Niko Engelmann/ January 28, 2020/ Uncategorized

The Islamic state (IS) appears to have been militarily defeated – but the ideology remains dangerous. Due to large losses of territory, important financial sources from mineral resources dry up. However, methods to finance terrorist organizations are diverse. Besides criminal activities and territorial control, donations are an important source of financing. Individuals, institutions as well as states can be considered as donors. Internet-based fundraising via social media platforms is hereby becoming increasingly important. Video clips or pictures of combat operations are used for donation and fundraising campaigns on websites, social media platforms and messenger services. As early as 2014, IS sympathizers started campaigns on websites that have become more and more professional over time. Not only has the circle of donors changed, but a new form of payment has also become increasingly established in recent years: cryptocurrencies.

Bitcoin and other cryptocurrencies magically attract criminals because they promise anonymity. Especially in the case of money laundering and terrorist financing, attempts are made to conceal the origin of the funds. Thus, there is no jurisdiction within the network to identify suspicious transactions. The Blockchain network itself has no KYC process. In addition, service providers offer anonymization services, so-called tumbling services, which mix their customers’ cryptocurrencies and thus conceal the origin of the currency on the block chain.

However, the best-known cryptocurrency Bitcoin is anything but anonymous. The block chain on which the crypto currency is based records all transactions. Block Explorer is the counterpart to the Tumbling Services, which allow transactions to be tracked. According to Europol, the number of cases in which criminals have been identified and caught by Bitcoin tracing is increasing significantly. However, the disadvantages of Bitcoin have long been known to criminal organizations. For this reason, alternative cryptocurrencies that promise advantages in terms of traceability are mainly used. The law enforcement authorities are to some extent powerless and cannot uncover the criminal actions.

The best chance to catch criminals is at the exchange from cryptocurrency to fiat money. For banks, caution is therefore particularly necessary when a customer receives a payment from a crypto exchange or transfers money there.

The legislator has already reacted to these developments. On July 9, 2018, the 5th Money Laundering Directive came into force, which was implemented into national law in January of 2020. This also extends the scope of application of the AML/CTF rules to platforms for exchanging virtual currencies and providers of digital wallets or accounts for virtual currencies. The aim is to identify the users of virtual currencies and prevent illegal money flows from entering the economic cycle.

Niko Engelmann

About Niko Engelmann

Niko Engelmann works as a consultant in the Compliance Solution division at targens GmbH. Since his studies, he has been working in the context of financial crime, especially money laundering and terrorist financing. At targens, he supports several implementation projects within the SMARAGD MDS products. The creation of rules and index optimizations round off his core competencies.