Bitcoin and other cryptocurrencies have been plagued with the possibility of being used to fund criminal and terrorist organizations, even though every other form of money has also been used for these purposes.
In 2016, a Europol report found that there was no evidence of terrorists using bitcoin and while it’s evident ransomware extortionists and hackers prefer cryptocurrencies, it’s rare to see other crimes involve bitcoin.
Now, a report from the European Comission to the European Parliament and Council found that the risk of digital currencies being used to finance terrorism is “moderately significant (level 2).” This, in a scale ranging from “lowly significant (level 1)” to “very significant (level 4).”
The report admits that terrorist groups could use virtual currencies to their advantage, and notes that cases in which these were used have been reported. On Twitter, supporters even attempt to spread instructions on how to use them, but nevertheless these are still not being widely adopted by bad actors. It reads:
“However, the technology is quite recent and in any case requires some knowledge and technical expertise which has a dissuasive effect on terrorist groups. The reliance on virtual currencies to fund terrorist activities has some costs and is not necessarily attractive.”
Money laundering possibilities are also addressed. Per the report, criminal organizations could use virtual currencies to gain access to ‘clean cash’ while hiding its transaction trail. The report states that so far cases of this happening are “quite rare”, the reason for this being the technical expertise required to use virtual currencies. Moreover, criminals don’t seem to be very interested in using cryptocurrencies like bitcoin and ethereum because of their volatility.
Notably, the report implies that terrorists and criminals aren’t smart enough to properly use digital currencies like bitcoin and ethereum. It reads:
“From a technical point, virtual currencies present some commonalities with e-money but the IT expertise at stake for virtual currencies means that organized crime would have lower capability to use them than e-money which is more widely accepted.”
The report adds that taking into account virtual currencies aren’t regulated in Europe, these are at risk of being misused for terrorist financing and money laundering, despite the lack of cases so far. The threat, as such, may be relevant in the future if nothing is done about it.
The implementation of appropriate Anti-Money Laundering (AML)/Counter-Terrorist Financing (CTF) legal framework, according to the report, will help mitigate the risk, despite being hard to find adequate tools to do so. Given that the sector is still rather new, it is noted that no international cooperation exists, at least yet. It reads:
“The lack of a legal framework is the most important element of vulnerability. In the current situation, VCs providers cannot be monitored and supervised. There are no common rules in the EU to ensure that VCs providers apply AML/CFT requirements.”
It’s noted that there is little evidence that virtual currencies are currently being used for money laundering, or to finance criminal or terrorist organizations. Nevertheless, the report finds the vulnerability as “significant/very significant (level 3/4).”
In order to mitigate the risk, the report proposes the possibility of amending Directive (UE) 2015/849 to include cryptocurrency exchanges and wallet providers in the list of obliged entities under the Fourth Anti-Money Laundering Directive. Moreover, it essentially proposes that a main database of user’s wallets and addresses is maintained, “with respect to virtual currencies”, and accessible to Financial Intelligence Units (FIUs).
As previously covered by CCN, notable bitcoin advocate Andreas Antonopoulos has previously shared his views on bitcoin being used to fund criminal organizations. His response notes that we live in a world where criminals use technology, and that it cannot be banned nor controlled to stop them from doing so, as the result, in bitcoin’s case at least, will be the exclusion of billions of people from the financial system.
“Most of humanity will use them for food, sanitation, healthcare, etc. It is a fake promise that we’re going to stop terrorism by controlling everyone’s money, because all it goes is exclude billions of people from the global financial system.”
Andreas Antonopoulos shares that bitcoin and blockchain-based technology will serve a far greater purpose. The European Comission’s report seems to show that criminal organization are, for now, not that interested in virtual currencies, but people in Venezuela, on the other hand, are already using bitcoin and other cryptocurrencies to survive government failures, as reported by CCN. View Antonopoulos’ full response here.
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Last modified: May 21, 2020 9:42 AM UTC