The use of crypto-currencies in funding violent jihad

Author:Angela S.M. Irwin, George Milad
Position:Centre of Policing, Intelligence and Counter Terrorism, Macquarie University, Sydney, Australia
Pages:407-425
SUMMARY

Purpose The purpose of this paper is to look at current discourse on the topic of crypto-currencies, more specifically Bitcoins, and their application to funding acts of terror. The paper clearly establishes the risks posed by this new payment technology and value transfer system to assist in the process of funding, planning and implementing acts of terror. Design/methodology/approach Publications, blogs and sites published and administered by terrorists groups and their supporters are examined to... (see full summary)

 
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The use of crypto-currencies in
funding violent jihad
Angela S.M. Irwin and George Milad
Centre of Policing, Intelligence and Counter Terrorism,
Macquarie University, Sydney, Australia
Abstract
Purpose – The purpose of this paper is to look at current discourse on the topic of crypto-currencies,
more specically Bitcoins, and their application to funding acts of terror. The paper clearly establishes
the risks posed by this new payment technology and value transfer system to assist in the process of
funding, planning and implementing acts of terror.
Design/methodology/approach Publications, blogs and sites published and administered by
terrorists groups and their supporters are examined to determine their interest in leveraging emerging
payment and value transfer systems to facilitate the funding, planning and implementation of terror
attacks. Press releases and other publications are also examined to determine whether crypto-
currencies have been used by these groups in fund raising, fund transfer or recent terror attacks.
Findings – Although it is difcult to nd concrete evidence of largescale use of Bitcoins and other
crypto-currencies by terrorist groups and their supporters, there is strong evidence to suggest that they
have been linked to a number of terror attacks in Europe and Indonesia. Supporters of Islamic State of
Iraq and Syria (ISIS), jihadists and terrorist organisations are actively looking to and promoting the use
of new and emerging technologies, such as Bitcoin, to mitigate some of the risks associated with
traditional fund transfer methods. Some websites associated with terrorist organisations have started
to collect donations in Bitcoins. Many Bitcoin ATMs and Bitcoin exchanges are located in countries that
have seen signicant numbers of foreign ghters join ISIS in the Middle East and are also positioned in
countries that have seen increased risk of terror attack. These present a signicant risk because they
allow for the seamless, anonymous transfer of funds to and from terrorist groups and their supporters.
The paper highlights the need for further in-depth research into reliable ways to circumvent the current
difculties experienced in differentiating illicit transactions from legitimate ones and establishing
reliable means of attribution.
Originality/value – Using a document published by ISIS, which provides would-be jihadists detailed
instructions on how they can get to Syria or Iraq without being detected, a set of models were created
showing how this could be achieved using Bitcoins alone. From this scenario, red ag indicators and
suspicious behaviour models have been created to determine whether they can be identied during
detailed analysis of the Bitcoin blockchain which will be conducted in later stages of research.
Keywords Terrorism nancing, Bitcoin, Crypto-currency, Digital currency, Islamic state/ISIS,
Violent jihad
Paper type Research articles
1. Introduction
Terrorism nancing is the process by which terrorists obtain funds to perform acts of
terror. Terrorist groups require nancial support to carry out their activities and to
achieve their goals. A successful terrorist group, much like a criminal organisation, is
one that is able to build and maintain an effective nancial infrastructure. To do this, the
group must develop sources of funding and means of obscuring the links between those
The current issue and full text archive of this journal is available on Emerald Insight at:
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Use of crypto-
currencies
407
Journalof Money Laundering
Control
Vol.19 No. 4, 2016
pp.407-425
©Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-01-2016-0003
sources and the activities that they support. Terrorist groups use techniques similar to
those used by money launderers to evade the attention of authorities’ and protect the
identity of sponsors and beneciaries of funds.
International terrorism is highly dependent on good cash ow. Cash is required for
the purchase of everything from supplies and munitions to supporting the families of
deceased ghters (Blanchard and Prados, 2007;Roggio, 2015;Department of the
Treasury Washington DC, 2015). Terrorist organisations have traditionally obtained
funds through voluntary donations and the collection of membership fees, drug dealing,
credit card fraud (Makarenko, 2004;Durmaz, 2007), human trafcking (Durmaz, 2007;
Gonzalez, 2013) and cybercrime (Nardo, 2006;Chargualaf, 2008). The Islamic State (IS)
has been very creative and business-like in their ability to raise funds (Chulov, 2014).
They obtain funds from activities such as hostage taking, extortion, theft and resale of
oil and bank robbery (Levitt, 2014). In 2014, Islamic State of Iraq and Syria (ISIS) was
reported to hold over $2bn dollars in its coffers (Chulov, 2014). However, we do not have
a clear understanding of how these funds are transferred to the areas where the funds
are needed most.
The most challenging aspect of organising international terrorist activity is rooted in
nancial transactions. Terrorist organisations traditionally use hawala (or Hundi[1])
networks, conventional banking systems and smuggling of cash over borders to fund
their activities.
Hawala is a funds exchange system which evolved in Indian and Chinese
civilisations and was used to transfer funds across borders in a safe and convenient
manner. Merchants wishing to send funds back to their homelands deposited funds with
a hawala broker, who owned their own trading business, and, for a small fee, the broker
would arrange for the funds to be available from another hawala broker in another
country. The two hawala brokers then settled accounts through the normal process of
trade. Today, the technique works much the same way with business people in various
parts of the world using their corporate accounts to move money internationally for
third parties. The practice of hawala is vulnerable to terrorism nancing and money
laundering because funds do not actually cross borders, removing the international
money trail. Additionally, records are not stringently kept providing high levels of
condentiality to the sender and receiver of funds.
While hawala transactions are efcient and difcult to trace, they are inefcient for
the collection of funds from multiple sources and disbursement of those funds onwards
to geographically dispersed endpoints. Hawala can also slow down the process of
funding, planning and implementing attacks because it can be difcult to nd
intermediaries who can be trusted to transfer funds without informing authorities of
suspected illicit activity.
In recent years, the use of conventional banking systems has been problematic for
terrorist organisations. This is because of the strict anti-money laundering and counter
terrorism nancing (AML/CTF) regulations that have been put in place since the 2001
terror attacks in the USA. Before the 2001 terror attacks, some countries, such as those
in the Middle East and Africa, had no laws in place criminalising money laundering and
terrorism nancing activity (FATF-GAFI, 1999). A lack of effective AML/CTF laws and
regulations allowed terrorism nancing to go unmonitored because money transmitters’
were not required by law to register their transactions (FATF-GAFI, 1999). In recent
years, however, considerable progress has been made in this area with the introduction
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