• The recent indictment of a New York woman for sending funds to a terrorist organization highlights the ease with which money laundering and terrorism financing can take place using cryptocurrencies.
• Law enforcement currently has limited capability to track and seize cryptocurrencies used for criminal purposes, so criminals are exploiting privacy coins such as Monero to remain undetected.
• Regulators and policymakers must develop Know Your Customer procedures for social media and messaging services and take stronger measures to track cryptocurrency transactions in order to rein in crypto-financed terrorism.
The recent indictment of a New York woman accused of sending funds to Hay’at Tahrir al-Sham — designated by the United States and United Nations as a Foreign Terrorist Organization — highlights the ease with which money laundering and terrorism financing can take place using cryptocurrencies. Early adopters, including terrorists and violent extremists, are exploiting a law enforcement blind spot while regulators dither over the future of cryptocurrencies in the economy.
Law Enforcement Blind Spot
Law enforcement has only a small group of dedicated personnel to track and seize cryptocurrencies used for criminal purposes, leaving criminals free to exploit privacy coins such as Monero. In June 2020, Counter Extremism Project (CEP) located a notorious pro-ISIS website requesting donations via Monero due to its safety features; months later, a neo-Nazi site requested donations via the same coin, illustrating how criminals are taking advantage of this blind spot.
Know Your Customer Procedures
In order to rein in crypto-financed terrorism government should develop Know Your Customer procedures for social media and messaging services; these would help identify suspicious activity on digital platforms that could be linked with money laundering or terrorism financing. Governments should also take stronger measures to track cryptocurrency transactions in general; if transaction data is available, then it will be easier for law enforcement personnel to investigate illicit use of crypto assets.
The misuse of cryptocurrencies is becoming an increasingly serious security threat due to bureaucratic inaction. Without specific focus on tracking crypto assets used for criminal purposes it is much more difficult for law enforcement agencies around the world to detect money laundering or terrorism financing activities taking place online via digital platforms or through encrypted wallets like Monero.
Future Action Required
It is imperative that governments act now before further exploitation takes place; policies should be developed that enable efficient tracking and seizing of illegal transactions made using cryptocurrency assets in order to protect citizens from potential harm caused by those who wish us harm through their use of financial technology tools such as privacy coins like Monero.