With chief information officers increasingly embracing open source software mentalities, digital currency Bitcoin’s blockchain technology is gaining momentum. As Barclays and the Bank of New York Mellon Corporation announced plans to test Bitcoin’s underlying distributed digital ledger technology, the once disregarded peer-to-peer system is quickly making its way into traditional finance. While the virtual currency’s low inflation risks, absence of transfer costs, disregard of exchange rates and lack of prerequisites and arbitrary limits are greatly beneficial to the customer, apprehensions about security remain widespread. As the 2013 take-down of online illicit marketplace platform Silk Road indicated, transnational criminal syndicates are readily embracing the development of anonymous digital transaction technologies. Similarly, sophisticated transnational terrorist networks are eagerly keeping track of novel ways to fund their activities.
Blockchain technology thrives through the absence of a significant regulatory central body. Yet, it is exactly this absence of a governing authority that makes the system highly susceptible to fraudulent activity. As Islamic State (IS) is experiencing exponential growth in the MENA region, forging links with local militant groups, the organisation’s financial infrastructure is becoming increasingly fraught with complexity. A ferocious decade-long Counter Terrorist Finance (CFT) effort has forced terrorist organisations to shift their attention from predominantly external and licit sources of funding such as state sponsorship and donations to locally acquired resources that guarantee self-sufficiency and circumvent conventional transaction methods through the international financial system. The ability to assert high state-capacity in vast ungoverned territories such as Iraq and Syria has proven an effective tool in providing a sustainable revenue stream, as it allows terrorist organizations to access, exploit and create both licit and illicit (pre-existing) resource structures.
As terrorist organizations’ global jihadi endeavours and the expansion of the caliphate are greatly dependent on consistent flows of cash, the development of alternative transnational financing technologies is readily embraced. With the informal funds transfer (IFT) Hawala system having proven greatly ineffective – mainly due to the system’s inherent time-inefficient constraints on the dynamic collection and disbursement of funds - digital currencies provide a welcome alternative. Cryptocurrencies such as e-gold, PeerCoin, Dodgecoin and Bitcoin allow for the transfer of monetary units and the decentralized collection of donations in a far timelier and tacitly anonymous fashion. Although Bitcoin was not designed with anonymity in mind, its structure facilitates anonymity through the absence of personally identifiable information (PII), merely linking sellers and buyers through the use of public and private key chains.
While the use of digital currencies has increased considerably over the last couple of years, terrorist organizations’ fraudulent Bitcoin activities have not matched pace with other transnational criminal syndicates’ uses of the decentralized monetary system. As the assurance of anonymity on the virtual currency platform requires a certain level of technical sophistication, terrorist groups’ financial departments remain careful with its use. This does, however, not mean that the digital currency’s online ledger system will not prove greatly beneficial as a means to fund global jihad in the future. CTF efforts should focus on developing technologically advanced analytical techniques to identify public keys and map suspicious user transaction patters across the network. While this might be a complex and time-consuming endeavour, such procedures will greatly reduce the system’s vulnerability to criminal conduct in the future.
This article was first featured on War, Peace and Development