Cryptocurrency has once again taken center stage in the ongoing battle against terrorist financing. The U.S. Deputy Treasury Secretary, Wally Adeyemo, issued a warning, declaring that the United States would pursue cryptocurrency firms that failed to prevent terrorist groups from transferring funds.
Speaking at the Royal United Services Institute in London on Friday, Adeyemo emphasized the importance of combatting illicit financial flows facilitated by cryptocurrencies. He made it clear that the U.S., along with its global partners, would take action against those who didn’t comply.
This warning came on the heels of a letter authored by Senator Elizabeth Warren and several members of Congress, urging the Biden administration to crack down on the use of cryptocurrencies by terrorist organizations. The letter cited a report that highlighted how terror groups like Hamas and Palestinian Islamic Jihad had raised over $130 million through cryptocurrency in recent years.
The issue has ignited a debate in Washington and the crypto world. Some question the actual scale of cryptocurrency’s contribution to terrorism financing. Elliptic, one of the firms that provided data for the report, disputed the figures, stating that there was no concrete evidence supporting the claim of substantial crypto fundraising by these groups. They suggested that some of the funds might have gone to smaller crypto brokers inadvertently labeled as terrorist organizations due to their involvement in financing.
Chainalysis, another analytics firm, added a further layer of complexity by explaining that terror funding estimates often inaccurately assumed that all funds going to these service providers were linked to terrorism.
Senator Warren dismissed these counterarguments from “crypto lobbyists” and continued to push for a crackdown on crypto-financed terrorism. “Crypto lobbyists are trying to minimize the role of crypto-financed terrorism,” The New York Times reported Warren as saying.
However, it’s essential to recognize the complexities of this issue. Critics have pointed out that cryptocurrency’s anonymity, borderlessness, and regulatory ambiguity have long made it a potential avenue for terrorist financing.
The NYT also reported Yaya J. Fanusie, a former C.I.A. counterterrorism analyst who is now head of the anti-money laundering unit at the industry group Crypto Council for Innovation, as saying that a terrorist crypto crowdfunding campaign is “like putting your bank account number on the internet and telling people ‘donate to Hamas here’.”
While some authorities believe that the recent conflict in Gaza has led to a surge in crypto fundraising by terrorist groups, others argue that crypto is merely one piece of the funding puzzle. Shlomit Wagman, a Harvard scholar, and former chair of the Israeli Money Laundering and Terrorism Financing Prohibition Authority, testified that state actors like Iran and Turkey are the primary financial backers of Palestinian terrorist groups. They are followed by investments, humanitarian aid, and fundraising – some of which involves cryptocurrency.
In an ironic twist, the transparency of blockchain technology has also been a double-edged sword for terrorist groups. Recent instances have shown that crypto transactions can be tracked, exposing donors and beneficiaries. Some experts believe that these issues, combined with the pressures from authorities, have made crypto less attractive for terrorists.
However, the concern remains significant, prompting members of Congress to call for more enforcement and legislation to tackle crypto terror financing. The Financial Action Task Force, an international financial regulatory agency, has a regulatory framework for cryptocurrencies, but it’s widely acknowledged that many countries are yet to fully implement it, with weak oversight.
The digital world is becoming an integral part of the broader financial landscape, so is the need for action and oversight in this area.
According to Alex Zerden, founder of the risk advisory firm Capitol Peak Strategies, there is no room for exceptions when it comes to combating terror financing, regardless of the medium.
Senator Cynthia Lummis, a Republican from Wyoming, echoed the sentiment, stating that even a single dollar funneled into terrorism through cryptocurrency is one dollar too much.
“Crypto is being used to finance terrorism,” Lummis said at the hearing on Thursday.
The fight against cryptocurrency-funded terrorism is far from over and is gaining momentum on the global stage.