Terrorist Use of Virtual Currencies: Containing the Potential Threat

This paper explores the risk that virtual currencies (VCs) may become involved in the financing of terrorism at a significant scale. VCs and associated technologies hold great promise for low cost, high speed, verified transactions that can unite counterparties around the world. For this reason they...

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Bibliographic Details
Published in:Policy File 2017
Main Authors: Goldman, Zachary K, Maruyama, Ellie, Rosenberg, Elizabeth, Saravalle, Edoardo, Solomon-Strauss, Julia
Format: Report
Language:English
Subjects:
Banking/Finance
Center for a New American Security
Information technology
Terrorism
Online Access:Request full text
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Summary:This paper explores the risk that virtual currencies (VCs) may become involved in the financing of terrorism at a significant scale. VCs and associated technologies hold great promise for low cost, high speed, verified transactions that can unite counterparties around the world. For this reason they could appear appealing to terrorist groups (as they are at present to cybercriminals). Currently, however, there is no more than anecdotal evidence that terrorist groups have used virtual currencies to support themselves. Terrorists in the Gaza Strip have used virtual currencies to fund operations, and Islamic State in Iraq and Syria (ISIS) members and supporters have been particularly receptive to the new technology, with recorded uses in Indonesia and the United States. Most terrorist funding now occurs through traditional methods such as the hawala system, an often informal and cash-based money transfer mechanism, and established financial channels. If VCs become sufficiently liquid and easily convertible, however, and if terrorist groups in places such as sub-Saharan Africa, Yemen, and the Horn of Africa obtain the kinds of technical infrastructure needed to support VC activity, then the threat may become more significant. The task of the law enforcement, intelligence, regulatory, and financial services communities, therefore, must be to prevent terrorist groups from using VCs at scale. The use of VCs by "lone wolf" terrorists---a much bigger potential threat because of the small scales of funding needed to execute an attack---represents the kind of problem in intelligence and digital forensics that law enforcement agencies are well equipped to handle, even if they tax existing resources.