Financial Crime World

The Islamic State’s Evolving Use of Cryptocurrency

Introduction

The Islamic State (IS) has adapted to use cryptocurrency as a method of moving funds, particularly in regions where traditional financial systems are not reliable or have been disrupted by counter-terrorism efforts. This article explores how IS has leveraged cryptocurrency for international transactions and discusses the implications for countering the financing of the Islamic State.

Key Points

  • Cryptocurrency adoption varies across IS provinces: While some provinces like ISKP have widely adopted cryptocurrency, others such as those operating in Nigeria, Mozambique, and the DRC have minimal or no use of it.
  • IS groups prefer cryptocurrency for international transactions: Due to its ability to avoid interacting with compliance staff and being caught up in geographic targeting and monitoring.
  • Cryptocurrency facilitates financial tradecraft: IS has increasingly used stablecoins like Tether and some privacy coins, demonstrating enhanced financial tradecraft.
  • Countering the networked Islamic State problem requires international coordination: Due to its focus on finance and governance, and the presence of redundancies in revenue-sharing between groups and provinces.

Recommendations for Countering Islamic State Financing

To effectively counter the financing of the Islamic State, it is recommended that there be:

1. Sustained and Effective Kinetic Counterterrorism Efforts

  • Disrupt territorial control and revenue-generating activities.
  • Enhance understanding of IS networks and key facilitators.

2. Investigative Capacity to Disrupt Terrorist Financing Activities

  • Conduct investigations and arrests of financiers and financial facilitators.
  • Prevent terrorist financing in the financial sector.

3. Regulations to Prevent Terrorist Financing in the Financial Sector

  • Implement cryptocurrency regulation in regions where IS operates.
  • Ensure effective implementation and enforcement of regulations.

Without these measures, significant gaps will continue to exist in understanding Islamic State networks, and key facilitators and financial leaders will operate freely, allowing them to move money for both organizational purposes and terrorist attacks.