Evaluation of Potential Crypto-currency Development Ability in Terrorist Financing

CRYPTOCURRENCY BY TERRORIST ORGANIZATIONS

He et al. (2016) argues that the use of anti-money laundering/anti-terrorist financing (AML/ATF) can effectively prevent the use of cryptocurrency in terrorist financing, and that AML/counter-terrorism financing (AML/CTF) has a good pre-prevention mechanism that can effectively prevent terrorist financing. Lan and Zhuang’s (2019) research shows that in order to better prevent a series of terrorist financing risks, we should first clearly define the nature of cryptocurrency’s virtual assets, formulate the standard of a “virtual asset service provider”, and refine the corresponding responsibilities and obligations. Che and Hou (2020) proposed preventing the use of cryptocurrency by terrorist organizations in terms of legislative protection, science and technology supervision, hierarchical control, and cross-regional cooperation. Xie and Shi’s (2015) research proves that innovation and regulation are contradictory. With increased innovation in cryptocurrency technology, it is very difficult to supervise it. Moreover, many countries with weak financial facilities have not established a regulatory system for cryptocurrency.

In summary, the current research on cryptocurrency in terrorist financing is in its infancy, focusing on the analysis of terrorists’ means of financing, motivation, and strike measures, with- out considering the issue of cryptocurrency in terrorist financing. Therefore, we attempt to clarify the potential future development ability of crypto- currency based on its attributes and development status, as well as the nature of its judicial supervision, in order to enhance the overall understanding of cryptocurrency in terrorist financing.
THE BACKGROUND OF TERRORIST FINANCING
THE DEVELOPMENT STATUS OF TERRORIST FINANCING
Terrorism has long been threatening national security and the life and property of nations around the world. Especially since 9/11, terrorism has become a challenge faced by all countries in the international stage. The fundamental measure to eliminate terrorism is to improve unfavorable socio-economic and political conditions and to prevent individuals from turning to terrorism, which requires long-term efforts. In the short run, because terrorist attacks inevitably involve costs that cannot be ignored, the more direct means is to cut-off the financing channels and methods of terrorist organizations.

Different international organizations and countries focus on the definition of terrorist financing according to their own administrative norms and financial practices. According to the United Nations, funds for terrorist financing refer to all kinds of assets, legal documents, or certificates, whether tangible or intangible assets, movable or immovable assets, obtained by any means, proving the property rights or interests of such assets in any form, including electronic or digital forms, including but not limited to bank credits, traveler’s checks, bank drafts, postal orders, stocks, securities, bonds, bills of exchange, and letters of credit (United Nations, 1999). According to the IMF, terrorist financing refers to the collection and provision of funds to support terrorist activities or terrorist organizations. Sources of terrorist financing include legal and illegal income. Since 2001, combating terrorist financing has been the focus of the FATF, which plays a central role in setting global standards for combating terrorist financing, assisting jurisdictions to implement the financial provisions of the UN Security Council resolutions on terrorism, and assessing countries’ ability to prevent terrorism and combat terrorist financing.

To improve the secrecy of terrorist financing and reduce the risk of financing, terrorist organizations often choose to carry out financing activities in a variety of ways according to the actual development of the region. Specifically, the financing methods of terrorist organizations include state funding, legal modes, illegal ways, and emerging financing modes. Because of the influence of international politics, some countries hide their financing for terrorist organizations, and state funds from legal sources are used for terrorist purposes, including Iran’s long-term financing for Hezbollah; however, not all terrorist organizations receive financial support from a state that requires certain conditions, such as common interests.
Therefore, under the restriction of obtaining funds through state funding, some terrorist organizations will use seemingly ‘legal’ ways to raise funds, such as operating legal businesses and soliciting donations from individuals and nonprofit organizations, such as charities. Illegal means include the control of local key resources, extortion of agriculture and manufacturing, kid napping and extortion, robbery and theft, drug smuggling, trafficking in illegal cultural relics, human trafficking, and illegal taxation of transit goods and cash (Wang, 2018). Since the outbreak of COVID-19 in 2020, FATF’s relevant reports (2020d) show that terrorist organizations have used this global crisis to make illegal profits by forging medical supplies, investing fraud, and abusing measures to stimulate the economy. International institutions, countries, and regions have been constantly improving their judicial supervision.
Where traditional fundraising methods cannot meet the needs of terrorist organizations, new financing is gradually emerging, including the use of cryptocurrency by terrorist organizations. Studies have shown that since 2014, terrorist organizations have begun to use cryptocurrency to fund their operations, including the Islamic state, Al Qaeda, and Hezbollah, although as far as the current situation is concerned, cryptocurrency has not become the main financing channel for terrorist organizations. To be sure, it will be difficult to project the expansion in the use of cryptocurrency by terrorist organizations in the future, as this depends on many unknown factors, such as the development of cryptocurrency technology in the future and the public’s trust in cryptocurrency (Manheim et al., 2017). In addition, the extensive use of ATMs has meant that crypto-ATM crimes have also increased significantly (Onyesolu and Ezeani, 2012). Of course, ATMs have the characteristics of easy accessibility and good users. Therefore, encrypted ATMs may be subject to various attacks, such as phishing or spoofing attacks (Das et al., 2019). Criminals destroy the traditional personal identification code and password security system on an ATM to obtain user information, thereby stealing a large amount of funds.
Methodology
Using the method of literature induction, we collected existing research results on cryptocurrency in terrorist financing at home and abroad, such as the IMF, the World Bank, FATF, and other relevant legal norms, guidance documents, research reports, and academic monographs, and summarize and sort out the existing research, so as to identify blank areas of research and determine our research focus and direction. In addition, we comparatively analyze the different financing channels of terrorist organizations horizontally and vertically. Therefore, the motivation of terrorist organizations to choose financing channels is identified to evaluate the possibility of terrorist organizations using cryptocurrency for terrorist financing.
Evaluation of cryptocurrency abilities in terrorist financing
Cryptocurrency is considered a general term in blockchain (Ma, 2016). It is a type of convertible virtual currency that is based on mathematics, decentralized, and protected by encryption technology. It integrates the principles of cryptography to achieve a distributed, decentralized, and secure in- formation economy. Because Bitcoin is one of the earliest cryptocurrencies, existing research usually takes Bitcoin as an example that represents the typical characteristics of cryptocurrency (Xiao, 2019). In the past few years, there has been evidence that terrorist organizations have the motive to use cryptocurrencies. Although the use of cryptocurrency in terrorist financing has not been widely used, the possibility still places great pressure on existing anti-terrorism financing. We attempt to systematic- ally analyze the future development ability of cryptocurrency in terrorist financing from the aspects of its internal attributes, development mode, and judicial supervision in the hope of providing a reference for the fight against terrorist financing in the new situation.
Factors to improve the use of cryptocurrency by terrorist organizations