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Research Report

TERRORIST USE OF VIRTUAL CURRENCIES: Containing the Potential Threat

Zachary K. Goldman
Ellie Maruyama
Elizabeth Rosenberg
Edoardo Saravalle
Julia Solomon-Strauss
Copyright Date: May. 1, 2017
Pages: 56

Table of Contents

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  1. (pp. None)
  2. (pp. 1-1)
  3. (pp. 2-2)
  4. (pp. 3-8)

    In the past several years, terrorist groups in Gaza have solicited support in Bitcoin; there are isolated reports that ISIS has used the cryptocurrency; and cybercriminals use it and other virtual currencies in a range of circumstances. We cannot yet know whether the uses of virtual currencies by terrorist groups amount to isolated incidents or foretell a broader and more pernicious trend.² Individual incidents in which lone terrorists or terrorist groups use VCs of course pose a challenge. This is particularly so because the funding requirements for disruptive lone wolf acts of terror are small enough to pose a risk...

  5. (pp. 9-16)

    Tracking and disrupting terrorists’ financial networks is an important way to follow and impede their overall operations. Intelligence agencies, financial intelligence units including FinCEN, and law enforcement officials work to stay ahead of the evolving threat of terrorist financing, which is influenced by changes in the global financial system and the emergence of new financial technologies, among other factors. This chapter briefly summarizes the vulnerability of VCs to abuse by terrorists, and how terrorists have used this value transfer method in the past. To provide context, the chapter describes the general landscape of contemporary terrorist financing, as well as some...

  6. (pp. 17-24)

    For policy and security leaders focused on countering terrorism, the core question about VCs is when they will reach the kind of scale at which both terrorist groups and their funders can use them with sufficient ease that it becomes a value transfer mechanism of choice. As the previous chapter demonstrates, there is anecdotal evidence that terrorist groups or terrorists working independently have used Bitcoin or have solicited donations in Bitcoin, although there is not yet public evidence that they have begun to do so at scale. Setting aside these more limited instances of terrorists’ use of Bitcoin, as a...

  7. (pp. 25-28)

    Policymakers studying whether and how virtual currency may become a central pathway for terrorist financing must continuously examine two main characteristics of evolving virtual currency. First, as discussed in the previous chapter, they must examine how financial technologies with the same goals as virtual currencies have successfully prevented illicit financial activity generally and terrorist financing specifically. Second, they must understand the reasons for which criminal groups today are attracted to virtual currencies to determine whether terrorists, by contrast to other criminals, may seek to use them in the same way in the future.

    Several of the reasons for which terrorists...

  8. (pp. 29-34)

    The risk that terrorists will increasingly use virtual currencies to move and store money in the future indicates a need to consider whether our current financial regulatory architecture is up to the task of preventing this eventuality. Observers and policymakers have highlighted a need for vigilance to prevent this from occurring, which in practice translates into adaptations to financial regulation and compliance. Additionally, it means a policy posture on financial technology oversight that is designed to both protect the benefits that can be afforded by virtual currencies and prevent their abuse.

    In the United States, the core policy framework for...

  9. (pp. 35-40)

    As discussed, anecdotal evidence indicates that terrorists have used virtual currency to move and store money. Policymakers and regulators have the ability, and would be well served, to adapt their approach to supervision and enforcement to better track this illicit finance and work to prevent the threat from achieving scale. Such changes would likely have the beneficial effect of countering terrorist financing more broadly. Additionally, they may also help to address the pernicious and more widespread use of virtual currencies by various types of criminals, including traffickers of drugs, child or other illegal pornography, counterfeit goods, and others. Counterterrorism, national...

  10. (pp. 41-52)
  11. (pp. 53-54)