The Banking Executive Magazine - June 2022 Issue

Digital Currency sound and beneficial growth of digi- tal currencies whilst preventing po- tential misuse in terrorism and wars. GROWTH OF DIGITAL CURRENCY Digital currencies including cryp- tocurrencies such as Bitcoin, have gained considerable popularity over the past several years. Although dig- ital currencies have many potential uses in everyday life, they often carry an association with illicit transac- tions such as purchasing illegal drug on Dark Web marketplaces or in ran- somware attacks such as WannaCry, which affected companies and gov- ernment agencies including the British National Health Service in 2017. Many new digital currencies, also known as cryptocurrencies or crypto and Virtual Currencies (VC), emerged in the past few years, besides Bitcoin. These include Omni Layer (Master- Coin), BlackCoin, and Monero, which are more private and secure than Bitcoin. Zcash is another cryp- tocurrency that offers a higher degree of privacy and provides the potential ability to use and transfer currency offline, which could make it difficult for law enforcement to trace illicit transactions. Other cryptocurrencies including Hawk, allow fully private contracts and transactions on the Ethereum blockchain. The Ethereum blockchain is a distributed comput- ing platform and operating system. Given the growth and diversity of digital currencies, there is a great need to understand the full potential for terrorist use of cryptocurrencies, including options for identifying and tracking their use. The sophistication and technological capability of ter- rorist groups, and the potential for such use may increase in the future, given expected technological devel- opments. Currently, digital curren- cies are being used in innovative ways in terrorism. TERRORISM FINANCE According to RAND research, terror- ist organizations use money in three ways: receipt, management, and spending. There are several subcate- gories for terrorist use of money, as shown in Table 1. Large receipted sums are difficult to manage or spend anonymously, and cryptocurrencies still require infra- structure to manage and spend. There is some current evidence of the adoption of cryptocurrencies by terrorist organizations or the motiva- tion to do so, unless some counter- measures are adopted and cryptocurrency technology evolves. ISSUE 162 JUNE 2022 the BANKING EXECUTIVE 9 Table 1. Terrorist Organizations' Financial Activities (Source: RAND Research Division) Activity Name Components of Activity in Finance Fundraising Illegal drug and arms trafficking Remittance and transfer of funds Attack funding Operational funding Receipt of support from donors, especially cash support Income source Sending or receiving funds to support organizational activities Direct purchase of material to support terrorist attacks and financial support of attack operations Use of funds to support the terrorist organization on a day-today basis, including general security, communications, and management