Woman arrested for laundering money to ISIS through Bitcoin
Feds: Woman laundered money to people in China, Pakistan and Turkey, then planned to travel to Syria.
One of the latest tools terrorists are using isn’t a new kind of bomb, gun, suicide vest or other device that can kill and maim. The tool is bitcoin, the virtual currency created and exchanged using a decentralized network of computers, without the involvement of government and banks.
Because bitcoin transactions can be completed anonymously, the virtual currency is an ideal way for criminals – including terrorists – to hide their financial transactions from government agencies and law enforcement.
Bitcoin can be sent anywhere, converted into cash, and deposited in banks. It’s as if cash was made invisible in one location, secretly taken to another location undetected, and then made visible again.
Terrorists can then use the cash they get from their converted bitcoin to buy weapons, clothes, food, pay rent and cover their other expenses.
As a high-tech money laundering device, bitcoin is a terrorist’s dream come true. But it’s a nightmare for financial regulators and for counterterrorism forces in our military, law enforcement and intelligence community trying to find and stop terrorists.
There is a slow uptick in reports of terrorist bitcoin use in Virginia, Illinois, the Gaza Strip and Indonesia.
As a result, bitcoin may be ushering in a new era when the United States finds it nearly impossible to stop the financing of terrorism. That’s a frightening development that could allow terrorists to go undetected – until they strike.
The U.S. Justice Department announced an indictment in December against a resident of Long Island in New York, Zoobia Shahnaz, who allegedly used bitcoin and other virtual currencies to launder $85,000 and send it to ISIS. It was the largest reported instance of terrorist financiers allegedly using murky virtual currencies to avoid scrutiny. The trend will grow in the future.
The United States has been the key player in ensuring the integrity of the global financial system. Following the Sept. 11, 2001 terrorist attacks, U.S. officials significantly expanded the global anti-money laundering (AML) and counterterrorist financing (CFT) system.
Using its clout in international institutions like the Financial Action Task Force – the global AML/CFT standard-setting organization – the United States led the adoption of tough new rules to make it significantly harder for terrorists to raise and move money.
The backbone of America’s power to block terrorist financing is the size of our economy, the primacy of the U.S. dollar, and the importance of financial centers in New York and elsewhere. Most countries and international firms have followed U.S. rules designed to stop terrorist financing so they would not find themselves shut out of our nation’s financial system.
Because of the dominant dollar share of global foreign exchange reserves (64 percent), global payments (42 percent of international payments), and global investment (59 percent of international loans), most financial transactions transit U.S. jurisdiction. Any such business is exposed to U.S. rules, giving American financial regulators enormous power to attack terrorist funding that can move all over the world.
Global banks pay close attention and now many of them have intelligence units that share information with each other and with governments, unearthing suspicious patterns of terrorist activity. This detection and sharing work has allowed the successful discovery and disruption of illicit networks globally.
In a 2007 video, Mustafa Abu al-Yazid, Al Qaeda’s finance chief, even noted “there are hundreds wishing to carry out martyrdom-seeking operations, but they can’t find the funds to equip themselves.”
Eventually, however, bitcoin and other cryptocurrencies could make the global regulatory system to block terrorist financing obsolete. That’s because bitcoin replaces traditional authorities (like central banks) with a decentralized network of computers that validates transactions autonomously and impartially.
Without a central authority, U.S. regulators have no guarantee that parties will conform to American financial regulations, even if some users are engaged in completely legal transactions.
Being shut out of the U.S. market will be less important in a global financial system much less bound to U.S. jurisdiction. Furthermore, bitcoin transactions do not have to flow through the U.S. financial system at any point. In fact, U.S. dollars are not involved at all.
Today bitcoin remains a minor funding mechanism for terrorists. It is much easier to use traditional banking services or cash to fund terrorism than virtual currencies.
And because terrorists eventually have to convert virtual currencies into cash for most purchases, they run into “real world” chokepoints. Shahnaz’s internet history included a search for “ATM machine withdrawal limit in Turkey,” authorities said.
Nevertheless, there is a slow uptick in reports of terrorist bitcoin use in Virginia, Illinois, the Gaza Strip and Indonesia. As virtual currencies grow, some of these chokepoints will disappear.
Libertarian and technological evangelists welcome the decentralizing effect of cryptocurrencies, noting that the new system deprives governments of control over the money supply. Mainstream financial technology entrepreneurs are attracted to virtual currencies because they believe they can offer greater efficiency, reduced transaction costs and a freer flow of capital.
Today bitcoin is becoming a “parallel” financial system that eludes traditional controls. As a value transfer mechanism, however, it remains expensive and slow. To stay ahead of large-scale exploitation of eventually widespread virtual currencies, U.S. policymakers will need to be flexible and encourage innovative approaches now.
In the regulatory space, a “sandbox” could give companies a limited liability shield to experiment with creative AML/CFT solutions. It can also help government officials and business executives to improve their chilly relationship and better share information. The United States could then spread these solutions globally, before losing its worldwide reach.
Ultimately, bitcoin is a signifier of an eventual post-American global financial system. The new National Security Strategy recognized the cryptocurrency threat. Only proactive measures by U.S. policymakers today can address the expanding threat and ensure long-term integrity of the global financial system.
Now is the time to put such protections in place.
Edoardo Saravalle is a researcher at the Center for a New American Security.
Elizabeth Rosenberg directs the Energy, Economics, and Security Program at the Center for a New American Security.