VIRTUAL CURRENCIES AND TERRORIST FINANCING: ASSESSING THE RISKS AND EVALUATING RESPONSES

Experts from the Royal United Service Institute presented research findings to European Parliament’s Special Committee on Terrorism.  It explores the terrorist financing risks of virtual currencies, including cryptocurrencies such as Bitcoin. It describes the features of virtual currencies that present terrorist financing risks and reviews the open source literature on terrorist use of virtual currencies to understand the current state and likely future manifestation of the risk.  It then reviews the regulatory and law enforcement response in the EU and beyond, assessing the effectiveness of measures taken to date. Finally, it provides recommendations for EU policymakers and other relevant stakeholders for ensuring the terrorist financing risks of virtual currencies are adequately mitigated.  It says that in the near-term, terrorist use of virtual currencies is most likely to involve occasional use for specific and limited purposes, including:

  • raising funds or procuring illicit items on the Dark Web;
  • soliciting donations in crowdfunding campaigns conducted on social media and encrypted messaging platforms; and
  • transmitting funds internationally among members of terrorist networks using P2P value transfers.

Several developments could elevate and shape the nature of these risks over time, especially:

  • the proliferation of virtual currencies featuring high levels of privacy and anonymity;
  • terrorists’ broader adoption and utilisation of encryption technology, social media and other online platforms;
  • the nexus between terrorist actors and other criminal activity; and
  • the general pace and shape of virtual currencies innovation and adoption more broadly

The prospect for sustained, larger-scale terrorist financing to emerge through developments such as the convergence of terrorism with cyber criminality presents a possible long-term risk of concern. This study considers these near- and long-term risks in detail.

In the EU, the newly-adopted 5th Money Laundering Directive is described as a useful first step, but more needs to be done to ensure its effectiveness, and it is important that the EU sustains a regulatory framework that remains relevant.  It also says that robust information-sharing on the illicit use of virtual currencies is essential. As exchanges and custodial wallet providers are brought within the scope of AML/CFT requirements under the 5AMLD, public sector agencies should engage and share information with them. Formal public-private partnerships can facilitate these contacts and interactions.

http://www.europarl.europa.eu/RegData/etudes/STUD/2018/604970/IPOL_STU(2018)604970_EN.pdf

Author: raytodd2017

Chartered Legal Executive and former senior manager with Isle of Man Customs and Excise, where I was (amongst other things) Sanctions Officer (for UN/EU sanctions), Export Licensing Officer and Manager of the Legal-Library & Collectorate Support Section

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