At the end of February, a summit of the G20 Finance Ministers and Central Bank Governors held in Riyadh, Saudi Arabia[i], pressed countries to align themselves with global cryptocurrency standards from the intergovernmental organization, FATF (Financial Action Task Force), on standards on virtual assets and related providers[ii].
In particular, FATF required that VASPs (Virtual Asset Service Providers), especially crypto exchanges or crypto-handling entities that provide client services, give information about their customers to one another when transferring funds between firms[iii].
To put into action counter-terrorism financing effective measures[iv], the standards required are related to “… obtain and hold required and accurate originator (i.e. sender) information and required beneficiary (i.e. recipient) information and submit the information to beneficiary institutions” and the document says that “In cases where the VASP is a natural person, it should be required to be licensed or registered in the jurisdiction where its place of business is located”[v].
The FATF’s standards are aimed at countering or containing the rise of anonymity-enhanced cryptocurrencies (AECs), mixers and tumblers, decentralized platforms and money-cryptocurrency exchanges platforms that enable or allow reduced transparency.
Indeed, even tough, as already analyzed by ITSTIME[vi], terrorism financing has not yet totally shifted to the online realm, the latest development either in jihadist groups’ financing methods or in the cryptocurrency field portend the creation of a fully opaque terrorists financial ecosystem.
Will Telegram’s TON Blockchain and Gram be launched within 2020?
On October 2019, a few weeks before “Referral Action Days” joint operation by EUROPOL – Telegram, Telegram’s cryptocurrency, Grams, and the Telegram Open Network (TON) Blockchain platform, started battling a lawsuit from the U.S. Securities and Exchange Commission (SEC)[vii].
In particular, SEC stated that, even though all digital currencies are commodities[viii] per the Commodity Exchange Act[ix], digital currencies may still be listed as securities[x] if they are not yet launched, essentially providing a legal justification for subjecting Grams to SEC (which exclusively monitors securities).
It has to be taken into account that, SEC filed its lawsuit against Telegram on the same day that it released a joint policy statement with the Commodity Futures Trading Commission (CFTC)[xi], reminding to those branches of either public or private sector involved in digital asset trading, of their obligations to combat money laundering and counter the financing of terrorism[xii].
This will keep Grams temporarily on hold until the court’s decision arrives.
As stated on Telegram public notice about the TON Blockchain and Grams: “Telegram won‘t be able to control the blockchain and the ecosystem after it launches. Pretty much like an architect who designed a skyscraper can’t control what happens with the building after it’s finished – including what gets built around, inside or on top of it”. With these premises, all the efforts made by FATF and institutions to have a better knowledge about subjects involved in any opaque transaction via cryptocurrencies may become vain.
As analyzed by ITSTIME last year, and as acknowledged by US SEC, such a user-friendly blockchain technology disrupting the virtual asset market, as the one proposed by Telegram, could provide another very useful tool in terrorists’ hands. Indeed, the popularity of Gram is such that Telegram raised $1.7 billion from 171 initial purchasers using a Simple Agreement for Future Tokens (SAFT)[xiii], meaning it has the potential to spread among legitimate users as criminals in the very short term after it’s launched.
In the meantime, terrorist groups are already developing new methods to spread a safe use of cryptocurrencies among their followers.
Hamas is still making way by transferring millions through bitcoin
On January 2019, Abu Obeida, the spokesman for Izz ad-Din al-Qassam, the armed wing of the Hamas, announced that the group was starting to accept donations in bitcoin. Since then, after easily monitoring for a few weeks a couple bitcoin addresses publicly advertised online by Hamas, the group’s modus operandi have turned more and more complex.
- According to researcher Chainalysis Inc., which helps law enforcement track digital-coin transactions, Hamas has also collected money through a website that generated a new Bitcoin address for each visitor, avoiding the possibility to monitor a single bitcoin address connected to Hamas[xiv].
- A network analysis of transactions associated with previous campaigns made by Elliptic, identified a set of addresses used to receive donations in this campaign[xv]. The investigation discovered that the majority of the donated bitcoins came from a single, major cryptocurrency exchange. These donations were then swept up by Izz ad-Din al-Qassam and sent to another exchange based in a country without strong AML controls, with a high probability of being cashed out for fiat currency. The account receiving these funds, only until April 2019, had also received over $100,000 in cryptocurrency from other sources.
- Very recently, a research made by the Israeli International Institute for Counter-Terrorism (ICT), while monitoring the bitcoin address …Qctq (with total transactions almost the equivalent of $18 million and which has been flagged as a fundraising wallet for terrorist group on Bitcoin Abuse Database[xvi]), discovered that:
1. It served a financial website by the name of cash4ps, which is owned and operated by al-Kurd Trading, a company registered in Palestine. It enables only Gaza and West Bank users to send and receive money electronically via online banking either to bank accounts or directly. The web site was registered by Wesam Ismael in 2014 in Rafah, Egypt, stored on French servers and has been found that one of its managers had ties to Hamas
2. That same bitcoin address, …Qctq, showed its presence in militant Telegram channels active on social media in the past couple of years: Madad.
A search on Facebook of that same Bitcoin address, revealed posts by al-Buraq media outlet,[xvii] calling for support due to lack of resources and Iran’s rejection to their request for support. The wallet of this crowdfunding campaign has been associated with the Madad BTC address.
3. Cash4ps had transferred money to …bu1s (already identified by ITSTIME as belonging to Binance, one of the largest exchange in the world) meaning the exploitation of legitimate exchange platform due to a lack of strict international KYC policies on the services.
As claimed by ICT researchers “… the banking infrastructure in Gaza is limited and financial activities are harder to accomplish … cash4ps bridges a gap and provides a convenient solution for a need. Moreover, it is not out of the realm of reason to deduce that cash4ps provides sanctions circumventing services for the bank and various terror activists in Gaza.[xviii]”
Rebel groups in Syria agree on one point: Bitcoin transactions can reshape terrorist financing strategies
Besides the Malhama Tachtical, other rebel groups are calling for cryptocurrencies
- On April 18, 2019, Ebaa’ News Report, the news the agency of Hay’at Tahrir Al-Sham (Organization for the Liberation of the Levant part of al-Nusra Front), a former affiliate of al-Qaeda[xix], published an article in its weekly magazine about the history, future, and characteristics of Bitcoin, describing it as “the future currency of economy.”[xx] Furthermore, the article lists several advantages of using bitcoin, arguing that it is “safe” because of the anonymity it provides and that there are no restrictions on its use[xxi].
Taking into account that sources of funding for the group also include private donations from wealthy individuals in Saudi Arabia, Qatar, and Kuwait, who are believed to launder the funds through small money transfers[xxii], this article could be an ill-concealed invitation to exploit alternative and faster methods to move these funds. - On the jihadist crowdfunding platform SadaqaCoins Telegram channel, a year ago, appeared a video named “Jihad Investment”, with the leader of Junud Ash Sham (Soldiers of the Levant), a jihadi group led by Chechen Murad Margoshvili (Abu Muslim al-Shishani), operating in Syria.
On the page dedicated to this campaign on SadaqaCoins website accessible via TOR browser, there’s no public Bitcoin address to make donations, but only a Monero address, which is a quite anonymous and untraceable cryptocurrency. The video is subtitled in English, Turkish, German, and Arabic. This means that differently from Hay’at Tahrir Al-Sham, Junud Ash Sham may not rely on wealthy donors but on the support of jihadi sympathizers from Middle East or Europe.
Avoiding an osmotic transfer of competence
It should also be stressed that, Akhbar al-Muslimin, the ISIS-affiliated news website calling for Bitcoins, which last year resumed operation under a new address and many renewed features, seems to have noticed what other terrorist groups are doing in the online financing field.
- Since March 9, 2019, the site refers potential donors to LocalBitcoins, an exchange service to buy bitcoins, where providing identification is voluntary. This was the same service suggested on the jihadist crowdfunding campaign Jahezona (Equip us), run by Ibn Taymiyya Media Center (ITMC), an online jihadist propaganda unit which is the media wing of the Mujahideen Shura Council in the Environs of Jerusalem (MSC), active from 2016 until June 2018.
- Same as Hamas, the most significant new feature present on Daesh’s website was to generate a new Bitcoin address for each visitor, avoiding the possibility to monitor a single bitcoin address connected to the group by connecting a myriad address to the same campaign.
Hence, the web is a public window on jihadist activities which is not only visible for researchers and institutions but also for other terrorist groups. From this angle, jihadist groups may simultaneously develop new strategies, waiting for an easy and safe consolidated method to spread among their supporters the know-how needed to use modern financial tools.
The current situation is putting on institutions the burden to operate in the unfair position of controlling (and somehow even slow down) the development of fin-tech products. These financial improvements, on the one hand, have the potential to improve the economic sector but, on the other hand, as encrypted chats exploitation by terrorist groups have taught, need to be constantly monitored to avoid the creation of a virtual untraceable grey zone, where extremism will surely proliferate undisturbed.
[i] Communiqué G20 Finance Ministers & Central Bank Governors Meeting (February 22-23, 2020). Riyadh, Saudi Arabia. https://g20.org/en/g20/Documents/Communique%CC%81%20Final%2022-23%20February%202020.pdf
[ii] FATF (June 2019) VIRTUAL ASSETS AND VIRTUAL ASSET SERVICE PROVIDERS. http://www.fatf-gafi.org/media/fatf/documents/recommendations/RBA-VA-VASPs.pdf
[iii] P.Baker (February 24, 2020) G-20 Urges Countries to Adopt Tough FATF Rules on Cryptocurrencies. CoinDesk. https://www.coindesk.com/g20-urges-countries-to-adopt-tough-fatf-rules-on-cryptocurrencies
[iv] FATF’s global efforts on combating terrorist financing. https://www.fatf-gafi.org/publications/fatfgeneral/documents/terroristfinancing.html
[v] A.Baydakova, N.De (June 21, 2019) All Global Crypto Exchanges Must Now Share Customer Data, FATF Rules. Coindesk. https://www.coindesk.com/fatf-crypto-travel-rule
[vi] D.M. Barone (October 2018) Jihadists’ use of cryptocurrencies: undetectable ways to finance terrorism. Sicurezza Terrorismo Società – Fascicolo 8 http://www.sicurezzaterrorismosocieta.it/wp-content/uploads/2018/11/Daniele-Maria-Barone-Jihadists%E2%80%99-use-of-cryptocurrencies_undetectable-ways-to-finance-terrorism.pdf
D.M. Barone (October 2019) The decentralized finance-violent extremism nexus: ideologies, technical skills, strong and weak points. Sicurezza Terrorismo Società – Fascicolo 10. http://www.sicurezzaterrorismosocieta.it/wp-content/uploads/2019/11/The-decentralized-finance-violent-extremism-nexus_ideologies-technical-skills-strong-and-weak-points-Daniele-Barone.pdf
[viii] A commodity is a tangible good that can be bought, sold or exchanged
[ix] https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm
[x] Any proof of ownership or debt that has been assigned a value and may be sold
[xi] (October 11, 2019) Public Statement Leaders of CFTC, FinCEN, and SEC Issue Joint Statement on Activities Involving Digital Assets. US Security and Exchange Commission https://www.sec.gov/news/public-statement/cftc-fincen-secjointstatementdigitalassets
[xii] A. Mines (March 5, 2020) Telegram’s Cryptocurrency Could Have a Terrorism Problem. Just Security. https://www.justsecurity.org/68994/telegrams-cryptocurrency-could-have-a-terrorism-problem/
[xiii] A SAFT is an investment contract offered by cryptocurrency developers to accredited investors. It is considered a security and, thus, must comply with securities regulations.
[xiv] O. Kharif (January 17, 2020) Crypto Terrorism Funding Is Growing More Sophisticated. Bloomberg. https://www.bloomberg.com/news/articles/2020-01-17/crypto-terrorism-funding-grows-more-sophisticated-study-finds
[xv] (April 26, 2019) Cracking The Code: Tracing The Bitcoins From A Hamas Terrorist Fundraising Campaign. Elliptic. https://www.elliptic.co/our-thinking/tracing-bitcoin-terrorism
[xvi] https://www.bitcoinabuse.com/reports/1LaNXgq2ctDEa4fTha6PTo8sucqzieQctq
[xvii] The media Wing of Liwa al-Tawheed (‘The Tawheed Brigade’). Also known as the
al-Nasr Salah ad-Din Brigades, a militant group (a declared armed wing of the rejectionist ‘Popular Resistance Committees’) primarily active in Gaza. It operates under Hamas and is funded in Iran
[xviii] E.Azani, M.Barak, E.Landau, N.Liv, Cobwebs Tech (January 20, 2020) Identifying Money Transfers and Terror Finance Infrastructure. International Institute for Counter-Terrorism (ICT) – IDC Herzliya. https://www.ict.org.il/Article/2488/Identifying_Money_Transfers_and_Terror_Finance_Infrastructure#gsc.tab=0
[xix] (April 18, 2019) Hay’at Tahrir Al-Sham (HTS) Media Arm Publishes Article Describing Bitcoin As ‘Future Currency Of Economy’. MEMRI Cyber & Jihad Lab. https://www.memri.org/cjlab/hayat-tahrir-al-sham-hts-media-arm-publishes-article-describing-bitcoin-as-future-currency-of-economy
[xx] (April 18, 2019) HTS MAGAZINE PROMOTES BITCOIN AS “CURRENCY OF THE FUTURE ECONOMY”. Site Itelligence Group. https://ent.siteintelgroup.com/Terrorism-Finance/hts-magazine-promotes-bitcoin-as-currency-of-the-future-economy.html
[xxi] R. Hall (April 17, 2020) Jihadists in Syria turn to bitcoin to raise much-needed funds. The Independent. https://www.independent.co.uk/news/world/middle-east/bitcoin-syria-terror-funding-al-qaeda-hayat-tahrir-al-sham-a8873996.html
[xxii] Nusra Front (Jabhat Fateh al-Sham). Counter Extremism Project. https://www.counterextremism.com/threat/nusra-front-jabhat-fateh-al-sham