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Crypto terrorism funding is growing more sophisticated: researcher

Bitcoin was created by, and long supported by people who wished to develop an alternative to the traditional banking system.


TERRORISM financing schemes using cryptocurrencies are growing in sophistication, according to researcher Chainalysis Inc, which helps law enforcement track digital-coin transactions.

In one instance, terrorists collected crypto donations worth tens of thousands of dollars in just one campaign last year, a much-quicker way to raise funds than prior efforts, the New York-based firm said in a report on Friday. It also made it much harder for researchers to track movement of funds than prior, more simple campaigns, Chainalysis said.

In 2019, the Izz ad-Din al-Qassam Brigades (AQB), the military wing of Hamas and a designated terrorist organisation, collected money through a website that generated a new Bitcoin address for every donor to send funds to, the first verified example of such technology deployed by a terrorist organisation, Chainalysis said.

A previous effort that started in 2016 used a single Bitcoin address for donations.

The AQB campaign also published a video on its website, teaching people how to donate anonymously; in the past, terrorism contributors have had to figure that out on their own. For example, AQB advised people to donate while using public Wi-Fi, so their computer's IP address couldn't be traced by law enforcement. The end-result was, this campaign raised as much money in nine months, and attracted more donors, than a 2016 campaign by another organisation that ran for two years.

"There's just more sophistication," Kim Grauer, senior economist at Chainalysis, said. "This is obviously a growing homeland security problem that agencies need to be monitoring."

Crypto exchanges - sometimes based in the US - have been involved in terrorism financing plots, Chainalysis found.

Even though they check their users, they accounted for the largest chunk of the funds that AQB received last year, Chainalysis said.

"Once we identify these campaigns, our exchange customers are starting to block payments or filing suspicious activity reports based on information we are providing," Jonathan Levin, co-founder of Chainalysis, said. "I think there's an increase in collaboration between the exchanges and the law-enforcement community when it comes to this."

Bitcoin was created by, and long supported by people who wished to develop an alternative to the traditional banking system. Its early advocates were mostly Libertarians, wishing to have as little government oversight of their affairs as possible.

Use by terrorists has been a key concern for regulators and politicians alike as they seek to tighten their oversight of cryptocurrencies, the vast majority of which are not issued by or controlled by a government.

Last summer, the Financial Action Task Force, whose guidance is followed by about 200 countries including the US, began requiring exchanges to collect more data about customers and their transactions to better filter out money laundering and terrorism financing.

Bitcoin and other coins have already been implicated in a number of Ponzi schemes and other criminal activities.

Mainstream exchanges have been growing their share of money laundering, and Chainalysis traced US$2.8 billion in Bitcoin that moved from criminal entities to exchanges, the company said in a Jan 15 report.

Just over 50 per cent went to Malta-based Binance - the world's largest Bitcoin spot exchange - and Huobi in Singapore, the report said.

Both exchanges emphasised that they are working to crack down on illegal activities. BLOOMBERG