Cryptocurrency has inundated the world in recent years with an entirely new way to send and receive money. Its characteristics of anonymity and accessibility have driven its utilization by terrorist organizations to fundraise, and as this practice grows, so does the need for regulations. Examining how freely crypto can be used by terrorist organizations demonstrates the need for tighter regulations, stronger standards, and advanced technology to meet and monitor crypto’s evolving uses.
Cryptocurrency’s uniqueness is rooted in its digital existence. Crypto provides users with anonymity, digital security, and both faster and cheaper transactions. For those in economically unstable states rampant with inflation, capital issues, and liquidity, digital currencies can be a way to counteract those challenges and retain a relatively more reliable form of money. For example, overseas transfers can now occur within hours and at a cheaper cost than transfers using traditional forms.
It utilizes a distributed ledger technology, such as blockchain, to create a network-wide ledger recording financial transactions, which can allow users to remain relatively anonymous in their transfers. In addition, there are no checks to set up an account, which may be a driving benefit to some and a deterrent for trust to others. Cryptocurrency transactions are associated with freedom and ease, which can explain their increasing use by criminals and terrorist organizations. The need for a readily available source of income incentivizes such groups, including several in the Middle East and North Africa (MENA).
Data shows that terrorist and criminal groups are taking advantage of crypto’s anonymous and secure platforms as well as its oversight gaps. In 2023, Bloomberg reported that around 20% of terrorist attacks are funded by cryptocurrency donations, up from the United Nations’ claim of 5% just a few years ago. In addition, BitcoinTransfer offices, some of which function as hubs for criminal financial activities, have popped up around the world, such as in Idlib, Syria. From late 2018 to early 2022, around $280,000 of bitcoin passed through BitcoinTransfer, the majority of which provided funding for terrorist organizations.
For example, the Palestinian political and military organization Hamas, designated as a terrorist organization by the U.S., received around $41 million in cryptocurrency donations between 2020 and 2023. Hezbollah, a designated terrorist group based in Lebanon, received around $12 million in crypto donations between 2021 and October 2023. The funds transferred through crypto may be used for financing attacks, sending remittances, or trafficking and other illegal activities, as well as for general organizational funds comprising propaganda, salaries, recruitment, and social services.
Crypto donations are solicited in a variety of ways, both overtly and disguised, most commonly through social media and web requests. In 2020, Al-Qaeda used Telegram and other social media platforms to request cryptocurrency donations. Some ads asked for donations in the guise of charity organizations, while others incorporated quotes from the Quran and photos of armed fighters to appeal to donors. In 2019, Hamas’ military wing posted advertisements in 2019 asking for bitcoin donations on Telegram, stating “The reality of jihad is the expenditure of effort and energy, and money is the backbone of war.” This simple campaign netted them $30,000. Inversely, ISIS reportedly conducted crypto fundraising in 2020 by pretending to sell personal protective equipment through web and Facebook pages, claiming to have an unlimited supply of FDA-approved N95 masks. Developed at the height of the COVID-19 pandemic, this form of advertising was lucrative for the group.
Even if implemented, cryptocurrency regulatory proposals could be too broad and face many hurdles, since increased monitoring of crypto’s identifying characteristics, such as anonymity, digital security, and blockchain technologies, could be detrimental to the platform itself. Complicating the matter, increased regulation of digital currencies requires stronger economies, stable governments, resources, and training that not all states have access to. Concerns also exist about the deterring effect that potential regulations could have on innovation in crypto and the broader financial sector. While research into cryptocurrencies is lacking compared to other innovative advanced technologies, researchers have proposed ways to incorporate artificial intelligence, biometrics, and cryptography into digital currency platforms in order to retain the qualities distinctive of the technology while improving digital security, information sharing, and efficiency in identifying suspicious transactions.
In light of regulatory difficulties, steps have been taken to better control cryptocurrency’s utilization by terrorist organizations. For example, the U.S. Department of Treasury sanctioned Hamas after the October 2023 attacks for its use of cryptocurrency. In addition, some countries have chosen to outlaw them altogether. For example, Egypt has an absolute ban on cryptocurrencies as of 2020, and Iraq had placed an absolute ban on digital currencies as early as 2017. Countries such as Lebanon, Oman, Jordan, Saudi Arabia, and the UAE, on the other hand, only have implicit bans, with most simply prohibiting financial institutions from dealing in digital currencies. Government bans on crypto mainly target financial institutions so that they either cannot deal in digital currencies or banks cannot have monetary covers for such currencies.
However, the UAE is gradually becoming a crypto hub and is working on new regulation for retail payment services, such as in transactions for real estate, airlines, remittances, and both small and medium-sized businesses. Aside from the UAE’s warming to crypto use, many countries still do not have in-depth regulatory standards nor do governments authorize any extensive surveillance of crypto use by citizens. Thus, the terrorist use of cryptocurrency may face a few hurdles but is not stopped completely.
For nations concerned about national security, safeguarding financial institutions, and cybercrime, stronger and more extensive regulations on cryptocurrency must be implemented. More knowledge of how digital currencies work and the limits to their anonymity must be shared amongst potential users and enforcers of future regulations. While terrorist organizations will not cease to exist, greater understanding of their functioning and the development of methods to oversee and regulate their activity must continue to evolve.