![]() At the same time, different countries have adopted varying approaches to the regulation of virtual currencies, posing an enforcement challenge in a globalized field that requires a unified response. New financial technology firms often lack the resources to comply effectively with oversight obligations, while regulators have tended to devote few resources to non-bank institutions. The use of VCs by “lone wolf” terrorists-a much bigger potential threat because of the small scales of funding needed to execute an attack-represents the kind of problem in intelligence and digital forensics that law enforcement agencies are well equipped to handle, even if they tax existing resources.Īttacking terrorists’ use of virtual currency at scale is a challenging task for many stakeholders. The task of the law enforcement, intelligence, regulatory, and financial services communities, therefore, must be to prevent terrorist groups from using VCs at scale. 1 If VCs become sufficiently liquid and easily convertible, however, and if terrorist groups in places such as sub-Saharan Africa, Yemen, and the Horn of Africa obtain the kinds of technical infrastructure needed to support VC activity, then the threat may become more significant. Most terrorist funding now occurs through traditional methods such as the hawala system, an often informal and cash-based money transfer mechanism, and established financial channels. ![]() Terrorists in the Gaza Strip have used virtual currencies to fund operations, and Islamic State in Iraq and Syria (ISIS) members and supporters have been particularly receptive to the new technology, with recorded uses in Indonesia and the United States. Currently, however, there is no more than anecdotal evidence that terrorist groups have used virtual currencies to support themselves. ![]() For this reason they could appear appealing to terrorist groups (as they are at present to cybercriminals). VCs and associated technologies hold great promise for low cost, high speed, verified transactions that can unite counterparties around the world. This paper explores the risk that virtual currencies (VCs) may become involved in the financing of terrorism at a significant scale.
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