The feds must rein in crypto-financed terrorism

While regulators and policymakers dither and try to decide if cryptocurrencies have a future in the economy, early adopters, including terrorists and violent extremists, are exploiting a law enforcement blind spot. The ease by which money laundering and terrorism financing take place with cryptocurrencies and the more dangerous privacy coins are becoming a security threat of our own making through bureaucratic inaction.

The recent indictment of a New York woman accused of sending funds to Hay’at Tahrir al-Sham — designated by the United States and United Nations as a Foreign Terrorist Organization — is newsworthy because it’s the exception, not the rule. But this does not necessarily mean that financing terrorism with cryptocurrencies is itself a rare event. Rather, the few prosecutions that have been announced reflect the limitations of law enforcement’s capabilities in the United States and around the world — a problem that can and should be solved.

The U.S. has only a small group of dedicated law enforcement personnel to track and seize cryptocurrencies used for criminal purposes. Agents responsible are also tasked with investigating all aspects of the misuse of cryptocurrencies ranging from extortion and money laundering to sanctions evasion and terrorism financing. This lack of specific focus broadens the potential for misuse of cryptocurrencies to be undetected, particularly in light of the steady migration by criminals to so-called privacy coins that encrypt wallets — like Monero — and in some cases also the transactions themselves.

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In June 2020, my own Counter Extremism Project (CEP) located a notorious pro-ISIS website requesting Monero (XMR) cryptocurrency donations “because it offers more privacy and safety features than Bitcoin.” Months later, a website that supports the National Socialist Order and spreads violent neo-Nazi propaganda requested donations via Monero, and a neo-Nazi chat group on Telegram posted a guide on how to purchase Monero to the dark web. The neo-Nazi accelerationist group The Base, too, has requested cryptocurrency donations in Monero to facilitate training and unspecified equipment.

Though the U.S. has the most advanced capacity to track and seize cryptocurrencies used for criminal purposes, these and other privacy coins present technical hurdles that no country has yet fully overcome. Their encryption technology renders law enforcement largely…