Financial Transparency Coalition

While we still have a long way to go, the last decade has made it much harder for terrorists to hide money from authorities.  About fifteen years ago, an article in the Washington Post argued Osama bin Laden was able to “shroud his finances in such secrecy and with so many front companies that American officials acknowledge it could take years to decipher them.”  At the time, U.S. officials understood that the key to bin Laden’s power was his extensive wealth.  Yet they were stymied in their ability to track his or other terrorists’ resources as they did not have the capability to comprehensively track, freeze, and seize his assets.

All of that has changed since 9/11. Notably, the USA Patriot Act significantly altered anti-money laundering enforcement by officials in the United States.  Among other advances, the Patriot Act sought to prevent foreign shell banks from gaining access to the U.S. financial system; encouraged cooperation and information sharing among law enforcement, regulators, and financial institutions; and required financial institutions to establish anti-money laundering programs.  As Tom Cardamone, managing director of Global Financial Integrity put it: “9/11 really focused everybody’s attention on money laundering and terrorist financing and how you get at it. The Patriot Act did that to a great degree.”

Of course the work is not done yet and there are other things we could do to build on this progress. For example, the still unsigned Combating Money Laundering, Terrorist Financing, and Counterfeiting Act, proposed by Senators Chuck Grassley (R-IA) and Dianne Feinstein (D-CA), would make all felonies trigger crimes for a money laundering charge, no matter where in the world a person committed the crime. According to current U.S. anti-money laundering laws, it is legal for U.S. banks to accept the profits from some crimes, provided the original crime occurred in another country. It would be illegal for them to do so if the same crime was committed in the United States. The bill would close this loophole.

If law enforcement continues on its current trajectory, however, banks will be an increasingly dangerous place for terrorists to hide their money. This evolution has created demand and pressure for other—even more opaque—ways to hide money.

Enter Bitcoin.

Bitcion is money, but complex computer algorithms, rather than governments, issue its units. Bitcoin exist completely online, using peer-to-peer networks rather than a centralized system. As with offshore financial centers and tax havens, the characteristic of Bitcoin that lends itself to illicit activity is secrecy. Bitcoin transactions can be anonymous or public, depending on the actions of each individual user. Users do not need to present any form of identification to receive a Bitcoin address—or key—so they are not necessarily tied directly to a person, which makes Bitcoin transactions unidentifiable as long as the user takes care to anonymize his or her IP address.

Bitcoin has already attracted attention as a potential vessel for money laundering and tax evasion, but now the U.S. military also believes the currency may be a potential security threat. The Combating Terrorism Technical Support Office (CTTSO) of the U.S. Department of Defense identified Bitcoin and other virtual currencies as a state-of-the-art technology that may pose a threat to national security. An unclassified memo published by CTTSO stated that “The introduction of virtual currency will likely shape threat finance by increasing the opaqueness, transactional velocity, and overall efficiencies of terrorist attacks.”

In terms of terrorist financing (and many other illicit activities), Bitcoin presents a future threat, not a present danger. A Treasury investigation earlier this year found that there is no evidence of “widespread” use of virtual currencies to finance terrorism. However Bitcoin is still evolving. As Bitcoin gains stability and security, and as pressure continues to push terrorists away from traditional banking, this avenue may become more attractive to nefarious individuals looking to stash illicit cash. We should prepare for and work to prevent this dangerous future.