In a study published Monday, the EU parliamentary think tank has concluded that cryptocurrencies present no more of a threat to terrorist financing than fiat currencies, while improved regulations, industry intelligence, and community relationship building offer the strongest policy actions to combat the threat.
The report was commissioned by the European Parliament’s Policy Department for Citizens’ Rights and Constitutional Affairs, conducted to asses the risks imposed by the rapidly changing, decentralized space of virtual currencies.
Crypto risks no greater than traditional methods
The paper acknowledges that the cryptocurrency space does not represent a more significant threat than the ‘traditional’ forms of terrorist financing. ”In their current form and at current levels of adoption, [virtual currencies] may not present terrorist actors with substantial advantages over other methods of funding and financing they already utilize,” it reads.
In addition to this, the research notes that there are very few publicly-documented, confirmed cases of virtual currencies being used in regards to terrorist funding. With the recently imposed EU GDPR and AML (anti-money laundering) regulations, these risks posed by cryptocurrency usage are only decreased further.
The threat of crypto-funded terrorism
However, the study highlights the borderless, peer-to-peer (p2p) nature of cryptocurrency trading as offering prospective terrorist actors a platform to transfer funds out of the regulated sector, and beyond the purview of counter-terrorist financing authorities. Dependent on the virtual currency being traded, various levels of anonymity and pseudonymity are offered, making it appealing for those looking to conduct illicit activities.
Several incidents are pointed to, demonstrating that both politically and religiously inspired extremist actors have utilized virtual currencies in the past, although in a ”relatively low-volume and unsystematic fashion.” The research suggests that the nature and scale of the threat are difficult to predict, although potential terrorists may be looking to expand the use of cryptocurrencies in their illicit activities.
Potential illegal activities that these actors could utilize are detailed, notably including soliciting donations in crowdfunding campaigns conducted on social media, as well as transmitting funds internationally among members of terrorist networks using P2P value transfers.
Increased regulation required
To target these threats, the study offers a list of EU policy recommendations, including ensuring comprehensive directives are applied. Particularly emphasized is a need to implement regulations that are relevant and adaptable to the rapidly-evolving technologies behind cryptocurrencies in a way that does not stifle their innovation.
A need to address both established cryptocurrencies such as Bitcoin and altcoins differently is noted: ”Regulators should also draft guidance that takes a nuanced approach to characterizing the risks [virtual currencies] pose in different contexts and for different purposes. For example, the illicit finance risks the traceable cryptocurrencies such as Bitcoin present is generally not as significant as that presented by privacy-focused alt-coins.”
Community-driven industry intelligence
Developing law enforcement knowledge and capacity is also focused on as a key point to countering the usage of cryptocurrencies in terrorist financing. Interestingly, the paper places a significance on the positive potential outcomes of reaching out to the established cryptocurrency community in order to better their industry intelligence.
”The public sector cannot develop effective regulation, enhance knowledge and improve intelligence acting alone. Cooperation and interaction with businesses in the VC-industry is essential… Member States should develop dedicated fora for sharing information with local VC industry participants, including sharing of intelligence for operational purposes,” the research notes.
A lack of industry intelligence has been the source of many issues relating to implementing cryptocurrency and blockchain regulations, so an approach such as this suggested may well prove invaluable in assisting authorities to make better-informed decisions.
Reaching out to the cryptocurrency community for their support rather than marginalize their innovations would be hugely beneficial, alongside helping improve what many see as an undeserved bad reputation when it comes to cryptocurrencies and criminal activities.
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