Cryptocurrencies Remain Unpopular Among Terrorists, Says Defense Expert

Crime, News | September 11, 2018 By:

Yaya Fanusie, senior member of the Foundation for Defense of Democracies Center on Sanctions and Illicit Finance, said that cryptocurrencies remain unpopular among terrorist groups.

In a report presented during the US House of Representatives Services Committee’s hearing on terrorism financing last week, Fanusie said that terrorist groups, such as the Islamic State and al-Qaeda, regularly adapt their methods to their available resources, skill levels, and the opportunities presented in their target areas of operations. While emerging financial technologies offer new channels to raise and move funds, most terrorists, particularly those operating on jihadist battlefields, inhabit environments that are not currently conducive to cryptocurrency use.

“They usually need to purchase goods with cash (which is the most anonymous funding method), often in areas with unreliable technology infrastructure,” Fanusie said. “In addition, cryptocurrencies are based on distributed ledger (blockchain) technology, where users’ pseudonymous transactions are recorded for public viewing. This leaves a trail that unsophisticated users may find difficult to obfuscate.”

The report mentions the “first” terrorism funding campaign in 2016 where a consortium of jihadists in the Gaza Strip, called the Mujahideen Shura Council (MSC), began soliciting bitcoins for its weapons fundraising campaign known as Jahezona, Arabic for “Equip Us.” The campaign aimed to raise $2,500 per fighter, giving an option to pay in bitcoin and provided a QR code linked to the campaign’s bitcoin address.

“Because the QR code was visible on the Twitter posts, we were able to pull up the address and monitor its transactions on the bitcoin blockchain,” Fanusie said. “We discovered that after a few weeks of soliciting on social media, the address received only two deposits, totaling a little over $500 in bitcoin. The Jahezona cryptocurrency crowdfunding campaign fell far short of its aim of raising $2,500 per fighter. Still, the Jahezona case is significant because it was the first time a bitcoin funding campaign was definitively associated with a terrorist group, with a bitcoin address publicly verified and observable during the campaign.”

Fanusie said that by analyzing MSC’s transactions on the blockchain, FDD’s Center on Sanctions and Illicit Finance (CSIF) was able to identify the cryptocurrency exchange where the deposits originated: the now-defunct BTC-e exchange which is known for facilitating money laundering.

When the price of bitcoin began to skyrocketing in late 2017, Fanusie said CSIF was notified by cryptocurrency analytics firm Elliptic that some jihadist social media channels recently posted requests for bitcoin funding.

“One campaign associated with al-Qaeda stood out because of its frequent posting of slick photo graphics and videos on Telegram,” Fanusie said. Calling itself al-Sadaqa (Arabic for “the Charitable Giving”), the group claimed to be raising funds for fighters in Syria. It transmitted its messages in English. It even posted quotes from now-deceased American al Qaeda propagandist Anwar al-Awlaki”

According to Fanusie, they monitored and analyzed the al-Sadaqa group’s bitcoin address, which it highlighted regularly, asking followers to “donate anonymously with bitcoin.” In its initial campaigning, al-Sadaqah sought $750 for camp reinforcements. Within weeks, they noticed the address received about $685 worth of bitcoin, which it soon sent to another address. The group continued requesting funding for a variety of logistical supplies, sometimes publishing videos claiming to show fighters’ encampments in the mountains. But it only received a handful of bitcoin transactions, none as large as the $685 early in its campaign.

“For the moment, terrorist groups may lack the necessary skills to employ digital currencies more frequently and effectively,” Fanusie said. “User friendliness is a challenge for this technology, whereas everyone knows how to use cash. Managing large amounts of cryptocurrency requires being extremely savvy in cyber security. For instance, to manage a cryptocurrency wallet, users must keep secure their digital private keys, which differ from regular passwords because they can never be replaced if forgotten. If hackers acquire your private key and steal your digital currency, there is little one can do to retrieve the funds.”

Fanusie added that price volatility makes the use of cryptocurrency a “fringe activity both among the general public and within the population of global jihadists.”

Terrorist adoption of cryptocurrencies simply mirrors that of the general public, which means that if public crypto adoption increases, terrorist groups will probably begin to transact more in digital currencies. Fanusie suggested that all units in US government agencies that investigate terrorist funding should become proficient in analyzing cryptocurrency transactions.

“While cryptocurrencies are not expected to displace conventional means of terror financing anytime soon, terrorists will likely use them if they grow more accepted for real-world goods and services,” Fanusie said. “Therefore, all agencies with counter-threat financing groups should have dedicated analysts who specialize in blockchain analysis. Today, investigators have at their disposal not only free block explorer websites, but also various blockchain forensics firms they can leverage for analysis. To mitigate any terrorist use of cryptocurrencies, the US and its partners must get smart on the world of the blockchain.”