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Crypto’s Role in Illicit Finance: Understanding its Use in Terrorist Financing

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Cryptocurrency’s role in terrorist financing and funding militant groups has come under scrutiny once again following a deadly attack in Israel by Palestinian militant group Hamas. In response to the attack, Israel has seized crypto accounts it claims are linked to Hamas, while U.S. lawmakers have urged the government to crack down on the use of cryptocurrencies by the group and its affiliates.

However, it is important to note that cryptocurrencies are just one method used by violent militant groups and organizations designated as terrorist entities to acquire and utilize funds. While the use of crypto in illicit finance is a concern, it is crucial to understand the broader context. Here’s what we know about crypto’s role in such activities.

One of the reasons cryptocurrencies are used in illicit finance is that anyone can set up a cryptocurrency wallet address without undergoing extensive checks, as required by traditional banks. These addresses are pseudonymous, identified only by a string of letters and numbers, allowing individuals to send and receive cryptocurrency without disclosing their true identities.

Another factor is the digital nature of blockchain technology, which underpins cryptocurrencies. This technology facilitates instant cross-border transactions, making crypto an attractive option for illicit finance.

Furthermore, crypto is subject to less specific regulation globally compared to traditional finance, although new rules are being introduced in some regions. The Financial Action Task Force (FATF), responsible for combating money laundering and terrorist financing worldwide, has raised concerns that crypto assets could become a safe haven for criminal and terrorist financial transactions.

While cryptocurrencies create a permanent public record of transactions through blockchain technology, it can be challenging for outsiders to identify these transactions. However, blockchain analytics firms have developed tools to track funds, and researchers rely on additional information beyond the blockchain to connect flows to specific individuals or groups.

Crypto exchanges can record which addresses belong to their customers, and law enforcement agencies can unmask the individuals behind these wallets. Nevertheless, cryptocurrency users can still obfuscate their tracks by utilizing crypto “mixers” or moving funds to exchanges and other platforms where they become difficult to distinguish from other customers’ assets.

It is essential to recognize that crypto is just one of several methods employed by militant groups to move money. Cash, banks, shell companies, charities, and informal financial networks are also utilized. Experts emphasize that crypto represents a small part of these groups’ overall financial operations.

According to a United Nations official cited by Bloomberg, a couple of years ago, 5% of terrorist attacks were considered to be financed by crypto. However, this figure may have increased to 20% more recently. The FATF also acknowledged this year that crypto presents “increasing terrorist financing risks,” but emphasized that the “vast majority” of terrorist financing still relies on regular money.

While it is crucial to address the potential risks associated with crypto, it is equally important to understand that terrorist financing represents only a small fraction of illicit activity in the crypto market. Crypto research firm Chainalysis stated that terrorist financing occupies less than 1% of the entire crypto market engaged in illicit activities.

It is worth noting that terrorist financing is just one aspect of the illicit use of cryptocurrencies. Other forms of illicit finance include scams, ransomware, and theft. According to Chainalysis, crypto crime reached a record $20.1 billion in 2022, excluding proceeds from non-crypto crimes such as drug payments.

In the United Kingdom, some banks have limited their customers’ access to cryptocurrency due to an increase in crypto scams.

While the use of cryptocurrencies in illicit finance remains a concern, it is vital to provide balanced and objective coverage, considering the broader context and highlighting the various methods employed by militant groups and criminal organizations.

More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )

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