Terrorism and Crypto: Evidence from Ex-CIA Analyst

Foreign.

Hi everyone, my name is Giovanni and today we are going to take a deep dive into the darkest corners of the blockchain. As with all innovative technologies, cryptocurrencies have the potential to change the world for the better. But at the same time, they can be used to facilitate criminal enterprises such as money laundering schemes, drug trafficking and even terrorism. Terrorist groups have been interested in crypto because it enables almost instant transfers of money across borders without the oversight of a central authority. Since terrorists are locked out of the traditional financial system, they have been testing Bitcoin as an alternative way to fund their activities. But how successful were these attempts? Are cryptocurrencies really a sustainable source of funding for terrorists? And what can the crypto industry and law enforcement agencies do about it? Lets have a look at some concrete scenarios. One of the earliest documented case dates back to 2016, when a pro Islamic state organization called Ibn Taymiyya Media center started asking for donations in Bitcoin on social media. The goal of the fundraising campaign was to raise $2,500 for each of their fighters. Unfortunately for the terrorists, they made a big mistake. Contrary to what they might have thought, Bitcoin is not fully anonymous. Every transaction leaves a trace on the blockchain. And by publishing their Bitcoin address on social media, the terrorists made it easy for investigators to trace funds moving in and out from that address. Which is probably why within two years, the fundraising campaign reportedly collected only $2,500 in total. As pointed out by Rand, a US think tank focused on national security, there are three aspects to take into account when talking about terrorism. Receipt, management and spending. So far, crypto gives a real advantage only for the first. Terrorists can receive an unlimited amount of money from everywhere in the world by accepting Bitcoin. However, once they've received their Bitcoin, they are likely to have a hard time managing and spending those funds anonymously. I mean, you can't exactly buy a missile with bitcoin yet. So in order to purchase weapons and other equipment, terrorists need to cash out. This means they need to rely on some sort of centralized infrastructure such as a cryptocurrency exchange, many of which scrutinize their users and can shut down suspicious accounts. But how exactly is it possible to track terrorism related funds on the blockchain? To answer this question, we reached out to Itzik Levy, CEO at Whitestream, an Israel based intelligence company specialized in extracting information from the blockchain traffic. Itzik earlier this year you trade some Bitcoin donations to ISIS, which were Likely used to fund a terror attack in Sri Lanka. How did you manage to find out about these funds? What were the techniques you used?

So ISIS is raising funds on the blockchain for more than two years. And we can estimate that they are raised more than hundreds of thousands of dollars worth of bitcoin. Also, because the bitcoin price went up in this time, ISIS basically released a website for fundraising, calling their supporters to donate their organization with bitcoins. Based on this website that is actively operating on the Tor network, but also on the regular web infrastructure, we managed to find several donations from different timestamps from the last one year. After tracing those donations, we can manage to find the main wallet of ISIS where they group their transaction. And the interesting thing was that we saw that some of the movement, some of the funds didn't move for a while, for several months and only day before the attack in Sri Lanka, the money was cashed out from those addresses, the money was grouped to a bigger transaction and the money went out from the wallet of isis. Again, we don't know if it's directly related to the attacks, but it's very interesting to see that ISIS money moved on the blockchain, certain amount of money day before those attacks.

Okay, and once you have tracked terrorist funding on the blockchain, what's the next step? How do you stop it?

Once we find such an interesting intelligence stuff that maybe can be tied together for terrorist activity in the real life, we are sharing this information with the governments and we also sharing the wallet numbers and the wallet addresses with some third party companies that we find that the terrorist is probably working through their services. We want to share this information in real time as fast as we can with these companies in order to stop these attacks. Sometimes those companies don't aware of the activity of their users, which is pretty complicated to understand in real time. Even for us as a blockchain intelligence company is a big effort to understand these activities in real time. But once we find the terrorist activities that tied to specific wallets, we are sharing with it with the authorities and also with the third party companies that we think that can help to stop this type of activity.

Okay, that makes sense. Now can you give us an esteem of how much of the illicit movements on the bitcoin blockchain is related to terrorist groups.

So the numbers are pretty small. If we take all the bitcoin ecosystem and you're trying to measure the illegal activity on the blockchain, which is about 2 or 3% from the overall blockchain traffic and if you take the specifically tariff financing inside this illegal activity, I believe that it's a much. It's a very, very low percentage.

So it's clear that cash is still king when it comes to illegal activities. According to the European Police Office, the use of cash is the main reason triggering suspicious transaction reports within the European Union's financial system, accounting for more than 30% of the total. As shown in a report by Chainalysis, illicit transactions comprised less than 1% of Bitcoin activity in 2018, down from 7% in 2012. Still, terrorists appear to have learned from their previous mistakes and are getting increasingly sophisticated in their approach to crypto. Malhama Tactical, one of the many jihadi groups fighting in the Syrian civil war, was also asking for bitcoin donations on Twitter. This time, though, they did not publish their crypto address. Instead, donors were asked to send a direct message to the group in order to get more information on how to donate. Even more sophisticated is the approach used by the Al Qassam Brigades, the armed wing of Hamas. A few months ago, the organization set up a web page for donations which generates automatic bitcoin addresses. The addresses change every time the page is refreshed, which makes it very challenging to track the funds. Later on, it turned out that the same address generator software used by Al Qassam was also being used by the Islamic State. Apparently after losing its territories in Syria as well as most of its assets, ISIS is now testing new fundraising methods. Also, let's not forget that cryptocurrencies are evolving beyond Bitcoin. Privacy coins such as Monero, zcash or Dash enable higher degrees of anonymity than Bitcoin does. Most of these cryptocurrencies haven't reached enough adoption or usability to meet the terrorist needs. But the situation might change in the future. According to a report by Rand, Should a widely adopted cryptocurrency emerge that has improved security and anonymity features and is not subjected to strict regulation, it could become a very dangerous tool in terrorists hands. To know more about how the relationship between crypto and terrorism might evolve in the future, we reached out to Yahya Fanousi, a former CIA analyst now focusing on cryptocurrency and national security issues. Yaya what is lacking in crypto for it to become a sustainable source of funding for terrorism, and will terrorists be able to use it more effectively as the technology evolves?

So for terrorists to adapt fully to use this technology, they only can do it in a way where there's no trace to Identity. And those ways are smaller. Right to use anonymization coins, to use privacy coins, more to use, maybe decentralized exchanges. But those technologies have not really scaled even within the crypto ecosystem. So that's, I think, always going to be very limited. If crypto scales, if cryptocurrencies scale for people to use them often for daily purchases without having to even necessarily cash out into fiat currency, if that scales, it's only logical that terrorists and other bad guys are going to use it, are going to be using it. There should be a corresponding relationship between how widely adopted crypto is and unfortunately, how much terrorists are going to use it or try to use it as well.

As far as we know, the amount of bitcoin raised by terrorist groups are quite small, almost irrelevant. Why should we be concerned then?

You know, it depends on what a group is looking for. If a group is trying to do an attack or has a cell, a cell that's going to do an operation, that sort of thing doesn't cost a lot of money. And that's where the big concern is, that some of these groups even moving thousands of dollars here and there, it doesn't cost much to do attacks nowadays. The key concern with terrorist groups and crypto is again, not just how much they're raising now or how much they've raised, but it is their level of adaptation.

So what should the regulators and cryptocurrency companies do to prevent bad actors from taking advantage of this technology?

So what regulators have to do in pretty much all countries, they have to make sure that the cryptocurrency exchange environment makes it very difficult for terrorist groups and other illicit actors to purchase cryptocurrencies, to sell and trade cryptocurrencies. Cryptocurrency exchanges, many of them are new or young in business. They have to be made to follow those rules. The rules for how they onboard their customers, verifying identity, transaction, monitoring transaction limits, all the different things that money service businesses need to do. So that has to be standardized across the board. But collectively, law enforcement, regulators and the industry have to sort of tighten up. They have to make sure that they are following and implementing the the global standards for anti money laundering and counterterrorist financing.

At the moment, there is not much reason for worrying. Cryptocurrencies are far from being a prominent source of funding for terrorists, mainly because of their traceability and low adoption rate. Still, blockchain technology is evolving and terrorists are learning fast, which means regulators and companies shouldn't ignore this potential threat. So what do you think guys? What can be done to keep the bad actors out of the space? Should cryptocurrencies privacy be limited for the sake of security? And can regulators and the industry create a common front against terrorism? Comments below. My name is Giovanni. Thank you for watching this video and always remember to like subscribe and hodl.