018) The Problem With Using AI To Fight Terrorism On Social Media. Forbes. Available at https://www.forbes.com/sites/kalevleetaru/2018/05/15/the-problem-with-using-ai-to-fight-terrorism-on-social-media/#4d640ad86fed
[xxxiv] Bitcoin wa Sadaqat al-Jihad. Available at https://krypt3ia.files.wordpress.com/2014/07/btcedit-21.pdf
[xxxv] A. Reed H. J. Ingram J. Whittaker (November 22, 2017) Countering Terrorist Narratives. Policy Department for Citizen’s Rights and Constitutional Affairs – Directorate General for Internal Policies of the Union. Available at https://icct.nl/wp-content/uploads/2017/11/Reed-Ingram-Whittaker-Narratives.pdf
[xxxvi] UN Meeting Coverage and Press releases (September 21, 2017) Global Cooperation, Tackling Root Causes Central to Fight against Terrorism, World Leaders Stress on Third Day of General Debate. United Nations. Available at https://www.un.org/press/en/2017/ga11950.doc.htm
[xxxvii] International Institute for Counter-Terrorism (ICT) YouTube Channel (September 11, 2017) – Officer-in-Charge and Director, Office of Counter-Terrorism, United Nations: From Rhetoric to Reality – Strengthening Multilateral Cooperation to Address the Growing Threat of Transnational Terrorism. Available at https://www.youtube.com/watch?v=2WtlMgCgat4