Chainalysis: How terrorists used Bitcoin last year

Bitcoin as a tool that can help people under authoritarian regimes is a widespread idea. But there is also a dark side to this story. Because of its decentralized nature, the crypto currency can also be used as a means of financing terrorist activities.

This aspect of the crypto-currency was recently analyzed in a report by Chainalysis, which noted that “particularly worrying are the advances in technical sophistication that have made possible a successful campaign to finance terrorism. The report highlights the terrorist organization – Ibn Taymiyya Media Center – which launched a campaign using crypto-currencies, known in Arabic as “Equip us”, calling on Muslims around the world to donate out of “religious obligation”. From June 2016 to June 2018, the campaign was advertised on various social media platforms such as Twitter, Facebook and YouTube, where a Bitcoin address was posted to accept donations. The report states: “The median value of donations was $164, with the largest single donation being just under $2,500, and only two other donations over $1,000. 14% of the donations were between $500 and $1,000, and almost all others were between $100 and $500, with most of them between $100 and $250.”

The report then went on to shed light on another terrorist organization that began accepting Bitcoin in the form of donations, the Izz ad-Din al-Qassam Brigades [AQB]. This organization, unlike its predecessor, used different types of wallets to accept funds, choosing a system that would generate a new address for each donor. The report noted that it was one of the “most sophisticated cryptocurrency-based terrorist financing campaigns ever”.

Kimberly Grauer, research director for Chainalysis, recently explained the issue in an interview for Unchained Podcast. She said: “If you look at the campaign in 2018 compared to 2019, the campaign was much more successful in raising more money in less time and they were using more advanced wallet software, so we just saw this narrative continue with this type of crime where the criminals are increasing their sophistication and use of crypto-currencies.”

Chainalysis divided the entire development of the terrorist organization into three parts, the first part being the acceptance of Bitcoin donations with a single address via QR code. However, this failed as soon as the address was linked to a regulated stock exchange based in the US, which led to the freezing of funds and an investigation being launched against the account holder.

“The second sub-Action began when the AQB replaced the stock exchange address with a new address linked to a private, non-securitized wallet, citing the need for increased anonymity […] the third sub-Action with a Bitcoin Wallet integrated into its website, which generated a unique Bitcoin address for each donor to which they could send contributions.”

Regarding the activities of the AQB, Grauer said: “We have a variety of heuristics that we can use to track funds and link addresses together […] the important thing is that we know investigators […] who can provide us with addresses that we can link together through these investigations and that allow us to go beyond what we see on the block chain […]”.

In particular, the firm stated that there is a chance that more terrorist organisations will opt for this donation strategy this year and in the years to come, adding that “there will be an impetus for further progress that will allow them to raise more funds and improve their privacy”.

Jonathan Levin, co-founder of Chainalysis said: “When it comes to different types of terrorist organisations that are actually in desperate need of money, you will see more experiments, you will see more of these campaigns, fortunately we have experts […] to identify these types of activities really quickly and ensure that these campaigns can be ineffective in raising funds”.