Blockchain and Bloodshed: The Role of Cryptocurrencies in Terrorist Financing

Jihadi terrorist groups are increasingly relying on virtual assets to fund their operations. The solicitation of cryptocurrencies through social media in particular has become more prominent among terrorist groups such as Hamas, Hezbollah, the Palestinian Islamic Jihad (PIJ), and Islamic State Khorasan (ISK) to circumvent detection and counterterror financing (CFT) measures. While the U.S. Treasury, the Israeli National Bureau for Counter Terror Financing, and various counterterrorism financing bodies globally, such as the Financial Action Task Force (FATF), have sought to seize crypto wallets from terrorist organizations and crack down on cryptocurrency addresses known to be used to fund terrorist organizations for years, the challenge of blocking donations to terrorist groups and financing of attacks by terrorist groups in decentralized and encrypted virtual currencies remains challenging. Most recently, the ISK attackers that perpetrated the Crocus City Hall attack in Moscow in March, received roughly $2,000 in virtual assets right before they committed the massacre that left 140 people dead. After the October 7 Hamas attack that killed approximately 1,200 people, the U.S. Treasury Department sanctioned a Gaza-based virtual currency exchange, Buy Cash, for providing funding to Al-Qassam Brigades, Hamas’ military wing, in various cryptocurrencies. In May, Alexey Pertsev, a Russian programmer received a five-year prison sentence in the Netherlands for creating the crypto mixer, Tornado Cash, which was used to launder money for various illicit activities, including terrorism.

The virtual nature of cryptocurrencies and the fact they are encrypted make them an interesting alternative for terrorist groups and sympathizers. While cryptocurrencies are significantly more traceable than cash transfers, cryptocurrencies can be a faster alternative than cash and provide significantly more privacy than wire transfers. Cryptocurrencies rely on blockchain technology, a type of distributed ledger that records transactions across multiple computers so that the record cannot be altered retroactively without altering all subsequent blocks. Simply put, a blockchain is composed of blocks, each containing a list of transactions, linked to one another through cryptographic hashes. Through blockchain technology, cryptocurrencies are intrinsically decentralized: control over blockchains is distributed among participants and the data is not stored on a single server but stored across a network of computers (i.e., nodes). Cryptocurrencies are also transparent through their blockchain foundations; every transaction is recorded on the blockchain and cannot be changed or deleted. The overall unproblematic principles of cryptocurrencies – decentralization, security, transparency, and financial autonomy – have thus effectively been co-opted by malicious actors that use these privacy and security features to their benefit.

While terrorist organizations have increasingly leveraged social media to solicit donations in cryptocurrency, it is not a new phenomenon. Hamas solicited donations in Bitcoin as early as 2019. Islamic State (ISIS) and its affiliates were early adopters as well. In 2015, Ali Shukri Amin, a Virginia teen, pleaded guilty to providing material support to ISIS by instructing people on how to use Bitcoin to funnel support to the group. Cryptocurrencies have continued to be a financial stream for terrorist organizations. While Hamas’ Al-Qassam Brigades announced in April 2023 that they were moving away from fundraising in Bitcoin, the military wing continued to receive significant amounts of cryptocurrencies such as Ethereum, XRP, and Tether. After October 7, the Israeli defense ministry said it had seized roughly $41 million between 2019 and 2023 in cryptocurrencies from Hamas and $94 million from PIJ. Many terrorist organizations have also shifted from using Bitcoin blockchain to TRON blockchain to fundraise.

Regionally, West Africa and Central Asia seem to be the center of cryptocurrency-related activities by ISIS and its affiliates. The Counter ISIS Finance Group reported that West Africa has become a focal point for cryptocurrency transfers, likely connected to the fact that Nigeria is the world’s largest adaptor of cryptocurrency after India. In Central Asia, ISK has also become very active in cryptocurrency fundraising. Animesh Roul, Director of Research from Society for the Study of Peace and Conflict, finds that ISIS has moved away from Bitcoin and Tether and is increasingly soliciting donations in Monero, including through appeals for donations in its flagship Voice of Khurasan magazine. Monero is a privacy-focused cryptocurrency designed to ensure transaction untraceability, leveraging different technologies such as stealth addresses and ring signatures to obscure the amount sent but also the address of the sender and the receiver. It is not just ISIS that is adapting to the realities of the traceability of non-privacy-oriented tokens. Hamas, for example, is becoming increasingly skilled in ensuring its crypto wallets do not get seized by shielding their addresses through various address generation techniques. The use of virtual currency mixing services such as Tornado Cash is another considerable loophole used by terrorists. Virtual currency mixing enhances user privacy by pooling and shuffling cryptocurrency from multiple users, obscuring the links between deposits and withdrawals. This makes tracing terrorist financing incredibly complex.

Cryptocurrencies are not the main financing stream of terrorism, but their growing importance requires increased attention and more robust partnerships between government bodies and private financial institutions, especially as groups pivot to privacy-oriented currencies such as Monero. The short history of cryptocurrency usage by terrorist groups shows resilience and a capability to adapt to counterterrorism financing measures. It will thus be essential to engage all stakeholders, including counterterrorism officials, the banking sector and financial institutions, and international organizations, among others, and patch up any loopholes before they are exploited. While large, leading cryptocurrency companies such as Tether have collaborated with governments and counterterrorism task forces to clamp down on terrorist use of their cryptocurrencies, more needs to be done to not only keep up with the pace of evolving technologies but also the adaptation of their use by terrorist actors.