Digitally Funded Destruction: Terrorism and Cryptocurrency

On June 27th, the Israeli Security and Intelligence organizations, including Mossad, reported the confiscation of millions of dollars of digital currency linked to Iran’s Islamic Revolutionary Guard Corps’ Quds Force and the Iran-backed Hezbollah terror group. News articles stated that the operation was the first of its kind against cryptocurrency assets linked to the IRGC and Lebanon’s Hezbollah terror group.

Israeli Defense Minister Yoav Gallant was quoted as stating, “This is the first incident of this magnitude in which an infrastructure led by Hezbollah and the Iranian Quds Force that transferred millions of dollars to be used by terror elements was thwarted.” He went on to add that since the beginning of the year, members of Hezbollah, the IRGC’s Quds Force, and “Syrian elements” have used cryptocurrency to fund their daily activities.

During my career in Security and Intelligence, I was involved in multiple investigations concerning the funding of illegal activities and terrorist organizations. As a Border Officer with CBSA, I made seizures against large quantities of cash that was being smuggled into Canada as proceeds of crime. When I started as an Intelligence Officer with CSIS, my focus was on counterterrorism issues, and terrorist funding was a key consideration.

The old saying “follow the money” still holds value (no pun intended) when it comes to identifying terrorist funding and criminal money laundering. In this article, I will discuss the evolution of terrorist financing, with a focus on the use of cryptocurrency in the modern era.
Every terrorist organization runs on money. It’s needed to recruit; it’s needed to purchase weapons or explosive material; it’s needed to fund training; it’s needed to spread propaganda. The ability to track the transfer and possession of money within a terrorist organization is key to identifying members of the organization, understanding their plans, their travel, and possibly disrupting their operations.

Terrorist organizations have traditionally used several methods to assist in acquiring and transferring funds. A few examples are:

1. The Hawala System: an informal and traditional money transfer system used in many regions around the world. This system operates outside formal banking channels and relies on trust and the exchange of codes or passwords. Donors can provide funds to a hawala broker or intermediary in one location, who then transfers the equivalent amount, minus a commission, to another location as directed by the donor. This system can make it challenging to trace the origin and destination of funds.
2. Cash Smuggling: Terrorist organizations may resort to physically smuggling cash across borders or within regions. This involves moving large sums of money through illicit networks, hidden compartments, or couriers, attempting to evade detection by law enforcement agencies. Cash smuggling allows a level of anonymity and reduces the risk of electronic transactions being traced. However, it also comes with the disadvantage of moving limited amounts at one time and risking the funds being stolen or confiscated if caught by authorities.
3. Non-profit Organizations (NPOs): Many terrorist organizations exploit charitable or non-profit organizations as a front to legitimize fundraising activities. NPOs may collect donations from unsuspecting individuals as well as sympathizers, who believe their contributions are going to legitimate humanitarian causes. The funds received by these groups can then be funneled towards supporting terrorist activities.
4. Online Fundraising Platforms: The advent of the internet provided opportunities for terrorist organizations to solicit and receive anonymous donations through online platforms. These platforms can exploit encryption, use anonymous browsing tools, or virtual private networks (VPNs) to obscure the identities of donors. Crowdfunding campaigns, social media appeals, and dark web forums are also used to facilitate such fundraising efforts.

Now, let’s discuss the potential harm that can be caused by cryptocurrency in the hands of terrorist organizations. Cryptocurrencies have revolutionized the financial landscape and opened new avenues for illicit activities. Terrorist groups have recognized the potential benefits cryptocurrencies offer in funding their organizations and are opting to use cryptocurrencies as a means of financing their operations. Here are a few of the motivations and advantages terrorist organizations see in using cryptocurrencies.

1. Anonymity and Pseudonymity: Cryptocurrencies provide a level of anonymity and pseudonymity that traditional financial systems lack. Through the decentralized blockchain technology, terrorist organizations can obscure their financial transactions, making it challenging for authorities and intelligence agencies to trace the flow of funds. Cryptocurrency wallets and transactions are typically represented by cryptographic addresses rather than personal identifiers, making it difficult to link transactions to any specific individual or organization. This anonymity safeguards the identities of those involved and protects their operational security.
2. Global Reach and Accessibility: Cryptocurrencies operate on a global scale and can be accessed by anyone with an internet connection. This feature eliminates barriers such as geographical restrictions and traditional banking regulations, enabling terrorist organizations to transfer and receive funds across borders without relying on formal financial institutions. This accessibility facilitates fundraising efforts, allowing them to solicit donations worldwide, including supporters in countries where traditional financial channels may be tightly regulated.
3. Security and Resistance to Seizure: Cryptocurrencies offer a degree of security and resilience against seizure. Cryptocurrencies, being decentralized digital assets, are stored in secure digital wallets (called cold storage), safeguarded by cryptographic keys. Unlike physical cash or bank accounts that can be frozen or confiscated, cryptocurrencies can be stored on decentralized platforms, making them difficult for authorities to seize. This feature provides terrorist groups with a secure and portable means of storing and transporting funds, reducing the risk of financial loss due to government interventions. It’s much easier to move or smuggle a cold storage wallet (usually the size of a thumb drive) than large quantities of cash.
4. Ease of Money Laundering: The nature of cryptocurrencies lends itself to money laundering. Terrorist organizations exploit the intricate network of cryptocurrency exchanges, mixing services, and tumblers to obfuscate the origins and destinations of funds. They can conduct multiple transactions through these platforms and effectively “clean” illicitly obtained funds, making it challenging for authorities and intelligence organizations to trace the funds back to their criminal activities. The decentralized and pseudonymous nature of cryptocurrencies complicates the process of identifying and tracking money laundering operations.
5. Technological Sophistication: Terrorist groups, particularly those with advanced technological capabilities, are drawn to cryptocurrencies as a means of funding due to their alignment with the digital age. As recruits for terrorist organizations become younger and younger, the adoption and utilization of cryptocurrency become more synonymous with their branding and recruitment efforts. Terrorist organizations recognize the potential of cryptocurrencies as a tool that resonates with tech-savvy individuals, attracting a younger demographic sympathetic to their cause. The adoption of cryptocurrencies also serves as a propaganda tool, portraying the group as technologically advanced and appealing to those who are well-versed in the digital realm.

In conclusion, the utilization of cryptocurrencies by terrorist groups as a funding mechanism highlights the evolving landscape of illicit finance in the digital era. The advantages of anonymity, global accessibility, security, and money laundering potential will continue to make cryptocurrencies an attractive option for terrorist organizations in the future. However, as the Intelligence Community and law enforcement continue to enhance their strategies to combat terrorism financing, it will be imperative to remain vigilant, continue to develop robust regulatory frameworks, and collaborate internationally to mitigate the risks posed by the misuse of cryptocurrencies.