According to an article in CCN today, a person who may be a supporter of HAMAS, a listed terrorist organization, allegedly took to social media – in particular Twitter – to solicit financial support with Bitcoin. The Twitter account is still operational even though, if the story is accurate, the tweet constitutes an attempt at terrorist financing given that HAMAS is a listed terrorist organization. There is no way provided in the tweet to send Bitcoin except that the tweet contains a photo of the Shehab News Agency. The US government and others believe HAMAS is materially funded by Iran, although there continue to be debates about their closeness.
The article on CCN mentions the foray of Iran and other states into digital currencies, a topic that we covered in the past here, here and here. There is a concern that Bitcoin and other digital currencies, as well as currencies derived from mining, can be used for financial crimes, including sanctions avoidance and terrorist financing without visibility on the part of the banking partners or law enforcement agencies.
That is because digital currency exchanges, to the extent they are used, are largely unsophisticated in financial crime and in on-boarding at the standard we use at financial institutions; and even if a few have competent AML/CTF procedures in place that are operational, they have no control over the actual control of external wallets which hold digital currencies.
With respect to mining, they cannot know who is mining what where when or how, or where the digital currencies mined are sent. Added to which, several countries are creating initial coin offerings to engage in sanctions avoidance and a Vancouver digital currency currency is known to have listed and traded a digital currency called the NEM, whose platform the Venezuela government said it was using for sanctions avoidance, which opens it up to similarly listing and conducting financial transactions for the Venezuela Petra coin. Not just that, the Vancouver digital currency exchange transacted not just in any NEM, but stolen NEM that was proceeds of crime.
A number of Bitcoin people are relocating to Malta because it is ICO-friendly and has extremely relaxed money laundering controls, as well as at least one questionable banking connection to Iran and Venezuela – not unsurprisingly, the same two countries working feverishly on sanctions avoidance strategies with digital currencies.
Digital currency exchanges and banks that bank them should refresh their memory in respect of what I call crystal ball liability when it comes to terrorist financing, namely that if you provide banking or digital currency exchange services and the resulting funds in the hands of the recipient are used to harm US citizens in another continent during a terrorist attack, you are liable. And for triple damages. I’ve heard Canadian banks and often their external lawyers say for years that crystal ball liability does not apply to Canadian banks because they are not US banks but even if that is true, which it is not in the case of the big banks who have large US operations, correspondent banking law makes Canadian banks subject to crystal ball liability. The demise of the Wegelin Bank, founded in 1751, over what amounted to an incorrect external legal opinion on correspondent banking, is an important case for all non-US banks and digital currency exchanges to keep in mind.