Tech

CTED Technology Sessions: Highlights on “Threats and Opportunities Related to New Payment Technologies and Fundraising Methods” | Security Council

Published

7 months ago

12 July, 2024

Terrorists are neutral and adaptable to technology. As technology rapidly evolves, terrorists are increasingly abusing financial services facilitated by new and emerging technologies, including in response to increased monitoring and controls in the formal financial system. The scope and types of abuse vary greatly depending on the regional and economic context, and the terrorists’ stated objectives in terms of sources and methods of financing.

In its resolution 2462 (2019)The United Nations Security Council recognized that innovations in financial technologies, products and services can offer significant economic opportunities but also pose the risk of being misused, including for terrorist financing. In this regard, it reiterated its concern about the continued use by terrorists and their supporters of information and communications technologies to finance terrorist acts, and further expressed grave concern that terrorists and terrorist groups raise funds through, inter alia, crowdfunding and may move and transfer funds through the use of emerging payment methods, such as prepaid cards and mobile payments or virtual assets.

It therefore called on all Member States to assess and address the potential risks associated with virtual assets and, where appropriate, the risks of new financial instruments, including but not limited to crowdfunding platforms, which could be abused for terrorist financing purposes and to take measures to ensure that providers of such assets are subject to anti-money laundering (AML) and counter-terrorist financing (CFT) obligations. It also called for the full use of new and emerging financial technologies and regulations to enhance financial inclusion and contribute to the effective implementation of AML/CFT measures.

During the CTED-led technical sessions held in virtual format on 23 and 26 September 2022 in view of the special meeting of the Counter-Terrorism Committee on counter the use of new and emerging technologies for terrorist purposesMore than 20 experts from international and regional organizations, national authorities, civil society, academia and the private sector discussed:

global and regional trends in the misuse of new payment technologies and fundraising methods for terrorist financing purposes; and

2. the opportunities offered by new technologies to make CFT responses more effective.

Examples of methods of raising funds for terrorist purposes include the abuse of social media services, including social networking services (used to solicit donations via traditional payment methods), content hosting services, online merchandise sales (with a clear shift from fiat payments to cryptocurrencies), and crowdfunding platforms (which often disguise the use of funds for charitable or humanitarian causes). Despite repeated public warnings about the misuse of social media and crowdfunding platforms by terrorists for financial activities, neither the enforcement of terms of service nor internal monitoring mechanisms based on these provisions appear to have improved significantly on these global platforms. There is a continuing need to address fundraising loopholes, such as the “super chat” feature or the advertising and monetization of brands in conjunction with terrorist content.

While cash and Hawala transfers remain the most prevalent methods used by terrorists to store and move money, there is also an increase in their use in conjunction with new payment methods. Terrorists have also been known to abuse mobile payment systems, virtual assets (including Bitcoin, lesser-known cryptocurrencies, and privacy coins), and online exchanges and wallets. Blockchain, cryptocurrencies, and crowdfunding sometimes present a more complex money trail for financial investigators to follow. Some of these products can enable anonymous cross-border peer-to-peer fund transfers, which can occur without the involvement of a virtual asset service provider (VASP). These risks are compounded by the growing number and types of VASPs and the persistent gaps in their regulation and oversight. Implementing AML/CFT measures is becoming more difficult with the growing use and materiality of decentralized finance (DeFi), non-fungible tokens (NFTs), and unhosted wallets.

Regulation is further complicated by the global nature of the cryptocurrency ecosystem. Companies providing digital finance services in a given country may not be domiciled or registered in that country, so global regulation is needed, but it must be implemented in a coordinated manner. This has been described by the Financial Action Task Force (FATF) as a “dawn problem” with respect to the impact of inconsistent implementation of the “travel rule” across jurisdictions, resulting in some VASPs interacting with foreign counterparties without similar requirements.

In recent years, some countries have begun to regulate the virtual assets sector, while others have banned virtual assets altogether (however, issuing a ban statement is not always followed by implementation). There is also some evidence of increasing maturity in both the analytical tools needed to identify suspicious activity involving blockchain transactions and the regulatory frameworks that require reporting to authorities. However, so far, most countries have not begun to regulate the sector. These gaps in the global regulatory system have created significant loopholes that criminals and terrorists can abuse. Of the 98 jurisdictions that responded to the FATF survey in March 2022, only 29 have passed relevant laws, and a small subset of these jurisdictions have begun to enforce them.

New technologies also have the potential to make AML/CFT measures in both the public and private sectors faster, cheaper and more effective. When used responsibly, technology can facilitate data collection, processing and analysis and help actors identify and manage terrorist financing risks more effectively and closer to real time. Collaborative analytics can help financial institutions better understand, assess and mitigate money laundering and terrorist financing risks. They can also help prevent criminals from exploiting information gaps by pooling data from multiple national and international financial institutions. Available technology and data, including blockchain intelligence, can be used to map illicit financial networks and track and report suspicious activity.

Strong public-private partnerships (PPPs) are essential to share information, understand evolving trends, increase knowledge and expertise of relevant experts, and strengthen the integrity of the financial sector. Such partnerships should include dialogue between financial intelligence units and the relevant FinTech sector regarding data sharing as part of suspicious activity reporting. With regard to social media, such PPPs help ensure that social media companies’ CTF efforts are informed and effective. PPPs have also served as a useful forum for authorities to disseminate regular guidance to the private sector. Partnerships with the private sector also present opportunities to foster meaningful civil society engagement, aimed at ensuring that such partnerships do not infringe on financial inclusion and civic space.

Discussions also frequently highlighted the need to ensure that unintended consequences and impacts on human rights and legitimate activities, including non-profit organizations and civil society, are adequately protected. A multi-stakeholder approach involving relevant national authorities, the private sector, civil society and academia is essential at all stages, from assessing risks and threats, to developing response measures, to conducting reviews and impact assessments.

Helpful resources on the topic covered during the sessions include: