The Banking Executive Magazine - June 2022 Issue

Digital Currency USE OF DIGITAL CURRENCY IN TERRORISM Concerns about the use of digital currency to enable terrorist activities have yet to manifest, but future im- provements in digital currency tech- nologies will likely have a significant long-term effect on terrorism finance. The speed at which these technolo- gies are adopted, and the details of which technologies are used and how they are deployed, are critical in facilitating terrorism. Regulation and oversight of digital currencies, along with international cooperation between law enforcement and the intelligence community, are impor- tant steps to prevent terrorist organi- zations from using digital currencies to support their activities. Current cryptocurrencies are not well matched with the totality of features that would be needed and desirable to terrorist groups but might be em- ployed for selected financial activi- ties. RAND research shows that, should a single cryptocurrency emerge that provides widespread adoption, better anonymity, im- proved security, and that is subject to inconsistent regulation, then the po- tential utility of this cryptocurrency, as well as the potential for its use by terrorist organizations, would in- crease. According to RAND findings, factors that will increase cryptocurrency vi- ability for terrorist organizations are: • A growing market and more-wide- spread usage. • Widespread adoption of second- generation cryptocurrencies. • Increased use of cryptocurrencies in complementary and adjacent markets. Factors that will decrease cryptocur- rency viability for terrorist organi- zations are: • Uncertainty of cryptocurrencies. • Law enforcement cooperation in cybersecurity domains and cryp- tocurrency markets. • Incorporation of cryptocurrency systems into the regulatory system. • Discovery of fraudulent exchanges and theft of improperly secured monies. RAND Research framed cryptocur- rency properties that can facilitate terrorist activities. These properties are anonymity, usability, security, ac- ceptance, reliability, and volume. Anonymity refers to the ability to hide and protect the identity of the user. Us- ability refers to the ease with which the user can conduct transactions and manage his or her own currency. Security refers to the degree to which the cryptocurrency infrastructure se- cures the confidentiality, integrity, and accuracy of transactions and user accounts. Acceptance is the de- gree to which the currency is ac- cepted by a user community as well as the size of the community of users. Reliability refers to the speed and availability of transactions, as viewed by users. Volume refers to the time- averaged aggregate size of transac- tions in the cryptocurrency infrastructure. Table 2 presents an assessment of the importance of cryptocurrency prop- erties in facilitating terrorism finance activities. the BANKING EXECUTIVE 10 ISSUE 162 JUNE 2022 Table 2 Assessment of the importance of cryptocurrency properties in terrorism finance (Source: RAND Research Division) Anonymity Usability Security Acceptance Reliability Volume Fundraising Moderate Importance Critical Importance Moderate Importance Lesser Importance Lesser Importance Moderate Importance Illegal drugs and Arms Trafficking Critical Importance Lesser Importance Critical Importance Lesser Importance Moderate Importance Lesser Importance Remittance and Transfer Moderate Importance Lesser Importance Critical Importance Lesser Importance Critical Importance Critical Importance Attack Funding Critical Importance Lesser Importance Critical Importance Moderate Importance Critical Importance Lesser Importance Operational Funding Lesser Importance Lesser Importance Critical Importance Moderate Importance Moderate Importance Critical Importance