Terrorist Financing

Red Flags for Jihadist and Extremist Groups:

• Cryptoassets identified as deposited to, or originating from, a specific wallet address that has appeared on jihadist or extremist-sponsored social media and messaging sites, associated with Twitter and Telegram. Implement strict Know-Your-Customer (KYC) and Customer Due Diligence (CDD) processes to verify the identity of customers and assess the risk associated with their transactions. (Financial Action Task Force (FATF), Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (2019), pp. 42-48.) Providing financial services to individuals or entities associated with extremist groups may expose the business to regulatory penalties, reputational damage, and potential criminal liability.

• Cryptoassets identified as deposited to, or originating from, a specific wallet address that has appeared on jihadist or extremist-sponsored ads on fundraising sites such as Kickstarter, Patreon, or on sites such as Hatreon. Develop an ongoing transaction monitoring system to identify suspicious activity, including deposits and withdrawals linked to extremist fundraising platforms.(Financial Action Task Force (FATF), Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (2019), pp. 49-52.) Facilitating financial transactions linked to extremist fundraising campaigns could lead to regulatory penalties, reputational damage, and potential criminal liability.

Red Flags for Lone Actors and Small Cells:

• Customer attempts to establish accounts with false identity documentation and purchasing cryptocurrencies with stolen card detail. Implement rigorous KYC and CDD processes, including identity verification, to prevent account creation with false documents or fraudulent payment methods. (The Wolfsberg Group’s Statement on Cryptocurrency Due Diligence (2019), pp. 4-6.) Allowing the use of false identities or stolen payment methods exposes the business to regulatory penalties, reputational damage, and potential criminal liability.

• Customer withdraws cryptoassets from an exchange. The cryptoassets trace immediately, or through multiple hops, to an address associated with terrorist and extremist content on social media, Tor-hosted sites, or general crowdfunding platforms. Monitor transactions for links to addresses associated with extremist content, and report suspicious activity to relevant authorities. (Chainalysis (2021), Crypto Crime Trends for 2021: DeFi, Hacks, and the Future of Money Laundering, p. 14.) Facilitating transactions associated with extremist content could lead to regulatory penalties, reputational damage, and potential criminal liability.

• Customer attempts to swap cryptoassets at an exchange for fiat, funds ultimately trace to an address associated with terrorist or extremist content. Implement an ongoing transaction monitoring system to identify transactions linked to extremist addresses, and report suspicious activity to relevant authorities. (FATF Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (2019), pp. 49-52.) Facilitating the exchange of cryptoassets linked to extremist content exposes the business to regulatory penalties, reputational damage, and potential criminal liability.

• The customer’s social media presence may indicate that they post on sites or share information about extremist content, such as jihadist or Neo-Nazi material on platforms such as Twitter, Facebook, and others. Monitor public social media activity of customers as part of KYC and CDD processes to identify potential links to extremist content and assess associated risks. (The Cambridge Centre for Alternative Finance’s Global Cryptoasset Regulatory Landscape Study (2020), pp. 23-25.) Providing financial services to individuals with links to extremist content may result in regulatory penalties, reputational damage, and potential criminal liability.

• Multiple individuals operating together may open accounts at a similar time and transfer funds among one another’s wallets. Transfers may be made to or from wallets associated with individuals, exchanges, or other services located in high-risk terrorist financing jurisdictions.Utilize transaction monitoring systems to detect patterns of suspicious activity, such as multiple accounts with interconnected transactions, and assess the risk of customers based in high-risk jurisdictions. (Elliptic Financial Crime Typologies in Cryptoassets: The Concise Guide for Compliance Leaders (2021), p. 6.). Facilitating transactions among customers engaged in potential terrorist financing activities may result in regulatory penalties, reputational damage, and potential criminal liability.

• Immediately after swapping cryptoassets for fiat, the fiat funds may be transferred onward to accounts in high-risk terrorist financing jurisdictions. Monitor transactions for onward transfers to high-risk jurisdictions and report suspicious activity to relevant authorities.(FATF Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (2019), pp. 42-48.) Facilitating the transfer of funds to high-risk terrorist financing jurisdictions may expose the business to regulatory penalties, reputational damage, and potential criminal liability.