LONDON, Oct 23 (Reuters) – The role of cryptocurrencies in financing terrorism and extremist groups is in the spotlight again following a deadly attack in Israel by the Palestinian militant group Hamas.
Israel has seized cryptocurrency accounts it says are linked to Hamas. US lawmakers have called on the government to crack down on the use of cryptocurrencies by Hamas and his affiliates.
However, cryptocurrencies are just one means by which violent armed groups and designated terrorist organizations obtain and use funds. Here’s what we know about the role of cryptocurrencies.
Why are cryptocurrencies used for illegal finance?
Anyone can set up a cryptocurrency wallet address without the need for constant verification by banks etc.
Addresses are pseudonymous and labeled only with strings of letters and numbers. This means that people can send and receive cryptocurrencies without revealing their identity.
The blockchain technology that underpins cryptocurrencies operates digitally across borders, allowing it to function as an instant payment system.
Globally, cryptocurrencies are subject to less specific regulations than traditional finance, although new rules have been introduced in some regions.
The Financial Action Task Force (FATF), the international body responsible for tackling money laundering and terrorist financing, says that cryptoassets “risk becoming a safe haven for criminal and terrorist financial transactions.” I warned you.
Are cryptocurrencies untraceable?
yes. But not always.
Blockchains such as Bitcoin and Ethereum create a permanent public record of transactions. This means you can see what funds have moved in and out of your wallet address, as well as which wallets they interacted with.
Although it is difficult for outsiders to identify transactions on the blockchain, blockchain analytics companies have tools to track funds.
Still, to link these flows to individuals or groups, researchers rely on information not recorded on the blockchain.
Representation of cryptocurrency can be seen in this illustration from August 10, 2022. REUTERS/Dado Ruvic/Illustration/File Photo Obtaining license rights
Crypto exchanges can record which addresses belong to which customers, and police can expose the addresses behind wallets.
Cryptocurrency users can further obscure their tracks by using cryptocurrency “mixers” or move funds to exchanges or other companies, making them difficult to distinguish from other customers’ assets. It may become.
How much virtual currency is being used to finance terrorism?
No one knows for sure.
Extremist groups move funds in a variety of ways, including cash, banks, shell companies and charities, and informal financial networks. Experts say cryptocurrencies are only part of the story.
According to a report by Bloomberg, UN officials say that by 2022, 5% of terrorist attacks were thought to be funded by cryptocurrencies, but this could rise to 20% in 2022. He said that there is.
The FATF said earlier this year that cryptocurrencies pose an “increased terrorist financing risk”, but that the “vast majority” of terrorist financing still uses conventional funds.
Identification of illicit financial flows at a cryptocurrency company does not necessarily mean that all of the company’s financial flows are tainted, crypto researcher Chainalysis said in a blog post.
Chainalysis said that terrorist financing “represents a small portion of the less than 1% of the total cryptocurrency market that is accounted for by illegal activities.”
What about other forms of illicit finance?
Terrorist financing is just a small part of the misuse of cryptocurrencies, including fraud, ransomware, and theft.
Chainalysis said crypto crime in 2022 reached an all-time high of $20.1 billion, and said this is a low-end estimate. This figure does not include the proceeds of non-cryptocurrency crimes, such as drug payments, where the proceeds are in cryptocurrency.
According to a United Nations report, the theft of virtual currency through cyberattacks is also an important source of funds for North Korea.
Some banks in the UK are restricting customers’ access to cryptocurrencies following a rise in cryptocurrency fraud.
Reporting by Elizabeth Howcroft and Tom Wilson.Editing: John O’Donnell and Ed Osmond
Our standards: Thomson Reuters Trust Principles.