Despite its near-complete loss of territory, the terrorist organization ISIS is estimated to have “tens of millions” of dollars — cash generated from kidnappings and extortion, but also aided to some extent by supporters who use cryptocurrency.

The Department of Treasury, which co-leads the international Counter ISIS Finance Group with Italy and Saudi Arabia, reported last week [PDF] that ISIS makes its money through “extortion of oil smuggling networks,” “kidnapping for ransom targeting civilian businesses and populations,” “looting,” and “possibly the operation of front companies.”

In addition to those traditional money-making tactics, Treasury said ISIS supporters also “relied on cryptocurrencies and online fundraising platforms.” The report did not provide an estimate for how much money had been raised using cryptocurrencies, and some experts have been skeptical in the past of cryptocurreny’s popularity among terrorist organizations.

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Still, Treasury releases quarterly reports about ISIS financing to the Department of Defense Inspector General, and the latest is the third to mention the digital currency. The first to do so appears to be a report [PDF] from October 2020, in which officials said, supporters “increasingly relied” on the digital currencies. (That report also noted that Treasury was having a harder time tracking ISIS’s finances during the pandemic, with fewer officials working in-person and therefore fewer able to access classified systems.)

In each case cryptocurrency is only briefly mentioned, but the October report came just two months after the Department of Justice announced the “largest ever seizure of terrorist organizations’ cryptocurrency accounts.” The DOJ said it had shut down “three terrorist financing cyber-enabled campaigns” purportedly supporting Hamas, al-Qaeda and ISIS, in part through cryptocurrency fundraising.

“It should not surprise anyone that our enemies use modern technology, social media platforms and cryptocurrency to facilitate their evil and violent agendas,” then-Attorney General William Barr said at the time.

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In its most recent report, Treasury said it didn’t know how much money ISIS had distributed to its fighters during the latest quarter, but said the group “probably has tens of millions of U.S. dollars available in cash reserves dispersed across the region.”

To move the money, Treasury said ISIS used money services businesses, including hawalas, to move funds in and out of Iraq and Syria, as well as “logistical hubs” in Turkey and “other financial centers.” Hawala is what Treasury calls "an alternative or parallel remittance system” that “operates outside of, or parallel to, traditional banking or financial channels.”

Also last week Treasury designated three people and one entity in Turkey and Syria for allegedly playing a “crucial role connecting ISIS with a network of international donors and enabled ISIS to access the financial system in the Middle East.” There was no mention of cryptocurrencies in that announcement.

Back in 2018, lawmakers held a hearing on terrorist financing in which cryptocurrency was a new, but not established way for terrorist organizations to fund operations.

“Cryptocurrencies and blockchain technology are not innately illicit and should not be feared,” said witness Yaya Fanusie, Director of Analysis for the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance. But, he said, they were “becoming part of the illicit financing toolkit available to terrorists.”

Just, not yet, he said, despite the best efforts of some forward-thinking online fundraisers.

“…[T]heir efforts thus far have not been very fruitful, probably because cryptocurrency’s technical complexities, extremist preference for cash, and the traceability of most public blockchain protocols deters wider use,” Fanusie said then.

But as cryptocurrency becomes more and more accepted by the general public, Fanusie predicted its acceptance in extremist circles would follow.

“Terrorist adoption of cryptocurrencies, in a way, simply mirrors that of the general public,” he said. “This also means that if public cryptocurrency adoption increases, terrorist groups will probably begin to transact more with digital tokens.”

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