Organised crime

The Extent to Which the Use of Cryptocurrencies Limit the Intelligence Community’s Ability to Monitor Terrorist Movement of Funds

October 23, 2017

Mille K. B. Bisgaard

New technologies, new providers of payment services, and new regulations are changing and reshaping the way we think about payments, causing disruptions throughout the entire end- to-end payments value chains. The disruptors expose and fill gaps in traditional payment processes in response to customer demand in a truly globalized environment; enabling swifter and more cost-efficient solutions tailored to meet the specific requirements of payers and payees across the globe. This, regardless of customers’ objectives and rationale for making or receiving funds and payments. Such is the pace of developments in payment technologies that new solutions leveraging new technologies and targeting consumers and organizations alike- are presented and launched on a daily basis.

 

New payment methods are typically highly digitized and represent an increasing challenge to law enforcement agencies and the intelligence community as they are often characterized by lack of transparency, high degree of anonymity and limited traceability. The latter issue relating to both ends of the payment transactions performed, i.e. between the payer and the payee as well as also to funds whilst in transit.

 

One of the most anticipated developments in this sector has been that of blockchain in general and cryptocurrencies in particular, with the inherent feature of potentially disrupting both the way in which payments are processed, and the way it is being regulated. The payment aspect of the blockchain technology and applicability of such services has come to the fore as a significant user case scenario which poses opportunities for new market entrants and their customers whilst posing threats to incumbent vendors of payment services and to governing bodies from a regulatory viewpoint.

 

The ‘non-proprietary, decentralized payment technologies’-market is facing unprecedented growth, rapid technological advancements, and a flood of new entrants into the market. Questions abound as to how all stakeholders will work together, which products will be welcomed by consumers (payers) and merchants (payees), best practices for managing privacy and data security risks, and how existing regulatory frameworks will be applied to new payment services, and/or if a new framework will have to be put in place. While many of these new virtual and digital currencies have the potential to become attractive services, they are also fraught with uncertainties relating to regulatory, compliance, security, and business issues. These uncertainties are highly associated with the risks of terrorist organizations applicability of utilizing cryptocurrencies in their monetary practices.

 

As noted terrorism financing expert Dr. Matthew Levitt observed when he testified before the U.S. Congress in 2010, a key vulnerability of large terrorist groups is their “need for a large flow of external funds, necessitated by the local population’s inability to finance all of the infrastructure needed to provide essential services.” Identifying and exploiting terrorists’ vulnerabilities in this respect requires understanding of the different means and mechanisms that such groups employ to maintain steady cash flow.

 

As an extension of the continuously evolving field, we should constantly evaluate not only how terrorist organizations generate revenues or fund their operations, but also on how funds are moved to, within and from the same organizations. In other words, how these organizations manage their cash flows as payers and payees and how financial transactions are being made. The understanding of the movement of funds is key to law enforcement agencies and the intelligence community to enable the facilitation of appropriate counterterrorism measures, and made far more complex by the introduction of new payment technologies in general, and cryptocurrencies in particular.

 

According to a report published by the Home Office and HM Treasury in 2015, cryptocurrencies are the preferred method of online payment for illicit commodities including firearms and drugs. “The criminal underground very much likes Bitcoin,” said Curt Wilson, a senior threat intelligence analyst at Arbor Networks. “It’s enabled a greater sense of obfuscation”. The majority of dark web websites have payment systems reliant on cryptocurrencies because of the perceived anonymity of these types of payment products. Current criminal exploitation of Bitcoin can be divided into two distinct areas: internally against the Bitcoin platform and users themselves, for example theft or fraud; and externally by exploiting the system as a means of exchange, for example money laundering, terrorist financing or the purchase of criminal commodities.

 

I therefor argue that the use of cryptocurrencies poses increasingly significant challenges to the intelligence community in terms of detecting sizeable flows of funds to, within and from terrorist organizations. This is a serious threat to global security as we are reliant on the monitoring of funds and movements of money to more accurately predict and deter future attacks on our interests and to analyze terrorist activity. The money goes where the activity is and thus understanding where the money is coming from, where it is going, and its whereabouts whilst in transit becomes important in the fight against terrorism. Under such circumstances where traditional and regulated financial institutions are not necessarily playing key roles in the value chain, ensuring the required levels of transparency from a security viewpoint becomes a serious challenge. Especially when regulatory tools are not available and/or not applicable given the nature of the technologies potentially utilized. The challenges of said detection, rest in the inherent key features of cryptocurrencies which includes the lack of traceability and anonymity.

 

Fully understanding the different aspects required to effectively monitor dynamic financial transactional data versus funding source information provides a far more holistic overall approach to detecting and preventing forward threats posed by the organizations in question. Having the ability through transactional data to analyze what is being procured, by whom, where, how and when, provides invaluable information about the organizations inner life & structure. Any changes and deviations from established patterns could potentially provide a very instantaneous opportunity to detect forthcoming attacks.

 

One should not isolate cryptocurrencies in conceptual and operational anti-terrorism measurements imposed by governments and intelligence agencies, but always look for complete approaches which includes keeping up with innovations such as cryptocurrencies. The application of combination-approaches of both intercepting remittance systems in which money is moved and where the challenging of state sponsorship, fight against international drug circles, support of international frameworks of anticorruption and anti-money-laundering (such as the International Convention for the Suppression of the Financing of Terrorism), modernization of political reforms in the Islamic world, and the support the rebuild of failed states is advisable.

 

Requirements for terrorist networks smooth-running of financial objectives to ensure operational success is dependent upon payment vehicles providing integrity, universal acceptance, and to where no trail is being left behind. As cryptocurrencies are providing these characteristics through the nature of blockchain technology, we should expect terrorists to evaluate distributed ledger technologies in the same fashion. It would be logical for terrorist networks to be interested in how cryptocurrencies can potentially safeguard their procurement and supply-chain processes.

 

With that being said, we cannot be certain of the level terrorists are currently using cryptocurrencies, due to the inherent features of the technology. All we can be certain of is that it would be logical for these organizations to test the waters with cryptocurrencies, and that we are likely to see a sophistication rise in technological advancements within large terrorist networks in the near future. It is also safe to say that the rise of sophistication and use of cryptocurrencies will intensify an already existing challenge of intelligence gathering on these institutions. We should therefore continue to study the benefits and downsides to blockchain technology to be able to introduce roadblocks if found necessary in the future. It will be highly essential to closely monitor the developments on terrorists’ strategic preferences of remittance systems going forward to be able to provide holistic counterterrorist measures. The holistic measures should include cryptocurrencies, but in no way isolate them as the sole challenge to counterterrorism efforts going forward. That would be a flawed image of the reality we are currently facing.

 

Worth noting is the fact that the introduction of cryptocurrencies is intensifying the already existing challenge of monitor terrorists’ movement of funds. Transacting with cash, through the hawala system, or any other alternative remittance systems are already challenging the intelligence community’s ability to monitor the movement of funds. Cryptocurrencies are only intensifying an already existing challenge of financing terrorism through both licit and illicit business fronts which are difficult to detect, terrorist organizations avoidance of tax payments, money laundering, and overall low criminal profile.

 

Also, we must ensure nuanced debates of cryptocurrencies. As seen post the deadly attacks in Paris 2015, media coverage was colored by unnuanced debates of the current implications of cryptocurrencies. It is important to realize that cryptocurrencies are not currently the main security risk to our global financial system, however this may change in the future and therefore we must continue to seek to understand the technology to be able to counter the potential rise of criminal activity associated with the blockchain in the future.

 

The many advantages of the blockchain, such as its secure design being able to extend not only to cryptocurrency but also smart contracts, record keeping and security being continuously developed, and we have not yet fully understood its full potential. However, the many positive potentials such as the financial inclusion are at this point in time overshadowing the challenges cryptocurrency poses to the intelligence community, though again, this may change in the future.

 

We are today at an early stage in the development and understanding of what blockchain technologies and cryptocurrencies can potentially mean for financial inclusion, security, and payment technologies. We should therefore await drastic measures to stop the innovations and usage of cryptocurrencies. However, this may very well change in the near future and therefore we must continue to study the distributed ledger, and the intelligence community have to stay on top of the innovations in order to counter a potential further rise of technological sophistication within terrorist networks. 

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