The European Union's law enforcement agency, Europol, has stated, in its recently published report, that the use of Bitcoin in financing terrorist activities has not been confirmed.
"Despite third party reporting suggesting the use of anonymous currencies like Bitcoin by terrorists, there is no evidence however of IS-financing networks in existence."
Despite the clear conclusion reached in this report, another EU bureaucracy arm, the European Commision, has only just come out with a comprehensive package to tackle "terrorist financing". It seems this proposal is more about tightening capital controls than "fighting terrorism," as digital currency economy accounts for only a tiny fraction of global money transfers.
"To prevent their abuse for money laundering and terrorist financing purposes, the Commission proposes to bring virtual currency exchange platforms under the scope of the Anti-Money Laundering Directive, so that these platforms have to apply customer due diligence controls when exchanging virtual for real currencies, ending the anonymity associated with such exchanges," the EC press release states.
The reality is that these exchanges have been implementing KYC/AML requirements for some time, so this provision doesn't come as a surprise. Apparently, European regulators do not intend to stop here and want to proceed further in their plans to get cryptocurrencies under their control. According to information from EDCAB, published on their blog, the EC is preparing the Payment Services Directive under which exchanges and wallet providers must apply for licensing and supervision.
However, as has been mentioned many times before, Bitcoin is not an anonymous means of transfer, only pseudonymous as all transactions are public. Thus the use of Bitcoin by criminals is in reality riskier than traditional methods, such as cash-in-hand transfers. Jeremy Millar, of Magister Advisors, believes that the Bitcoin blockchain is now much more closely monitored for illicit transactions than even the banking system.
"More interesting has been the birth of software products that apply machine learning to inspect the Bitcoin blockchain for suspicious activity and monitoring the dark web for illicit transactions. This is far beyond the capabilities of banks today to monitor cash deposits," he said, at the recent EP hearing on virtual currencies.
Unsuitable for laundering
"It is not easy to connect Bitcoin transactions to a particular user, but it is possible to connect a transaction to a specific service or group of services, thereby linking it to for example a regulated exchange or dark market activities," Michael Gronager, CEO of Chainanalysis, explains to Cointelegraph. He denies finding any blockchain transactions which could be related to terrorism. "To terrorism no, but several to other criminal activities like stolen Bitcoins from compromised exchanges, dark markets, or extortion schemes."
"It is easier to monitor digital cash than paper cash for possible criminal activity or the proceeds thereof. However, if the question is if blockchain [sic] is being more closely monitored than banking system [sic], to that I would say only partially. Monitoring and reporting only happens in some jurisdictions,” M. Gronager concludes.
"The perception that cryptocurrencies are anonymous is largely myth. The corollary that cryptocurrencies are mainly used to launder money is grossly-overstated and unsubstantiated. The ability to trace past transactions render virtual currencies highly unsuitable for money laundering,” said Siân Jones, founder of EDCAB - the European Digital Currency & Blockchain Technology, at the recent European Parliament Committee hearing on virtual currencies.
As she pointed out, the best estimates of global money laundering, according to UNODC and the Financial Action Task Force, are around $1.6 trillion, or 2.7 per cent of global GDP, in 2009. The total dollar value of cryptocurrencies is around $7 billion. “Detailed analysis of bitcoin blockchain - made possible by its inherent transparency allows us to deduce that virtual currencies account for something considerably less than 100,000th of 1% of global money laundering.”
“According to a recent Europol report, €500 notes account for 30% of the €1 trillion banknotes in circulation, despite not being a common means of payment. It would not take much to conclude that the Euro is at least 92 times more likely to be used in money laundering than virtual currencies.”