CRYPTOCURRENCIES: A FUEL FOR TERRORISM
By: Theodor Azbej
The EU has to adapt faster to the terrorism-related threats emerging from cryptocurrencies and
Technological innovation has reshaped finance. New technologies such as online banking and
other solutions shortening the process of financial transactions made financial services more
accessible and practical. These innovations have also led to the emergence of cryptocurrencies –
virtual assets that provide a faster, more accessible, and secure alternative to traditional banking.
In addition to creating new opportunities, these assets are also a tool for criminal and terrorist
organizations to conceal their financing as they are anonymous and unregulated – posing an
urgent threat to the European and the global community (Kfir, 2020). This paper analyses the
potential dangers of the finance of terrorism through cryptocurrency and evaluates the European
Unions’s (EU) actions to combat these dangers.
Cryptocurrencies and terrorism
Cryptocurrencies have long been favored by criminals to facilitate money laundering,
theft, or drug trafficking (Kfir, 2020). An increasing number of cases related to crypto assets
were reported by European authorities to have links to terrorism financing (European
Commission, 2020). First, cryptocurrencies such as Bitcoin can be easily transferred back to
standard currencies with complete anonymity. Therefore, terrorists use these assets as an
anonymous alternative to traditional bank transfers and transactions (Teichmann, 2018). For
instance, terrorists can transfer Bitcoin from a location outside Europe and then transfer the
crypto fund into Euros in the country where they need to access the funds – all without being
scrutinized by a bank. It is suggested that the perpetrators of the 2015 Paris and 2016 Brussels
attack purchased their equipment on the darknet – an encrypted part of the internet, inaccessible
through traditional browsers – using cryptocurrencies for the transaction (Townsend, 2018). In
2017, a terrorist group related to al-Qaida started a bitcoin-fundraising campaign on Telegram –
an encrypted communication platform (Teichmann, 2018). These instances highlight the
potential dangers cryptocurrencies can pose to the security of Europe as a tool for terrorism
Additionally, cryptocurrencies lack regulations. Since central banks do not issue these
virtual currencies, they are not regulated like traditional currencies. This unregulated sphere and
the anonymity of crypto transactions make it extremely hard for authorities to flag and
investigate illegal financing activities. While larger transfers may be tracked more efficiently by
law enforcers, cryptocurrencies remain the most convenient method to finance terrorism
(Teichmann, 2018). Based on a recent working document from the European Commission, the
threat posed by terrorism financing through virtual currencies is highly significant. This threat is
only predicted to grow over the next few years, which calls for the need for urgent intervention
(European Commission, 2019).
Regulating new EU regulations for cryptocurrencies
Clearly, cryptocurrencies are hard to regulate and monitor. Since central banks do not
issue cryptocurrencies they are not subject to governmental control, and due to the fast-paced
nature of innovation within financial technology, various regulatory challenges arise for
lawmakers (Kfir, 2020). Despite this, the EU is attempting to make progress in addressing the
problem of terrorism by limiting virtual asset availability to terrorist groups. Following the
2015-2016 Paris and Brussels attacks, the European Commission proposed an action plan to the
Council and the Parliament (Keatinge, 2022). With two main objectives, the plan stressed the
importance of preventing terrorist organizations from making financial transactions and
obstructing their revenue stream by limiting how they can gather funds. This plan, however,
quickly failed due to the need for more engagement from both Member States and the EU.
Furthermore, the plan only set minimal recommendations for Member States regarding
transaction monitoring and compliance measures. However, meeting minimum requirements is
not enough to combat terrorism financing. Currently, Member States are left with many
unanswered questions about how these methods work, and understanding the intelligence behind
crypto-financed terrorism remains poor (Keatinge, 2022).
The EU has recently proposed numerous ambitious plans to address the issue. For
instance, new legislation under the Markets in Crypto-assets rules (MiCA) framework – the EU’s
primary set of regulations and recommendations regarding cryptocurrencies – aims to ensure that
crypto transactions are traceable (Scanlon, 2022b). In practice, this means providers of
crypto-assets (such as Bitcoin) will have to provide information on the sources and beneficiaries
of crypto-transactions. Additionally, under this prospective new regime, crypto-providers must
verify the risks of money laundering or terrorism-related transactions (European Commission,
2020). The EU will also establish the Anti-Money Laundering Authority (AMLA) – also set to
supervise, coordinate and support the combat against terrorism financing (European
Commission, 2021). While these proposals are ambitious and promising, they still lack elements
on how Member States can implement these mechanisms. Subsequently, Member States must
receive enough intelligence and practical, security-based advice on enforcement.
The anonymity and unregulated environment of cryptocurrencies present a significant
opportunity for terrorism financing in Europe and worldwide. In the past two years, the EU
devised numerous plans to tackle the issue by introducing guidelines and standards that Member
States can implement to limit these risks. While standards are vital, the need for action and a
security-based approach is pressing. Hence, there is an urgent need to provide tools and
intelligence to the Member States, as local authorities might lack the necessary resources to
combat terrorist financing through virtual assets. While the proposed amendments to the MiCA
and establishing the AMLA can perhaps fill this gap between standards and actual enforcement,
the EU still needs to specify exact details surrounding the operation and scope of the agency, as
well as the implementation of new regulations.
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