Anonymous Crypto "Main Question" At CFT Conference

• The fourth No Money for Terror Conference brought together FATF, Ministers and law enforcement officials to discuss the combatting of terrorist financing
• Participants name 'Anonymous Crypto Transactions' one of the main questions of the event, naming privacy laws as "challenges"
• The statements made contradict intelligence findings which rate cryptocurrencies only a marginal threat to financing terror activities

Earlier this month, the fourth inter-ministerial No Money for Terror Conference took place alongside the Munich Security Conference, organized by the German Ministry of Finance.The Conference was attended by "more than 200 high level officials and experts from different countries and key international organizations," gathering in expected secrecy.

While no official recordings of the Conference are available to the public, participants stated in a panel at the Munich Security Conference that "tracking illicit and illegal financing through cryptocurrencies and digital payment means" was a major question of the event. In a press release on the Conference, the United Nations echoes the importance of "innovative approaches to [...] digital channels of terrorist financing," naming it a "key topic" of the Conference.

We have to make sure that the benefits of “distributed ledger technologies” and “crypto technology […] do not get abused by those who specifically focus on the anonymity aspects of crypto,” says German Finance Minister Jörg Kukis, stating that "there is a lot of illicit activity going on".

"I could give the audience some examples from recent years," says moderator Shlomit Wagman, Chief Compliance Officer at Rapyd and former Israeli Director of financial intelligence. "Terrorist organization were using cryptocurrencies, for example crowdfunding by ISIS and Hamas, we've also seen Hezbollah turn crypto into fiat."

"Cryptocurrencies are very important for terrorist organizations," says Catherine De Bolle, Executive Director of Europol. "The movement of cryptocurrency is relatively easy so it is important for police forces and law enforcement to have the right tools and expertise to go after these cryptocurrencies and to have specialized people in blockchain."

De Bolle's and Wagman's statements run counter to findings by the blockchain surveillance firm Chainalysis, which found that "the use of cryptocurrency by terrorist organizations represents a small share of illicit transactions in the cryptocurrency ecosystem."

Wagman's statements in particular run counter to statements made by the US Financial Crimes Enforcement Network (FinCEN), with FinCEN Director Brian Nelson finding that "cryptocurrencies are not a popular tool used by Hamas and the Palestinian Islamic Jihad in their terror financing efforts," and a recent FinCEN alert showing that Hezbollah rather relies on bulk cash smuggling.

To add insult to injury, Chainalysis' investigation of ISIS shoot-off Hayʼat Tahrir al-Sham (HTS), which overthrew the Assad regime in December, appears to have identified a mere few thousand Dollars in crypto financing contributing to their efforts. Chainalysis has partnered with Europol since 2016.

But facts don't stop FATF. We have to regulate virtual asset service providers globally, says FATF President Elisa de Anda Madrazo – particularly with the implementation of the Travel Rule, so that "with every transaction you know who is sending the virtual asset and who is receiving it."

Currently, Madrazo says, the Travel Rule has about 40% adoption globally, but even those which have adopted the rule do not have 100% coverage of the virtual asset sector, highlighting the need for even tighter surveillance, such as via beneficial ownership regulations.

"We need to make sure that each country has the information [..] completely accessible," Madrazo says.

The biggest hurdle to the effective combating of terrorist financing yet remains "the legal framework," says De Bolle. “We have to reconsider what is the right balance between the needs from a law enforcement perspective and a justice perspective and the privacy and the data protection,” noting that cryptocurrency tracing requires access to a diverse set of intelligence, such as social media data. (Europol is one of the main proponents of the EU's Chat Control, a proposed regulation that aims to effectively backdoor end-to-end encryption in messengers.)

Kukis agrees, criticizing that in Germany, "we are not even allowed to store IP addresses for example," stating that Europe will need to become "a bit more pragmatic" and "empower authorities more".

"Data protection and privacy laws did come as a challenge because of some restrictions that might [get] in the way in terms of [...] data pulling and information exchange" confirms Madrazo, advocating for AI as "the perfect solution for compliance to make sure that we are tracing relevant activities."

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