Uncovering the US digital currency terrorism case, affecting 12 major US exchanges

In the global anti-terrorism field, cutting off the terrorist-related funding chain has always been an important part of anti-terrorism work, and terrorists have also used various means to deal with modern financial regulatory measures. Now, digital currency is becoming their new fundraising and money laundering tool.

Just this month, the U.S. Department of Justice announced its high-profile verdicts on several terrorist organizations' use of Bitcoin for fundraising and money laundering, and released more detailed information, which may help us understand the role of Bitcoin in terrorist-related incidents.

what happened?

On August 13, local time in the United States, the U.S. Department of Justice disclosed on its official website that it had investigated cases of terrorist organizations raising funds and laundering money through digital currencies, and the seized digital currencies involved more than 2 million U.S. dollars.

According to the information released, the terrorist organizations involved in the cases in this trial include:

al-Qassam Brigades

al-Qaeda

Islamic State of Iraq and the Levant (ISIS)

I believe that friends who pay a little attention to international news will be familiar with these organizations.

What is the background of the case?

This case is actually a phased result of the U.S. security department's long-term investigation into terrorists' use of digital currency to raise funds. The U.S. Department of Justice also took this opportunity to further introduce the current situation of terrorists using digital currency to raise funds and launder money.

In related news and documents, the U.S. Department of Justice provided several terrorist fundraising images to illustrate their forms, and we processed the parts involving addresses.

Relevant documents from the U.S. Department of Justice also mentioned that after raising funds through digital currency, terrorists often further conduct money laundering on the chain, and some digital currencies will eventually flow to digital currency exchanges.

In addition to fundraising and money laundering through digital currency, this case also revealed that during the COVID-19 pandemic, terrorists set up websites selling protective masks and conducted fraudulent activities to raise funds.

What did the U.S. Department of Justice disclose?

In addition to a general introduction to the case, the U.S. Department of Justice also released the court documents for the trial of the case. This 87-page document records the relevant evidence and the process of related illegal activities.

As for digital currency-related data information, the document contains various information including recharge address, user ID, registration email address, etc. in the part involving digital currency exchanges.

Judging from the address format disclosed in the document, they are all Bitcoin addresses. However, the document does not disclose the information of the exchange involved in the case, does not disclose the information of the institutional entity (exchange) corresponding to the relevant addresses, and does not provide further analysis information on the transactions and relationships of the relevant addresses.

What other information can be mined?

According to the public information of this case, Beijing Lian'an also conducted further analysis through the Chainsmap on-chain data analysis system. From the addresses disclosed in the documents, it can be seen that there are 127 independent addresses related to terrorism and 44 addresses related to terrorism in 12 exchanges.

We found that these 12 exchanges include almost all mainstream US exchanges and services, such as Coinbase, Bitstamp, Xapo, and Bittrex, which fully demonstrates the extensive impact of illegal activities related to digital currencies on the industry.

From the independent addresses related to terrorism, after correlation analysis, many of them are actually owned by the same controller. For example, we found that 46 addresses belong to one wallet. Usually, fundraisers will collect small amounts of Bitcoin through these addresses, or even use an address only once. The relevant transaction may even be as small as 0.00078 BTC. However, through continuous accumulation, considerable funds can still be raised.

In terms of time, the main activities of the relevant independent addresses were between March and June 2019. From the source of Bitcoin, in addition to independent addresses, there are also transactions directly transferred from exchanges such as Coinbase and Xapo.

By analyzing the flow of relevant bitcoins involved in the case, we also found that many of the addresses pointed to by small-amount terrorism-related bitcoin transfers had large flows in 2019. For example, we found that a batch of small-amount bitcoins from independent terrorism-related addresses flowed into a certain exchange after being aggregated into 0.6 BTC. The corresponding user deposit address had a bitcoin flow of 40 BTC in 2019, and the active time was highly consistent with the active time of the relevant terrorism-related addresses.

From this perspective, the scale of digital currencies involved in terrorism disclosed by the U.S. Department of Justice is just the tip of the iceberg, and this will be a long-term technical task. As the current hub of digital currency transactions, the inflow of digital currencies involved in crimes, organized crime, and terrorism is almost inevitable for exchanges. The key is to conduct professional anti-money laundering work, conduct due diligence and file preparation on the sources of relevant digital currencies, and actively cooperate with the investigation of local judicial departments. This will also be the only way for digital currency-related industries around the world to comply with regulations.