Digital Dark Money: A Critical Review of Terrorist Financing via Cryptocurrency
Edition 4 of the Research Reads Bookclub
Hello, Insight Monitor subscribers. Welcome to another week and a new research reads review. In this series, we review and summarize recent research in illicit financing, highlighting new data, insights, or findings that can inform how we counter this threat. I hope you find this insightful, and if you want to suggest a book or article for review, let us know in the survey. (Thank you to those who have already replied — I’ve updated our criteria for this newsletter segment to include your suggestions.) As always, please read and share this with colleagues who might be interested. Thanks for caring about illicit finance and international security!
~Jess
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Review: Maria Jofre, Alberto Aziani, and Edoardo Villa, “Terrorist Financing: Traditional vs. Emerging Financial Technologies,” Terrorism and Political Violence 0, no. 0 (n.d.): 1–14, https://doi.org/10.1080/09546553.2024.2433635.
BLUF: Between 2010 and 2020, terrorists primarily used traditional methods to finance their activities (such as banks, hawalas, and high-value goods). Cryptocurrency only accounted for 4% of terrorist financing activity.
Author info: Maria Jofre is a data analyst at Open Ownership and academic. Alberto Aziani is an Associate Professor of Sociology of Law and Deviance at the Department of Sociology and Social Research at the University of Milano-Bicocca. Edoardo Villa is a Consultant in Governance Risk & Compliance - Financial Services at KPMG Advisory S.p.A.
Brief Summary
This study highlights the need to expand research on how terrorists use technology to facilitate financing and the associated threats and risks. Contributing empirical research, this article aims to bridge the gap in understanding the evolving methodologies employed by terrorist financiers. Such research is critical to helping institutions strengthen their capacity to counter terrorist financing by developing a deeper, evidence-based understanding of the modus operandi of those who finance terrorism.
Specifically, this study empirically assesses the financial technologies and methods used by terrorist financiers to transfer funds within and between organizations, focusing on capital movement rather than fund generation. The findings reveal that while there is increasing attention on emerging technologies like cryptocurrencies, terrorist financiers continue to rely predominantly on traditional methods of transferring money.
Methods: The study's methods relied on a comprehensive analysis of data from the LexisNexis WorldCompliance dataset, which initially identified over 90,000 records. Through a rigorous screening process based on eligibility criteria—such as sufficient information, deduplication, relevance of sources, and confirmation of terrorist financing methods—this dataset was refined to include 121 cases of terrorist financing occurring between 2010 and 2020. The researchers adopted a frequentist approach, leveraging keyword-based quantitative analysis and in-depth qualitative analysis.
To assess the robustness of the data, the authors compared general trends in the dataset with the Global Terrorism Index, finding alignment in temporal patterns and peaks, which the authors say supports the reliability of the data over time. The analysis revealed the following breakdown of methods: 54% of cases involved the banking system, 24% used legal entities, 24% relied on hawala systems, 22% engaged high-value commodities, 14% involved money transfer services, while newer technologies like cryptocurrencies, internet payment systems, and e-commerce platforms accounted for 4%, 4%, and 2% of cases, respectively.
The study acknowledges limitations in the dataset, including potential underreporting, an incomplete picture of the prevalence of terrorist financing methods, and the likelihood that emerging trends or technologies might not yet be fully captured due to data lag. These limitations underscore the need for ongoing research to provide a more comprehensive understanding of terrorist financing patterns.
Interestingly, in my book Illicit Money (released in 2021 and based on data up to 2020), I found very similar results. I found that 38% of cases involved the banking system, 19% relied on money service businesses, 22% used high-value commodities and/or trade-based movement, 24% relied on hawala, and 6% relied on cryptocurrency transfers. 1
However, my recent work suggests that cryptocurrency use has increased significantly since 2021.
Who should read this article? This article is a good baseline for anyone seeking to understand terrorist financing methods and mechanisms, and should be read in conjunction with other research in this area including:
Joe Whittaker, “The Role of Financial Technologies in US-Based ISIS Terror Plots,” Studies in Conflict & Terrorism 0, no. 0 (October 12, 2022): 1–26, https://doi.org/10.1080/1057610X.2022.2133345.
Evangeline Ducas and Alex Wilner, “The Security and Financial Implications of Blockchain Technologies: Regulating Emerging Technologies in Canada,” International Journal 72, no. 4 (December 1, 2017): 538–62, https://doi.org/10.1177/0020702017741909.
Cynthia Dion-Schwarz, David Manheim, and Patrick B. Johnston, “Terrorist Use of Cryptocurrencies: Technical and Organizational Barriers and Future Threats” (RAND Corporation, March 27, 2019), https://www.rand.org/pubs/research_reports/RR3026.html.
Jessica Davis, Illicit Money: Financing Terrorism in the 21st Century (Lynne Rienner Publishers, 2021).
Marc-André Argentino, Jessica Davis, and Tore Refslund Hamming, “Financing Violent Extremism: An Examination of Maligned Creativity in the Use of Financial Technologies” (ICSR, April 12, 2023), https://icsr.info/2023/04/12/financing-violent-extremism-an-examination-of-maligned-creativity-in-the-use-of-financial-technologies/.
And of course the various Insight Monitor articles on cryptocurrency and terrorist financing!
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Jessica Davis, Illicit Money: Financing Terrorism in the 21st Century (Lynne Rienner Publishers, 2021), p. 221