OCTOBER 2014 . VOL 7 . ISSUE 10 Contents Financing Terror Bit by Bit By Aaron Brantly FEATURE ARTICLE 1 Financing Terror Bit by Bit By Aaron Brantly REPORTS 5 Boko Haram: Recruitment, Financing, and Arms Trafficking in the Lake Chad Region By Jacob Zenn 10 Boko Haram’s Regional Cross-Border Activities By Scott Menner 15 The Motivations of Syrian Islamist Fighters By Vera Mironova, Loubna Mrie and Sam Whitt 17 Syrian and Iraqi Jihads Prompt Increased Recruitment and Activism in Southeast Asia By James Brandon 20 CTC Sentinel Staff & Contacts errorism is highly dependent activities.1 While these tools have on cash flows for the purchase gained in popularity, in recent years of everything from munitions their expansion into various terrorist and supplies to domains and organizations has been slow and Tpamphlets. Traditionally, one of the deliberate and has not matched pace more challenging aspects of organizing with transnational criminal uses of these international terrorist activities is same technologies. rooted in financial transactions. The About the CTC Sentinel transfer of money around the world For the purposes of this article, the term The Combating Terrorism Center is an has, in the last decade, fundamentally “terrorist organization” does not include independent educational and research changed the way terrorist organizations the hacktivist community, which has institution based in the Department of Social raise money to support their activities. already demonstrated widespread Sciences at the United States Military Academy, Digital currencies like e-gold, Bitcoin, utilization of these technologies. Here, West Point. The CTC Sentinel harnesses Peercoin, and Dodgecoin provide the term is limited to “international the Center’s global network of scholars and complex yet efficient mechanisms for terrorism” as outlined in 18 U.S.C. § practitioners to understand and confront the transfer of funds, as well as the 2331 - Chapter 113B. This definition contemporary threats posed by terrorism and decentralized collection of donations is an important caveat as it frames other forms of political violence. in a more anonymous manner than the scope of the analysis to a specific conventional banking transactions. community of actors and acknowledges There is sufficient evidence to suggest that the use of these technologies has The views expressed in this report are those of the authors and not of the U.S. Military Academy, that terrorists are considering and, the Department of the Army, or any other agency in limited instances, using digital 1 This has been witnessed by tracking conversations of of the U.S. Government. currencies such as Bitcoin to finance jihadists within various internet chat rooms and forums. 1 OCTOBER 2014 . VOL 7. ISSUE 10 been demonstrated and documented by time inefficient for the decentralized for financial transactions at both the other actors contained within a broader collection of funds from multiple sources national and international level. Two definition of terrorism. and the disbursement of those funds recent cases have elevated the role of to single or multiple geographically digital currencies in the AML/CFT This article is designed to demonstrate dispersed end points. The limits imposed research space. The first major incident the advantages and limitations of the by a trust-based network constrain the was the investigation, takedown, and use of digital currencies by illicit actors, dynamic collection and disbursement of indictment of Liberty Reserve and its specifically jihadists. Focus is placed funds within a terror network and slow founder. Liberty Reserve was a Costa on the technological problems posed down the process of funding, planning, to terrorist organizations in leveraging and implementing attacks. “Partly due to its novelty these currencies, as well as the benefits associated with their use. Furthermore, In contrast, conventional banking and partly due to its this analysis demonstrates, in brief, systems using ISO 9362 (SWIFT-BIC)4 complexity, the evolving the technical challenges faced by law or other modern commercial banking enforcement and intelligence agencies protocols/standards are efficient world of digital or engaged in anti-money laundering modes for conducting international crypto currencies like (AML) and countering the financing of financial transactions. The challenge terrorism (CFT) endeavors. here for terrorist groups is that these BitCoin and their impact systems adhere to strong regulatory on AML/CFT has been Shortcomings in the Old Way of Doing frameworks within codified national Business and international agreements such given substantially less The U.S. Department of the Treasury as those developed by the Financial attention.” and other government agencies Action Task Force (FATF).5 The use recognize that terrorist organizations of conventional banking systems use a variety of methods to launder unnecessarily exposes terrorist and finance terror activities. Two organizations to oversight by banks, law Rica-based digital currency founded traditional methods that terrorist enforcement, and intelligence officials, in 2006 and the successor to several organizations have used for the which threatens their operational digital gold currencies.7 The second financing and laundering of funds security. incident, also culminating in 2013, are traditional Hawala networks and was the investigation and takedown conventional international banking.2 In summary, the traditional option of of Silk Road, an illicit online market While the possibilities for financing Hawala and the conventional option functioning within the “Deep Web.”8 terrorism extend to a wide array of of international banking pose unique methods ranging from robbery and risks for terrorist groups engaging in Liberty Reserve functioned similarly narcotics to ransom and smuggling, it is international financial transactions. to a conventional bank with a central valuable to limit the scope for analytical The literature on AML/CFT efforts in ledger of transactions. However, purposes to examining the functional these two areas is extensive.6 However, Liberty Reserve embedded tacit and legal/regulatory challenges partly due to its novelty and partly due anonymity by deliberately failing to associated with digital currencies in to its complexity, the evolving world of mandate account holder validation. the context of these historical terrorism digital or crypto currencies like BitCoin In other words, people who opened financing methods. and their impact on AML/CFT has been accounts were not required to provide given substantially less attention. any of the basic personally identifiable A great deal of emphasis has been placed information that a conventional bank on both of these financing typologies. Beyond Convention and Tradition: would require to conduct financial In the case of Hawala networks, the New Methods for Financing Terror transactions. This tacit anonymity Department of the Treasury has provided Much of the literature to date has hid Liberty Reserve account holders’ extensive reports on their use to finance focused on the functional aspects activities from legal and regulatory terror and launder money across of crypto currencies and a narrow oversight by law enforcement and borders.3 These networks implicitly subset has focused on the practical intelligence agencies. rely on the trusted relationships of implications of alternative pathways brokers within the network. While these Liberty Reserve added to the tacit traditional networks are efficient and 4 This system provides unique identification codes for anonymity of its users by requiring all difficult to track for transferring money financial institutions. SWIFT-BIC stands for Society for users to deposit and withdraw funds from point A to B, they are at the same Worldwide Interbank Financial Telecommunication- from third-party “exchangers” to Business Identifier Codes. eliminate a direct paper trail to Liberty 2 Hawala – meaning transfer – is a pre-modern financial 5 Financial Action Task Force. International Standards on Reserve. The central objective was to transfer system that facilitates the conduct of commerce Combating Money Laundering and the Financing of Terror- through trusted informal networks. ism and Proliferation. (Paris, France: 2013), pp. 1–130. 7 United States of America v Liberty Reserve S.A, No. 3 Patrick M. Jost and Harjit Singh Sandhu, “The Hawala 6 For a broad overview of the current state of the litera- USA-33s-274 (Ed. 9-25-58), United States District Court, Alternative Remittance System and its Role in Money ture on AML/CFL, see Peter Romaniuk, “The State of the Southern District of New York, May 2013. Laundering,” Financial Crimes Enforcement Network Art on the Financing of Terrorism,” The RUSI Journal, 8 “Deep Web” refers to the utilization of Tor networks to and INTERPOL/FOPAC, 2003. 159:2 (2014): pp. 6-17. encrypt and hide web traffic. 2 OCTOBER 2014 . VOL 7. ISSUE 10 avoid U.S. and international law and non-trust-based currency. Using third- anonymity for transactions, Bitcoin’s in the process create a black-market party money “exchangers” would structure facilitates anonymity through banking system. For terrorist groups, have been inefficient and limited the the absence of personally identifiable the global reach of Liberty Reserve ability to engage in rapid e-commerce information (PII) linking sellers and combined with its ability to avoid transactions. If Silk Road had used a buyers to transactions through the use revealing