UN report: Terrorist organizations raise funds using Monero, is the regulatory 'tightening spell' getting tighter?

As terrorist organizations adapt to an increasingly digital world, seeking new ways to raise and transfer funds, the global counterterrorism efforts are facing new challenges. According to recent investigations by the United Nations Security Council monitoring team, the notorious terrorist organization ISIL has shifted from its long-trusted 'Hawala' (referring to an informal way of fund transfer typically conducted through unauthorized dealers. Such transactions fall outside the purview of the Reserve Bank of India, making it difficult to trace the source of funds) to cryptocurrencies.
The report indicates that terrorist organizations like ISIL and Al-Qaeda are abandoning traditional fundraising methods such as Hawala, kidnapping, and extortion, and are now more inclined to use cryptocurrencies with stronger anonymity (represented by Monero), embedding QR codes for donations in their propaganda e-magazines.
These organizations have even established 'Halal standards' (Halal translated as permissible in Islamic society) to promote their ideology and operations. The report states that these organizations have set up two dedicated encrypted channels on the Telegram messenger application, namely CryptoHalal and Umma Crypto, guiding supporters on acquiring and using specific digital currencies and accepting encrypted donations approved based on 'preliminary Islamic law assessment.'
For instance, ISIL-K leverages the anonymity of privacy coins, initiating fundraising activities using QR codes linked to Monero wallets. Despite some cryptocurrency exchanges delisting Monero, terrorist organizations' use of Monero is increasing, making it challenging for authorities to track the flow of funds.
In August 2020, the U.S. government seized over 300 cryptocurrency accounts, multiple websites, and Facebook pages, allegedly belonging to members of Al-Qaeda, ISIS, and Hamas military organizations.
It is noteworthy that ISIL's use of digital platforms is expanding, causing growing concerns among member states. Various cryptocurrency exchanges, gaming platforms, e-wallets, and stablecoins are used for fundraising and fund transfers. One member state noted that while cash couriering and Hawala remittances are the preferred methods for transferring funds to conflict areas, ISIL is intentionally shifting towards cryptocurrencies and online payment systems. With the increasing popularity of digital methods like e-wallets, prepaid mobile card sales, and cryptocurrencies, this phenomenon is expected to become more common and significant.
Due to the ability to obfuscate transaction details, privacy coins like Monero have become the preferred medium for terrorist financing. The United Nations report emphasizes the difficulty in monitoring these transactions as they offer anonymity unmatched by traditional financial systems. ISIL and its affiliates exploit these features for fundraising activities, ensuring their financial activities remain undetected by authorities.
The report also highlights the complexity of terrorist financing networks. ISIL's affiliates, especially those in Africa, have made significant contributions to the organization's fundraising. These affiliates often rely on informal channels, making them less susceptible to disruption. For example, ISIL-K raised $2.50 million in 2023, some of which may be related to specific attacks, underscoring the ongoing threat posed by these organizations.
This strongly worded report by the United Nations Security Council monitoring team is bound to draw attention from several countries, including the United States, the United Kingdom, Europe, and India. Recently, the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued a warning urging financial institutions to monitor cryptocurrency transactions possibly related to the terrorist organization Hamas.
Furthermore, the impact of this report will also extend to the cryptocurrency industry as hawkish security agencies may enhance monitoring of asset flows associated with suspicious activities.