Blockchain fuels terrorism and cartels
Sara Mosqueda 23. Sara has been an Associate Editor at ASIS International since January 2019 joining the Security Management team. She holds a Bachelor of Arts in Biology from The George Washington University. “Follow the Money: How Digital Currency is Changing Crime,” ASIS International. 8/12/23. https://www.asisonline.org/security-management-magazine/articles/2023/08/cryptocurrency/How-digital-currency-changes-crime/
Terrorism financing. Beyond sidestepping sanctions, criminal organizations like terrorist organizations and drug cartels are finding advantages in aspects of digital currencies, notably the ability to transfer and launder funds.
While the most common method to transfer funds remains through traditional banking systems and money wiring services, online payment platforms have increased in popularity because they lack the strict regulations of traditional banks that are subject to anti-money laundering rules.
“More layers are used to cover the transactions, which are taking place globally. For instance, cryptocurrencies are paid to an account in one country where they are withdrawn, the amount is divided and sent via hawala to other countries and further transferred via money transfer services,” according to Europol’s European Union Terrorism Situation and Trend Report 2023.
The Hawala system is a value transfer system where funds are sent from one location to another through service providers, known as hawaladars, according to the IMF. It is illegal in many EU member states.
“Terrorist organizations increasingly use digital currencies and virtual assets service providers (VASPs), as these provide a higher level of anonymity for donors and recipients,” Europol noted. “As regards to jihadism, IS and al-Qaeda and their affiliates appear to have stepped up the use of VAs (virtual assets), especially cryptocurrencies, for fundraising and the movement of funds in recent years, possibly as a result of an increased knowledge of VAs among members of jihadist terrorist groups. Right-wing extremists also resort to funding platforms operating with cryptocurrencies.”
Realuyo notes that digital assets’ ability to at least partially screen users from regulated financial systems also makes them attractive to terrorist organizations.
Money laundering. Drug cartels and organized criminal groups can launder their illicit funds by using digital asset service providers, allowing them to cash out in jurisdictions that lack effective international standards, according to the U.S. Secret Service.
Some organizations might have an in-house money launderer to reshuffle digital funds, but third-party launderers are available for hire in case the crime group has a digital skills gap.
And these money launderers who clean digital funds on a massive scale are the ones that can result in bigger impacts if law enforcement can disrupt their activities, dismantle their networks, and arrest them. O’Neill calls them the “centers of gravity.”