(De)Securitising Technological Innovation: Terrorist Financing, Virtual Currencies, and the Realm of Security Virginia Romero Sánchez-Herrero M.A. International Conflict Studies Supervisor: Professor Ken Young Date of Submission: 28th August 2018 Word count: 14,991 i Abstract A perceived risk in terrorist use and adoption of virtual currencies over the past few years has driven the widespread notion that this financial innovation represents a threat to security. This dissertation addresses this issue, examining the security implications associated to the rise of this technology. It argues that the risks of terrorist exploitation are in fact limited, these being primarily confined to their sporadic and ad hoc use as opposed to their adoption as a sustained financing method. Moreover, it contends that a number of practices have ultimately led to the ‘securitisation’ of this issue, or its framing in the logic of security and emergency, justifying for increased state control over virtual currencies. The dissertation first presents an overview of this question to subsequently sketch out a theoretical framework based on a critical approach to security. It then considers patterns and methods of terrorist financing to help situate virtual currencies in this context, arguing that some of the alleged benefits offered by this technology are limited. In consequently considering the case of ISIL, it determines that the organisation’s current financing needs are best served by their established methods and not virtual currencies. The final section then returns to the question of security, showing that a number of practices have resulted in the gradual securitisation of this technology, and advocating for its de-securitisation, or its negotiation in the political realm and not one defined by the logic of emergency. ii Table of Contents Abstract……………………………………………………………………….…….……..ii Declaration………....………………………………………………………….….…….....iv List of Abbreviations…………………………………………………………..………......v 1. Introduction………..…………………..……………………………….…….......1 2. Security as Practice.…..………………………………..………………..….........9 3. The Financing of Terrorism and Virtual Currencies.………....….………..…15 4. Case Study: The Financing of ISIL…….……………………..…..…….…...…26 5. Critical Security and Virtual Currencies….………………………….…..........33 6. Conclusion…..…………….…….…………...……………………………...……38 References………………………………………………...……………………...............40 iii Declaration This dissertation is the sole work of the author, and has not been accepted in any previous application for a degree; all quotations and sources of information have been acknowledged. I confirm that my research [ ] did or did not [x] require ethical approval. I confirm that all research records (e.g. interview data and consent records) will be held securely for the required period of time and then destroyed in accordance with College guidelines. (The department will assume responsibility for this if you send your research records to the Senior Programme Officer) [ ] Yes Signed _______Virginia Romero_____________ Date ___28/08/2018________ iv List of abbreviations AML Anti-Money Laundering CSS Critical Security Studies CTF Counter-terrorist Financing DLT Distributed Ledger Technology ETA Basque Homeland and Freedom FATF Financial Action Task Force IRA Irish Republican Army ISIL Islamic State of Iraq and the Levant KYC Know-Your-Customer PLO Palestine Liberation Organisation RMB Renminbi (Chinese Yuan) RUF Revolutionary United Front TATP Triacetone Peroxide UNSC United Nations Security Council VC Virtual Currency v 1. Introduction On September 15, 2008, as financial services firm Lehman Brothers filed for bankruptcy, the reality of a global financial crisis unparalleled since the 1930s’ Great Depression began to crystallise. Mere months later, in November 2008, Satoshi Nakamoto’s whitepaper Bitcoin: A Peer-to-Peer Electronic Cash System first appeared online. Echoing a growing loss of faith in the international financial and banking system, Nakamoto outlines the need for a network able to process electronic payments without financial institutions acting as ‘trusted third parties’ (2008:1). As its proposed alternative, it details a secure electronic payment system based on cryptographic principles rather than trust, one relying upon a peer-to-peer computer network validating and executing transactions in a tamper-proof manner (Bruhl, 2017:6). Nakamoto effectively devises a framework to facilitate instant payments, enabling parties to transact directly without the need for institutional intermediaries to validate transactions, whereof the currency employed constitutes a virtual representation of value. Since its inception in January 2009, Bitcoin, like many other successive virtual currencies (VCs) developed on its open source code, has attracted a growing global interest. While the current total VC market capitalisation is estimated at approximately $255 billion as of June 2018, the price of Bitcoin has soared, increasing by almost 6,000% over the past 5 years (Yahoo! Finance, 2018). Like Bitcoin, the value of VCs resides in their acceptance by people as common mediums of exchange and, despite remaining far from extensively adopted, these have been sanctioned by increasing numbers of enterprises and businesses, speaking to their merits and applications. Among such benefits, proponents contend, are the speed of international transfer, degree of anonymity, and their characteristically decentralised nature. In utilising VCs, parties can transact privately, quickly, and cheaply with independence from financial institutions, allowing for the monetisation of goods and services online, the inexpensive transfer of funds across borders, and the prevention of corruption and fraud (Brito and Castillo, 2013). Yet, whilst the benefits offered by VCs appear manifold, their purported risks have increasingly attracted worldwide attention. Concerns are numerous, and range from fears that VCs provide common criminals with opportunities for financial criminal activity, to their attractiveness for cybercriminals and drug dealers alike. In fact, as the UK’s HM Treasury contends in a 2017 report, it is commonly accepted that such risks are high, particularly 1 because of the role of virtual currencies ‘in directly enabling cyber-dependent crime’ (Jones, 2018:44). Nonetheless, perhaps the most compelling of the alleged risks associated with VCs is their appeal for terrorist and extremist organisations across the globe (Carlisle, 2017). Because of their benefits (relative anonymity, speed, independence from the established international financial system…), a common concern is their potential exploitation for terrorist financing purposes. On this matter, several influential organisations argue that the use of VCs by terrorist organisations ‘should be’ considered first in the ‘hierarchy of financial crime threats’ (Centre for a New American Security, 2017), given that these ‘present governments with new national security challenges and terrorist groups, criminals, and rogue states with opportunities’ (Council on Foreign Relations, 2018). In many ways, VCs have undoubtedly become firmly placed within what may be simply called the realm of ‘security’. Although this narrative provides a convincing account of the potential for terrorist exploitation based on the alleged benefits of this technology, the extent of such risks remains unascertained. Clearly, any emerging and disruptive technological innovation is likely to bring about certain challenges and opportunities for a number of actors. Yet, should the international community consider VCs, as some suggest, the ‘next generation of terrorist financing’? (Brill and Keene, 2014:7). Do VCs facilitate the funding of terrorism? Will they in the future? Should VCs constitute a ‘security priority’ within this context? In short, this dissertation scrutinises the security implications associated to their rise, specifically within the context of terrorist financing. 1.2 The Literature The question of terrorist use of VCs for financing purposes has been discussed in the literature to a certain degree, but determining the extent of the threat has thus far proven far from straightforward. Although there exists a near-consensus that VCs possess unequivocal appeal for terrorist actors and common criminals alike, their associated risks have only been tentatively examined and, because of the emerging nature of this phenomenon, the literature considering the relationship between VCs and terrorist financing remains somewhat scarce. In what follows, this review examines the existing body of scholarly literature on the broad subject of terrorist financing. It first presents an overview on the state of knowledge regarding how terrorist organisations finance their activities and operations, to subsequently 2 consider academic enquiries into the international community’s corresponding countermeasures. It then appraises existing research on the topic of VCs and the threats these pose from a terrorist financing/counter-terrorist financing perspective. a. Terrorist Financing With a few notable exceptions, the subject of terrorist financing remained largely unexplored in the pre-9/11 era. In exploring the cases of the PLO, the IRA, and the Red Brigades, Adams (1986) presents terrorist financing as resulting from numerous activities, from kidnapping for ransom, narcotics and smuggling, to government funding, charitable donations, and complex commercial enterprises. Similarly, ensuing studies point to the funding of terrorist organisations by non-state actors such as diaspora and refugee communities in the post-Cold War context (Byman et al., 2001). Terrorist financing is thus understood as a complex enterprise whereby organisations raise, move, store, and use funds through a range of activities. In the wake of the September 11 attacks, the research into how terrorist actors finance their activities significantly expanded, mirroring a concurrent burgeoning interest in the broader critical terrorism studies field (Ridley, 2012). Numerous post-9/11 studies build on the knowledge concerning the sources and methods of terrorist financing. Schneider (2004) and Olsen (2007) reveal the role of the shadow and underground economies in financially supporting Islamic terrorism, while Ehrenfeld (2005) emphasises the importance of charitable donations, and the narcotics trade, for the financing of Al-Qaeda, Hezbollah, and Hamas. In examining how the movement of funds is managed, the exploitation of the hawala system of informal payments has been linked to an inexpensive, fast, and traceless transfer of funds (ElQorchi,.2002; McDowel,.2002; Muller,.2006; Vaccani,.2009). Alternative fund dispersion methods such as ‘starbust’, the depositing of smaller amounts into multiple bank accounts, is also associated to organisations like Al-Qaeda (Schneider,.2004). An issue often debated is the extent to which terrorist groups exploit the formal international financial system. Some emphasise that terrorist financing relies on the regulated financial system and that its methods largely resemble those of money laundering (Masciandaro, 2004). Others illustrate the adjustment of financing methods in the post-9/11 era to avoid detection by authorities (Bierstaker and Eckert, 2007). Consequently, scholars increasingly highlight the importance of further analysing terrorist use of both formal and 3 informal banking systems (Raphaelli, 2003; Abuza, 2003; Acharia, 2009), arguing that understanding the economics of different sources of funding for organisations is essential, as these activities largely involve the regular economy (Wittig, 2011). There is therefore a growing sense that terrorist financing ought to be considered in the context of groups’ individual principles (Clarke, 2015), thereby meriting judgement on an independent basis (Tupman,.2009). In a theory-driven analysis, Freeman (2011) offers a useful taxonomy of the sources of terrorist funding, classifying these into 1) state sponsorship, 2) illegal activity, 3) legal activity, and 4) popular support. In recent years, studies point to the relatively inexpensive nature of contemporary terrorism (Walters, 2003; Lutz and Lutz, 2011; Neumann, 2017), a paradigm deriving from the low manufacturing costs of widely-used improvised explosive devices (Ridley, 2012), and the low operational costs of vehicle-ramming attacks. This idea is challenged, however, alluding to the costs of terrorism far from being limited to those of attacks, often drawing a useful distinction between operational and organisational expenses (Acharya, 2009). As analyses indicate, organisational costs incurred to support such infrastructures include training, salaries, promotion efforts, equipment, and materials (Ayers, 2002; Waszak, 2004; Levitt, 2007; Freeman, 2011). From a theoretical perspective, Vittori (2011) emphasises terrorists’ resourcing capabilities as an indicator of operational ability and longevity; offering a three-fold typology of assets: 1) money and other liquid assets, 2) tangible goods, and 3) intangible goods like knowledge, training, and intelligence. b. Counter-terrorist Financing Paralleling the growing interest on terrorist financing, the global counter-terrorist financing regime has increasingly become the subject of academic scrutiny. Some provide in-depth historical accounts of these measures, from the emergence of the Financial Action Task Force (FATF), to the International Convention for the Suppression of the Financing of Terrorism in the years leading up to 9/11 (Lavalle, 2000; Winer, 2002; Kersten, 2002; Freeland, 2002). Since these attacks, efforts have also focused on the expansion and reform of this regime within the context of the war on terror (Jayasuriya, 2002; Levi, 2010; Rider, 2015), particularly the US role (Walters, 2003; Zagaris, 2013), the EU’s (Unger et al., 2014; Bures, 2015), and continuities and ruptures with past approaches (Navias, 2002). 4 Beyond these descriptive contributions, debate has centred on the merits, successes, and failures of the global counter-terrorist financing regime. Some contend that it provides a normative framework instilling the system with international and regional legitimacy (Beekarry, 2013); and that the Customer Due Diligence and know-your-customer (KYC) measures at its heart are fundamental for effectively targeting terrorist financing (Freeland, 2002). Others conclude that such countermeasures constitute the most successful initiatives in the fight against terrorism (Clunan,.2005), largely considering these essential in preventing their funding (Levit,.2007;.2011), what is perceived as critical as tackling their operations (Abuza, 2003). Despite these endorsements, some argue that the counter-terrorist financing regime is inherently flawed and ineffective due to its merging with incompatible anti-money laundering (AML) policies (Kersten,.2002; Zagaris,.2002; Roberge,.2007; Sinha, 2013). Besides, the lack of enforcement of these global standards (Waszak,.2004; Winer, 2008); their inconsistent implementation (Pieth,.Thelesklaf.and..Ivory,.2009); the absence of cooperation among individual states (Acharya,.2009); definitional disagreements concerning terrorist financing itself (Rider, 2004; Alzubairi,.2017); its widespread misunderstanding (Goede, 2012; Neumann, 2017) as well as organisations’ bureaucratic politics and internal tensions (Heng and McDonagh,/2008;/Rider, 2013;/Tsingou, 2013), have all been singled out as issues for concern. Overall, consensus on the steps required moving forward has not been reached. While some propose the regime’s reform and expansion (Weschler, 2001; Raphaelli, 2003; Walters, 2003; Rider, 2004), or the more stringent enforcement of existing laws and international cooperation (Allen, 2003; Myers, 2005; Winer, 2008), others question its raison d’être, advocating for initiatives grounded upon a greater understanding of terrorist financing itself. These approaches contend that because terrorist organisations largely conduct their funding operations outside of the established international financial system (Freeman, 2012; Neumann, 2017), the current regime proves misdirected. Said lack of consensus perhaps derives from the disjointed rubric employed in determining what counts as successes and failures in the context of these initiatives, what has ultimately hindered research in this area. c. Terrorist Financing & Virtual Currencies The literature on terrorist and counter-terrorist financing suggests that understanding the particularities behind the financing of diverse groups is essential for the formulation of 5 effective responses - including those encompassing the regulation of VCs - to adequately address such concerns. However, while there exists a near-consensus that VCs possess an unequivocal appeal for terrorist organisations, risks have only been tentatively examined. Although general texts to VCs provide relevant insights (Lee,.2015; Gatto and Broeker,.2015), most studies superficially consider this dimension within the broader context of terrorist use of virtual spaces (Keene, 2011; Ashley, 2012; Irwin et al., 2014; Tierney, 2018); or that of the criminal exploitation of VCs more generally (Trautman, 2014; Carlisle, 2017). Moreover, those centring on VCs and their alleged risks and regulations tend to adopt an anti-money laundering perspective, with a lack of direct reference to the question of terrorist financing (Singh, 2015; Vandezande, 2017). Although a few studies do focus on this specific issue, findings are informed by speculative analyses of VCs themselves and the incentives and mechanisms they allegedly provide for illicit financing (Brill and Keene, 2014); sporadic instances of their exploitation by scattered terrorist cells and individuals (Irwin and Millad, 2016); or future-oriented hypothesis as to advocate for stringent regulations (Goldman et al., 2017). In this respect, studies predominantly neglect the process of terrorist financing itself and particularities across organisations, as well as the broader literature on the subject. Therefore, existing scholarly research considering exploitation of VCs for the financing of terrorism cannot conclusively determine whether or not VCs ought to be considered a priority for those leading the international fight against the financing of terrorism. 1.3 Research Design, Approach, and Structure One could determine the extent to which VCs constitute a security threat by gathering data on terrorist use of VCs over a substantial period of time, as to conduct a large statistical analysis to determine the probability of increased adoption by extremist groups. However, given the significantly opaque nature of both terrorist financing and VCs, obtaining a statistically significant and reliable dataset proves challenging. Moreover, this quantitative approach would fail to adequately or fully address the paramount notion of ‘security’, leaving aside fundamental conceptual and theoretical questions. Instead, by building on the Critical Security Studies (CSS) scholarship, its understanding of security, and its theorisation of securitisation, this dissertation puts forward 6 a critical interpretation of the security implications associated to the rise of VCs in the context of terrorist financing. In so doing, it problematises accounts that conceptualise VCs as the ‘next generation of terrorist financing’ and a ‘national security threat’. It posits, instead, that their association to the realm of security is one that has granted this issue ‘heightened priority’ thereby urging ‘the use of decisive action’ (Hansen,.2006:35); whilst obfuscating their legitimate uses and applications, and misrepresenting terrorist financing risks as imminent and crystallised rather than contained. Consequently, in line with the CSS field, the notion of security is hereafter understood as far from merely ‘the absence of threats to acquired values’ (Wolfers,.1952:485), but as ‘the product of social and political practices’ (Aradau et al.,.2015:1). The approach herein adopted may thus be classified as poststructuralist, being based upon the assumption that policies and ‘security practices’ are dependent upon ‘representations of the threat, country, security problem, or crisis they seek to address’ (Hansen, 2006:6). This theoretical framework offers the basis through which the rise of VCs and their association to the realm of security may be examined. Furthermore, although it is commonly argued that there exists an inextricable link between VCs and terrorist financing, this dissertation contends that such fears and concerns are, for the most part, unjustified. Specifically, in seeking to dissociate VCs from terrorist financing, this dissertation adopts an integrated twofold qualitative approach that encompasses both a theoretical and an empirical analysis. From a theoretical standpoint, it develops a framework that examines, on the one hand, notions of security ‘as practice’ and, on the other, the process of terrorist financing. Conversely, from an empirical perspective, it employs a case study approach to examine patterns and methods of financing associated to the self-proclaimed Islamic State of Iraq and the Levant (ISIL). Following Flyvbjerg (2006:.228), this case study is used as a representative example to produce generalisations that reflect on the issue of potential terrorist adoption of VCs more widely. While scrutinising ISIL patterns of financing, the analysis specifically considers the benefits of VC adoption against those of existing methods. It determines there is no clear incentive or benefit for the organisation to adopt VCs in lieu of its existing financing methods to, for instance, buy materials, transfer funds quickly between cells and individual members, to store funds, or to avoid detection by authorities - as it is commonly feared. In its approach, this dissertation offers a contribution to three main research areas. First, to the interest into VCs as an emerging subject of scholarly attention. Second, to the long-established CSS scholarship by incorporating this issue into its broad research agenda. 7 Third, to the academic field concerning terrorist financing through its examination of VCs within this context and the case of ISIL. Structure Consequently, in what follows, this dissertation suggests the dissociation of VCs from inherent terrorist financing risks whilst advocating for their de-securitisation. The following section, chapter two, considers notions of security, securitisation, and approaches to critical security analysis as to build a theoretical and conceptual framework to examine the emergence of VCs within the realm of security. Chapter three subsequently reflects upon the issue of terrorist financing whilst paying attention, in particular, to methods associated to the financing of terrorism, situating VCs in this context by drawing on the latter’s defining characteristics. Chapter four empirically reflects upon terrorist financing through the case of ISIL, and some of the group’s patterns and methods of financing as to show the limited desirability of adoption. The fifth chapter then draws from previous sections to examine the security implications analogous to the rise of VCs, arguing that these have been subjected to a broad process of securitisation while advocating for their de-securitisation. This dissertation concludes by addressing any foreseeable limitations and identifying opportunities for further research. 8 2. Security as Practice Scholarly enquiries seeking to evaluate the security implications associated to the rise of virtual currencies ought to be grounded upon a firm conceptual and theoretical understanding of the notion of security itself. What is security? What makes certain developments (and not others) ‘security issues’? How do these, as Balzacq (2011) puts it, ‘emerge and dissolve’? To answer these questions, this section draws upon the CSS field to examine notions of security and securitisation, and approaches in critical security. In so doing, it provides a framework that understands security as practice, or a set of interrelated processes through which the (in)security of situations is created within public consciousness. In short, the theoretical rationale that underpins the rest of this dissertation is delineated, representing the basis through which VCs’ association to the realm of security may be examined. 2.1 Evolving Understandings of Security For much of the twentieth century, the discipline of International Relations widely understood the notion of ‘security’ strictly in relation to the military-political milieu. According to this traditional understanding, ‘security is about survival’ and, in particular, that of the military defence of the modern state (Buzan,.Waever, and de Wilde, 1998:21). There exist a number of traditionalist and state-centric approaches to security1, each holding different assumptions on state behaviour and the factors taking primacy in explaining policy choices. Nonetheless, in considering security issues, these share a focus on the state as their basic unit of analysis, and on military power as the key independent variable accounting for ‘security-ness’. Reinforced through the Cold War’s ‘military and nuclear obsessions’ these are commonly referred to as ‘narrow’ approaches to the field, being restricted to ‘the threat or actual use of force between political actors’ (Buzan,.1998:2-3). Following an impulse towards the broadening of the security agenda in the 1980s by the Copenhagen School, the traditional meaning of security has become contested and reinterpreted. Barry Buzan’s seminal work People, States, and Fear (1983) presents security as multi-levelled, incorporating the individual and the international system as further levels of security analysis beyond that of the state. It also proposes an understanding of security extending into the political, economic, societal, and environmental sectors (Buzan, 1983 and 1 For a discussion of such traditionalist IR approaches see Smith (2005:27-62). 9 1991), convincingly making the case for a wider field. Indeed, by the 1990s, the end of the Cold War and the collapse of the Soviet Union gave impetus to this project for the widening of the security agenda. Such geopolitical developments brought into question the adequacy of traditional approaches to explain and make sense of the new emerging security landscape in Europe and elsewhere. Amid these developments, the security field experienced a shift away from a strict focus on state preservation to a wider concern with human well-being and thus an emphasis upon the security of the individual, giving rise to distinct ‘human security’ approaches (Hayden,.2004:40). For those in the Copenhagen School, the shift away from the state as the sole focus of analysis was similarly noticeable. Recognising the need to extend referent objects of security beyond that of the state for a ‘fully meaningful’, ‘multi-sectoral approach to security’ (Buzan, 1998:8), Waever et al. (1993) propose a dualist reconceptualisation of security, adding the notion of ‘societal security’ to that of the state. Societal security is therein defined as ‘the ability of a society to persist in its essential character under changing conditions and possible or actual threats’ (Ibid: 23) and, Waever (1995) explains, it is theoretically underpinned by the notion of identity and not sovereignty. In practice, in adopting this concept, the security concerns and dynamics encapsulated by a range of actors and institutions outside the realm of ‘the state’ and its formal representatives can be illuminated. Most importantly, in understanding security through both the dynamics of the security of the state and that of society more widely, this perspective refuses a conceptualisation of security as a defined concept possessing ‘independent, stable, context-free meaning’ (Ibid:3). Instead, from the perspective of the Copenhagen School and others within the broader CSS field, security represents a process, one whereby certain developments are moved from an area of regular politics into one of exception. In making this move, state representatives and societal actors take ‘politics beyond the established rules of the game’, framing issues ‘either as a special kind of politics or as above politics’ (Buzan, Waever and De Wilde, 1998:23). In this respect, central to critical security approaches is a shared understanding that ‘security threats and insecurities are not simply objects to be studied or problems to be solved, but the product of social and political practices’ (Aradau et al.,.2015:1). Building on the work of the Copenhagen School, contemporary understandings of security within the CSS field are concerned with a focus on security as a set of practices, seeking to determine how these work, as well as their social and political implications. In moving away from security in narrowly-defined terms, CSS approaches have become one of 10 the predominant ways in which the contemporary scholarship makes sense of security phenomena. This understanding of security, as a process and a set of social and political practices, is the one herein adopted. 2.2 Securitisation & De-Securitisation: How Security Issues Emerge and Dissolve In understanding security as a process instead of a given or defined value characterising situations, CSS approaches share a focus in seeking to make sense of the ways in which security issues emerge and dissolve within public consciousness. First coined by Ole Waever, the process whereby security issues emerge is known as ‘securitisation’. In essence, securitisation theory postulates that ‘no issue is essentially a menace’ (Balzacq, 2011:1), but that issues become security problems through a set of interrelated practices. As such, securitisation is constitutive and not just representative of threat phenomena, this process being an indivisible element through which issues come to be placed within the realm of security and outside the domain of regular political negotiation. Conversely, through processes of de-securitisation, issues are brought from the security sphere to (often, but not exclusively) the political milieu (politicisation), where these can be contested in the public domain (Waever, 2011:472). It is commonly accepted that processes of politicisation are more desirable than those of securitisation (Waever,.1995), given that whilst the latter tend to render the use of exceptional measures justifiable (if successful), the former bring the issues in question back to the realm of democratic politics (Aradau,.2004). Within the democratic political realm, such issues of concern and importance to human security can be negotiated by societal actors without the need to invoke the notion of security and thus the logic of emergency. Yet, how do processes of securitisation take place? What are the mechanisms whereby issues become securitised? Balzacq (2011) identifies two main variants of securitisation theory. The first regards securitisation as a ‘speech act’ and underpins the Copenhagen School’s approach. According to this first (deemed linguistic) variant, securitisation occurs when an issue is presented as posing an existential threat to a designated referent object (oftentimes the state, its government, territory, or society), thereby enabling an agent to treat the issue by extraordinary means (Buzan, Waever and de Wilde, 1998: 21,26). In this view, a securitisation move is successful if the speech act constructing some 11 development as a threat is accepted by the audience towards which it is targeted. Through this approach, securitising actors, referent objects, and discursive securitisation moves and their ramifications are identified and emphasised as to ascertain whether given social phenomena represent instances of securitisation. The second variant of securitisation theory is, for Balzacq (2011:1), one which recognises that ‘whilst discursive practices are important in explaining’ how security problems originate, ‘many develop with little if any discursive design’. In many ways, this second approach represents an expanded version of the original postulation of securitisation theory and the one most prevalent in contemporary critical security studies. According to this second perspective, securitisation is understood ‘as practice in the broadest sense’, including ‘discourses, ideas, power relationships, bodies of knowledge, techniques of government, technologies, and the linkages between them’ through which the ‘securityness of situations is created’ (Aradau et al., 2015:3). Arguably, in offering a holistic perspective of processes of securitisation through their multiple manifestations and elements beyond discursive practices, this second variant of securitisation theory effectively presents an understanding of the various practices through which securitising agents, contexts, and structures carry out and/or facilitate securitisation moves. Thus far, this chapter has provided a broad conceptualisation of security ‘as practice’ rooted upon the field of CSS. In so doing, it has argued that security issues emerge and dissolve through a process known as ‘securitisation’, one whereby developments are taken outside the domain of regular political negotiation and within one of ‘exception’. Moreover, it has argued that securisation ought to be understood as the result of sets of practices including but not confined to ‘speech acts’. In this light, I suggest, borrowing from the outlined perspectives when appropriate allows for a broader understanding of given instances of securitisation without the need to expressly favour one variant over the other. The chapter’s following and final section discusses two relevant approaches to securitisation theory within critical security analyses. 2.3 Critical Security Analysis For CSS scholars interested in understanding processes of securitisation, there exist two fundamental layers of analysis. The first concerns the identification of the issue referred to as 12 a security problem: one that should be both the subject of public attention or debate, as well as a target for activities relating to public opinion, legal, or political action (Balzacq, 2011:32). In the case of this dissertation, the issue under consideration is the threat allegedly posed by virtual currencies in the context of terrorist financing, an issue that satisfies both outlined criteria for identification. This is the case given 1) the sustained and increasing interest in the subject on the part of the media, academics, government representatives, and society more widely; and 2) the legislative and policy efforts towards which VCs have been subjected. The second aspect of security analysis entails determining ‘how to make sense’ of the issue under consideration, one closely related to research design. In other words, it represents the task of appropriately identifying the kinds of levels of analysis and tools used to investigate the issue at hand, in such a way as to illuminate the various facets involved in the process of securitisation being considered. Two approaches to critical security analysis are detailed below, each of which can be drawn upon to varying degrees as to analyse how VCs have become placed within the realm of security. Thierry Balzacq (2011) proposes an approach to securitisation theory that builds upon that originally developed by the Copenhagen School, and one divided into three main levels of analysis. The first level focuses on ‘agents’, or the actors and relations involved in the structuring of a given security situation. These include both ‘securitising’ actors, as well as the wider audience towards which securitising moves are directed (2011:35). The second level refers to ‘acts’, or those discursive and non-discursive practices underpinning the process of securitisation being scrutinised. These include any practices, tools, or policies that generate or are generated through the process of securitisation (Ibid:36). The third and final level of analysis is concerned with ‘context’, or the social and historical circumstances that help illuminate the given instance of securitisation (Ibid:37). As Balzacq explains, this approach offers analysts the ability to capture processes of securitisation by focusing on distinct sources, each of which can offer complementary explanations. In the context of VCs and the finance of terrorism, this approach can help illuminate a number of aspects. Namely, what is portrayed as being threatened by this technological development; the entities and practices responsible for the association of VCs to the realm of security; and, finally, the context wherein these processes have developed. A second relevant approach meriting attention is that found in Aradau et al., one to be 13 employed within the context of analyses concerning the ‘dangerousness of matter’; or how threatening non-human things come to be placed within the security agenda (2015:.58). This approach to critical security analysis is based on three ‘operationalisations’ of securitisation theory: dispositifs, performativity, and agency. For Aradau et al., a Foucauldian dispositif can be used as a device for ‘analysing how strategies of security governance are constituted, often in an unintended manner, through changing connections between seemingly unconnected elements’ (Ibid:64). In empirical analyses such as an examination of VCs, the dispositif can be used to understand how the binding of VCs to discursive tropes leads to the emergence of a defined security strategy comprised of various disparate relations. The second operationalisation is that of ‘performativity’, which can be employed as to specifically analyse how given ‘threats, objects and subjects’ are given ‘a seemingly fixed character’ through repetitions and reiterations (Ibid:70). In using performativity as a device, the distance between the discourse surrounding VCs and VCs themselves can be refused, thereby accounting for their co-constitutive relation (Callon, 2006:24, cited in Ibid). The final operationalisation is that of ‘agency’, takes the form of ‘distributed’ or ‘entangled’, and used to understand how the actions and capabilities of human and non-human things reflect upon the constitution of a security strategy. In other words, Aradau et al. (2015:75) explain, the difference between distributed and entangled agency can ‘be captured through the difference between ‘follow the object’ and ‘follow the event’. Thus, whilst distributed agency is concerned with tracing how the characteristics of particular things reflect on a wider security strategy, entangled agency examines how a particular event can illustrate the ways in which a set of elements converge into a wider security ensemble. Ultimately, the two outlined approaches can be employed within critical security analyses of VCs, as these point to disparate yet complementary elements that can help explain and account for the securitisation of this technology. This chapter sought to provide a conceptual and theoretical interpretation of security, by uncovering evolving understandings of this notion. It advocated for a broad conceptualisation of security as practice, and thus as a series of interrelated processes that define the ‘security-ness’ of given phenomena. Moreover, it put forth an account of securitisation theory as a lense through which to make sense of the processes whereby security issues emerge and dissolve. In exploring critical approaches to security analysis, it emphasised relevant tools which can subsequently be drawn upon as to examine how VCs have emerged within the realm of security. 14 3. The Financing of Terrorism and Virtual Currencies Having provided a theoretical and conceptual framework through which to examine the security implications associated to the rise of VCs, this chapter moves away from securitisation theory to discuss the central issue of terrorist financing. It begins by considering patterns in the financing of terrorism to subsequently discuss criteria for evaluating the desirability of specific methods. It then explores VCs and their potential for exploitation as one of such methods by detailing how their defining characteristics allow for terrorist financing exploitation. In sum, this chapter offers an account of the association of VCs to terrorist financing grounded upon 1) the process of terrorist financing itself, and 2) the defining attributes that characterise VCs. In so doing, it delineates some of the main concerns that are often alluded to when presenting this technological development as a threat to security. 3.1 Patterns of Terrorist Financing The FATF describes terrorist financing as a range of activities encompassing the various ways through which terrorist organisations2 ‘raise, move and use funds’ (2008:5). This understanding proves useful, recognising that terrorist financing is not limited to the sources through which organisations are funded, an aspect perhaps most frequently debated in the literature. Instead, it is useful to ask a number of general questions: Why do terrorist organisations need funds? How are these funds used by terrorist actors? What means and methods do they employ in the context of terrorist financing? A terrorist group requires a number of resources to not only fund its activities, but to endure and thrive as an organisation. Financial resources are essential for the success and resilience of terrorist groups, particularly at the point of inception, when these are needed to help attract and sustain support, and to develop significant material capabilities (Adams, 1986). In general terms, funds are required to promote the group’s ideology through propaganda efforts or social activities, to sustain militants and their relatives, to finance travel expenses and the recruitment and training of new members, to acquire weapons and safe 2 The critical terrorism studies literature remains divided on a conceptual understanding of this phenomenon (Crenshaw, 2000). Terrorism is herein simply understood as a strategy - a tactic used to obtain political gain from the use or the threat of the use of violence primarily against civilian populations (Hoffman, 2006; Richards, 2014). 15 houses, as well as for carrying out operations (FATF,.2008:7). Although the requirements of specific terrorist groups and actors vary according to their principles and internal characteristics, those considered essential for survival can be divided into three main categories: money, tangible resources, and intangible resources (Vittori,.2011:13-23). Money and liquid assets are needed to acquire tangible and intangible goods, as well as a means to store wealth. Tangible resources represent material goods possessing a monetary value, encompassing both equipment and varied infrastructures. Intangible resources (such as expertise, an ideological narrative, a command and control structure, training, and intelligence) are also necessary to ensure survival (Ibid). As mentioned, these will differ according to actors’ organisational structures, goals, and characteristics (Clarke,.2015). Despite diverse resourcing requirements, the financing needs of terrorist organisations can similarly be broadly divided into two main areas, according to where the spending necessity derives from. The first refers to organisational expenses, the funds required to maintain and manage the terrorist organisation’s infrastructure itself, regardless of its size; while the second concerns operational expenses, the costs associated with conducting attacks and operations (Acharya,.2009:24-28). According to the FATF, the costs of financially maintaining a terrorist network are ‘the most significant drain on resources’ (2008:8), an observation supported by the existing literature. While the costs of maintaining the infrastructure of a typical terrorist organisation represent 90% of its financial needs, those associated to the operational, day-to-day expenses incurred in planning and executing attacks generally represent a mere 10% of total financing costs (Brisard,.2002:7; Ehrenfeld,.2005; Acharya, 2009:24). In fact, there exists a near consensus regarding the notion that the costs associated with launching terrorist attacks are in themselves relatively small, particularly when considering the fact that large, active, terrorist organisations like al-Qaeda, Hezbollah, or the Taliban ‘have budgets that can range up to hundreds of millions of dollars per year’ (Freeman, 2012:9). For instance, highly-coordinated, strategic attacks such as the World Trade Center 1993 bombings, those of Bali in 2002, or of Madrid in 2004, have been estimated to have cost between $10,000 and $50,000 each (Passas,.2007:31); while recent home-grown terrorist attacks, such as those inspired by ISIL around the world since 2014, may have required as little as $100 (Levitt, 2017:4). These figures help illustrate the relatively low costs terrorist actors incur when undertaking operations. Notwithstanding these low operational costs, resourcing capabilities can indeed significantly impact upon their ability to support a wider group infrastructure (if applicable) 16 and, to a certain extent, the ability to successfully carry out attacks. Although most attacks will require small amounts of money, direct cost estimates often fail to account for overheads (Acharya,.2009:32). On this point, the impact of resourcing upon a terrorist organisation’s ability to carry out attacks is heavily dependent on the group itself. For example, a terrorist network such as Al-Qaeda, comprised of several interrelated cells globally, might suffer in its ability to carry out spectacular and co-ordinated operations if unable to fund its recruitment, planning, training, and procurement efforts (FATF,.2008:8). Conversely, a lone wolf attacker or isolated cell carrying out an inspired attack on behalf of an organisation without its direct support will ostensibly be less reliant upon financial resources to carry out an isolated, often inexpensive operation. This further speaks to the importance of considering terrorist financing activities within the context of specific groups and actors, given the diversity and complexity of terrorist actors themselves and their varying financing needs. 3.2 Terrorist Financing Methods & Criteria for Desirability Beyond general patterns of terrorist financing, it is important to consider some of the factors influencing the ways in which terrorist actors are financed. The advantages and disadvantages offered by given financing methods are, of course, dependent on the specific terrorist actor or organisation, whose chosen methods will ostensibly seek to maximise value3. As mentioned, methods of terrorist financing can be subdivided into three areas: the raising of funds, the moving of funds, and the use of funds. In broad terms, chosen methods in these key areas may account for questions of 1) volume, 2) reliability, 3) security, 4) speed, 5) cost, and 6) simplicity (Freeman,.2012; Freeman and Ruehsen, 2013). Two main categories of terrorist financing methods are briefly considered below in relation to the above-mentioned desirability criteria. 3.2.1. Raising funds The ways in which terrorist actors raise funds vary greatly across organisations, and given groups or cells often secure a wide-ranging portfolio of sources of funding. These can also change over time, as terrorist actors will tend to adapt their sourcing activities as a result of geopolitical or demographic developments, as well as counterterrorism strategies (Ranstorp 3 The issue of whether ‘terrorism works’ is contested. However, it is generally accepted that terrorist actors act rationally and strategically in seeking to achieve their goals. For discussions on these debates, see Crenshaw, 1987 and 2000; Kydd and Walter, 2006; Abrahms, 2011; and Ganor, 2015, among others. 17 and Normak, 2015). When considering sources of finance, terrorist actors will seek to secure as many funds as possible, what makes sources that provide a larger volume of funds more desirable (Freeman, 2012:10). For instance, in exploiting Sierra Leone’s rich diamond resources, the RUF derived an estimated $25 - $125 million in revenues associated to the diamond trade in the year 2000 alone (Napoleoni,.2005:187). Sources of finance that are reliable (predictable and consistent) are also favoured by terrorist organisations, who normally require a steady flow of funds as to underwrite their diverse operations (Ibid; Vittori,.2011:23). State sponsorship represents one of such reliable sources for Hezbollah, an organisation estimated to annually receive $200-$350 million from Iran, or the Taliban, historically chiefly funded by Pakistan and Saudi Arabia (Clarke, 2015:.78,119). Terrorist actors are also inclined towards sources that are secure, or those that carry less risks in drawing the unwanted attention of authorities, given the clandestine nature of their operations (Freeman and Ruehsen, 2013: 6). In this regard, numerous terrorist groups have historically profited from the revenues of legitimate businesses, which offer security advantages as states are limited in their possible countermeasures. For example, whilst the sources of financing for the Basque ethno-nationalist group ETA included kidnappings and extortion, the organisation also had a number of legitimate enterprises, such as a network of legal pubs and restaurants serving as meeting places for sympathisers (Buesa and Baumert,.2013:320). Another important question is that of simplicity: sources that ‘require fewer specialised skills, that require as little effort as possible’ and ‘that have simpler processes’ are more attractive than more complex ones (Freeman, 2012:12). One of such sources is popular support, an essential component of the financing of terrorist organisations of the likes of the IRA, the PLO or the Tamil Tigers who, for instance, relied upon the global Tamil diaspora as a major source of the organisation's fundraising efforts (Clarke,.2015:51). 3.2.2. Moving and storing funds For terrorist actors to effectively carry out their activities, funds must also be moved from the originating source to wherever these are needed as, ‘without targeted transfers, funds are useless’ (Hess cited in Acharya, 2009:70). In the context of methods of financing, funds are moved prior to being used and value transferred in two main ways: as a means to store value, or as a means to procure tangible and intangible goods (Vittori,.2011). This transfer and storing of value normally involves the formal international financial system (such as bank 18 transfers into disguised accounts), the physical movement of money (like cash couriers), the international trade system, or alternative remittance systems like the hawala network (FATF, 2008: 21-24). Similarly to the sources of finance, the methods whereby terrorist actors move funds are highly dependant upon the internal characteristics and requirements of specific groups and organisations, and these will often vary according to the particular purpose why money is being moved and stored4. In determining how terrorist actors choose to transfer and store value, the desirability of possible methods may also be determined with reference to the outlined criteria. Regarding volume, those methods that enable terrorist groups and individuals to move and store ‘more money with each transaction mak[e] it easier for terrorist groups to fund an operation’ (Freeman and Ruehsen, 2013:6). For example, while the formal banking system can theoretically allow for infinite funds to be transferred between accounts, the transfer of large quantities in a single transaction is likely to alert financial authorities. A further aspect is that of reliability, or the extent to which different methods ensure funds are transferred and stored ‘accurately and completely’ without presenting substantial risks, such as government seizure, or theft (Ibid). The hawala network is considered an efficient and cheap method of terrorist financing, and one linked to a number of Islamist groups, such as the Lakshar-e-Taiba in Pakistan (Kambere et al., 2012:84) or the Taliban in Afghanistan (Reese,.2012:106). Concerning speed, methods enabling funds to be moved quickly and efficiently are more desirable than those that do not. On this point, while hawala and bank transfers enable the fast transfer of funds, couriers will require time, particularly if moving cash across multiple jurisdictions (Freeman and Ruehsen, 2013:7). Finally, with reference to simplicity, ‘everything being equal, terrorists would prefer methods that require the fewer number of steps, the lowest level of technology, and the least amount of skill’ (Ibid). Ultimately, because specific methods of financing carry both advantages and disadvantages (‘trade-offs’), terrorist actors prioritise different criteria when choosing among the various possible methods to raise, move, store, and use funds (Freeman,.2012). In turn, these decisions are influenced by the different contexts in which these activities are carried out. In examining methods of terrorist financing from the perspective of terrorist actors, some of the factors influencing the ways in which they choose to finance their activities and operations have been illuminated. Drawing on their defining characteristics, this chapter’s subsequent 4 For an in-depth discussion of such methods, see Acharya, 2009:70-79. 19 and final section provides an account of VCs5 as a potential method of terrorist financing. 3.3 Virtual Currencies as Terrorist Financing Method Also known as cryptocurrencies, decentralised VCs associated to terrorist financing risks may be defined as ‘distributed, open-source, math-based peer-to-peer virtual currencies that have no central administrating authority, and no central monitoring or oversight’ (FATF, 2014:5). In simpler terms, VCs represent a form of digital asset that may be used as a medium of exchange to undertake financial transactions, like a digital form of cash. Through the use of public-key cryptographic principles, these allow for the verification of transactions without a need for financial intermediaries, enabling parties to transact directly. Public key cryptographic proof ‘ensures that all computers in the network have a constantly updated and verified record of all transactions ... which prevents double-spending and fraud’, thus removing the need for third-party verification (Brito and Castillo, 2013:5). This public, chronological, and permanent record of transactions is called the ledger - one which depends on users’ processing power for the updating and verification of transactions, as opposed to any given central authority. In turn, the process whereby such users establish network consensus is known as ‘mining’ - one which involves the solving of mathematical problems as to verify the transactions on the ledger and for which certain users (‘miners’) are rewarded in VC units. The ledger effectively maintains the VC ecosystem, representing a tamper-proof, shared database distributed across servers and geographic locations, making this decentralised network secure. The technology that underpins VCs is hence known as distributed ledger technology (DLT), given that a majority of existing cryptocurrencies have derived from Bitcoin’s open source ledger, the Blockchain, comprised of blocks of inalterable transactions. Decentralised VCs are digitally traded in online exchanges by users, who determine their value by means of supply and demand, what has led to their extensive use as a means of both investment and speculation, despite their high volatility (CFTC,.2018). Their practical applications are numerous, since these can facilitate fast and inexpensive payments, monetise tangible and intangible goods online, and store and exchange value when traded for 5 VCs can themselves be divided into two main categories: centralised and decentralised. The former are used in contained environments (such as virtual gaming) and centrally-issued by a single authority; whilst the latter can be converted into fiat (government-backed) currency, and possess no central authority. Decentralised VCs (or cryptocurrencies) are those associated to terrorist financing risks. 20 government-issued currency or other virtual currencies (FATF, 2014:9). Moreover, VCs can help extend financial services to unbanked populations in developing countries with limited financial infrastructures (Carlisle,.2017:8); and, as Hook (2017) notes, DLT presents opportunities for the fight against financial crime, since this technology can be harnessed by financial institutions in order to trace the movement of funds, commodities, and securities, thereby holding potential for decreasing fraudulent transactions and the laundering of the proceeds of crime. Despite the above-mentioned benefits and legitimate applications, the exploitation of VCs for illicit purposes (and cybercrime in particular) is well-documented6, with cases like those of Silk Road7 and the WannaCry8 ransomware attacks attracting worldwide media attention. Notwithstanding, the criminal adoption of VCs begs consideration of two fundamental questions. First, what features characterising VCs make them attractive for the raising, moving, and storing of funds in the context of financial criminal activity (terrorist or otherwise)? And, second, while criminals have been shown to exploit VCs at a large scale, why is this not the case for terrorist actors? 3.3.1. Features Associated to Terrorist Financing Risks Anonymity/Pseudonymity A key aspect often cited in detailing the terrorist financing risks associated to VCs is that of anonymity. Because user identities are concealed behind digital addresses (‘wallets’) composed of alphanumeric keys, due diligence and know-your-customer procedures underlying AML/CTF initiatives are difficult to implement in the context of these transactions (FATF,.2014). This concern is encapsulated in Brill and Keene (2014:13), who rightly suggest that if you were ‘a terrorist, a money launderer or a criminal’, you would certainly want a system that did not require you to prove your identity and to have that validated identity tied to all of your transactions. In fact, you would like a system that did not require you to identify yourself at all, or to provide any information about 6 The illicit exploitation of VCs for criminal purposes has received substantial attention. See, for example, Trautman,.2014 and Carlisle,.2017. 7 An online black market operating on the dark web until 2013 which allowed users to purchase and sell illegal drugs anonymously, whereof the method of payment was Bitcoin (Trautman,.2014:91-100). 8 Those responsible demanded payment in VC, allowing them to procure £108,000 in Bitcoin ransom (Gibbs,.2017). 21 yourself. Now, whilst VCs indeed offer varying degrees of privacy and anonymity, it should be noted that these are better characterised as ‘pseudonymous’, rather than fully anonymous financial instruments. As noted by Chambers-Jones and Hillman (2014:156), it is not VCs such as Bitcoin that are pseudonymous, but rather, their transactions, which nonetheless remain publicly available (and therefore, traceable) on the ledger. Users in VC networks are identifiable by their digital wallets’ alphanumeric keys and, although it is possible to ‘create a potentially infinite number of pseudonymous identities’, the ledger’s public nature represents a ‘mitigant by offering a complete transaction trail’ (Carlisle, 2017:9) through which the movement of funds can be followed. In this regard, AML in VCs ‘has to deal with imperfect knowledge of identities, but may exploit perfect knowledge of all transactions’ (Moser cited in ibid). Notwithstanding the pseudonymous nature of a majority of VCs, there exist techniques available that indeed provide for greater anonymity to those wishing to deliberately conceal illicit financing activities. Relevant examples are anonymity-enhancing alternative VCs such as Monero (‘drug dealer’s cryptocurrency of choice’), or the use of ‘tumblers’ - employed as a means of ‘combining multiple transactions, hiding the amount of each transaction and obscuring the recipient of funds’ (Goldman et al., 2017). However, their use requires ‘watertight discipline’ and highly-technical expertise - a faux-pas being sufficient to allow law enforcement to ‘unmask’ illicit users seeking to obscure the trail of funds (Prisco,.2018). This limited anonymity is considered one of the key reasons why terrorists have not exploited the technology at any significant scale (Carlisle,.2017). Decentralisation The second key area for concern refers to the decentralised nature of VCs, or the lack of a central monitoring or administrative authority overseeing the network and whom to hold accountable. As the FATF contends, this not only prevents law enforcement from targeting one central entity for ‘investigative or asset seizure purposes’ (2015:32), but also makes wallets and accounts within VC networks difficult to control, oversee, or censor by financial authorities. Such lack of oversight has led some to dub the VC domain as a sort of ‘wild west’; one dominated by widespread deregulation, criminality, and speculation (Singh,.2015). It is important to note, however, that there are few, if any, truly decentralised and 22 convertible VC environments, as these networks are themselves often accessed via intermediaries such as VC exchanges and wallet providers. As Carlisle (2017:14) has noted, the bulk of VC transactions ‘still pass through exchanges for conversion into fiat currency’ and vice versa, as these networks are difficult to access without third-party assistance, thus far from representing fully contained environments. Such intermediaries establish links between the formal financial and banking system and VC networks, illustrating their lack of decentralisation in practice. In fact, the FATF’s VC risk assessment (2015:6) recommends the targeting of those ‘points of intersection that provide gateways to the regulated financial system’ as a main focus of AML/CTF initiatives, given that only convertible VCs present risks in the context of money laundering and terrorist financing. VC exchanges can hence provide assistance and support to law enforcement as these generally have ‘access to more information about transacting parties than their [VC] addresses’ (Martin Christopher, 2014:23). Moreover, these exchanges have increasingly been brought under financial regulatory frameworks, thereby ensuring the reporting of suspicious transactions (Manheim et al., 2017). Fast and Inexpensive Transactions A third feature associated to financial crime risks is the ability of VCs to enable a fast and inexpensive transfer of funds. Because of their peer-to-peer nature and ‘near real-time transaction settlement’, these theoretically offer users a quick and cost-efficient method to transfer funds across borders (Carlisle, 2017:13). These characteristics make of VCs an attractive opportunity to illicit actors presumably interested in settling transactions as quickly and cheaply as possible, as to reduce costs and the chances of blocking and interception (Brill and Keene, 2014:13). However, despite the promises of DLT in allowing for fast and inexpensive transactions, the increased adoption of VCs has sometimes led to concurrent decreases in transaction speeds and cost-effectiveness. This is particularly true of the Bitcoin network, whereof scalability problems have been described as a limiting factor in its utility as a reliable financial instrument (Goldman et al., 2017:15). In December 2017, coinciding with dramatic increases in Bitcoin interest worldwide and skyrocketing price valuation, the average Bitcoin transaction confirmation took 78 minutes, this raising as high as 1,188 minutes when the network was particularly busy (Browne,.2017). As per transaction fees, because users normally access VC networks through exchanges, the average virtual currency 23 transaction cost was, as of that date, an estimated $28 (ibid). 3.3.2. Limited Adoption by Terrorist Actors Although there is substantial evidence concerning the criminal exploitation of this technology for numerous types of illicit activity, this is not the case for terrorist financing. Reporting on terrorist use of VCs ‘remains limited and largely anecdotal’, there being ‘no concrete indication in the public record that terrorists are using cryptocurrencies as a payment tool with regularity’ (Carlisle, 2017:18-19). Thus, whilst terrorists have been known to sporadically use VCs to primarily solicit donations online, VC adoption by these actors substantially lags behind that of cybercriminals (RAND, 2015:19). What accounts, then, for these discrepancies? Although terrorist actors will often resort to criminal enterprises in order to acquire funds to finance their activities9, there exist fundamental differences between common crime and terrorism. For terrorists, crime represents a means to an end, that of achieving some political, ideological and/or religious goal, while criminals’ overriding purpose is the accumulation of money or valuable resources (Hutchison and O’Malley, 2007:1098). In the context of terrorist financing ‘the movement of funds occurs before the intended crime has been committed’, whilst laundering the proceeds of illicit activity happens once the crime has taken place (Martin Christopher, 2014:5). This distinction partially accounts for why terrorist actors have not exploited VCs at the same rate as other criminals, given the fact that the process of terrorist financing does not involve, by definition, the use and movement of illicit funds. As Neumann (2017) explains, because ‘terrorists can draw on legitimate sources of income’, fighting terrorist financing ‘is harder than fighting money laundering or organised crime’. Then, perhaps one of the most significant reasons accounting for disparity in adoption is that terrorist actors have not needed to do so - as other means of value transfer ‘have served their needs reliably’ (Goldman et al., 2017:28). This, coupled with the inherent technical complexity of VCs compared to other methods of finance, and their limited anonymity and decentralisation, can help account for their (to date) very limited adoption by terrorist actors. This chapter has presented an examination of VCs as a possible method of terrorist 9 This link is commonly referred to as the crime-terror nexus. For accounts on this convergence see Dishman, 2005; Hutchinson and O’Malley,.2007; and Makarenko,.2012. 24 financing rooted upon an understanding of this process and the defining features characterising this technology. It first examined general patterns of terrorist financing, as well as criteria for determining the desirability of given financing methods for terrorist actors. It then considered VCs as one of such methods by drawing on the key features of anonymity/pseudonymity, decentralisation, and fast and inexpensive transaction settlements. Finally, it accounted for their limited adoption by terrorist actors vis-a-vis that by other criminals. Ultimately, as noted by the FATF, ‘the adaptability and opportunism shown by terrorist organisations suggests that all the methods that exist to move money around the globe are to some extent at risk’ (2008:4). However, like other methods, VCs offer legitimate users numerous benefits and applications, and their characterisation as primarily a tool for financial criminal activity proves misleading10. Yet, given this terrorist adaptability, the prospect of increased or even widespread adoption for terrorist financing purposes cannot be completely ruled out (Carlisle, 2017; Goldman et al., 2017), particularly as the technology underpinning VCs continues to evolve. Therefore, in order to ascertain prospects of increased adoption, and bearing in mind the importance of considering terrorist financing within the context of specific actors, the next chapter discusses these with reference to a particular case, that of ISIL. 10 According to the U.S. Drug Enforcement Agency, criminal activity accounts for ‘approximately 10 percent of on-chain bitcoin transactions, down from a high of 90 percent in 2013’ (Wilmoth,.2018). 25 4. Case Study: The Financing of ISIL This section examines prospective VC adoption by terrorist actors through the case of ISIL. It first considers the group’s composition and current patterns of financing, showing that the advantages offered by VCs are fairly limited in these contexts. It subsequently moves on to consider two main methods of ISIL’s financing, hawala and cash couriers, discussing their benefits as to compare them against those offered by a prospective VC adoption. To do so, it draws from the desirability criteria outlined in the previous chapter, considering questions of volume, reliability, security, speed, cost, and simplicity. In short, in employing ISIL as a case study, this chapter shows that the desirability of VC exploitation is limited, particularly when compared against that offered by the group’s established methods of finance. Therefore, while VCs may be used sporadically by terrorist actors to fundraise online or to purchase materials on the dark web, they are unlikely to become a method of ongoing finance for terrorist actors. This suggests that, notwithstanding substantial future developments surrounding this technology and the conduct of terrorism itself, the risks of widespread terrorist exploitation of VCs remain confined to their isolated and sporadic use. 4.1 Current Patterns and VC adoption At the height of its power in 2014, ISIL was considered a ‘proto-state’ by many observers: it administered a large territory of 10 million people extending across Iraq and Syria, collected taxes, provided social services, minted its own currency, and even controlled agricultural resources, providing sustenance to the local population (Martin and Solomon, 2017; Levallois et al., 2017). Its standing as a territory-controlling terrorist organisation enabled it to secure substantial sources of revenue. The most significant of these being taxes and fees imposed on the population it ruled over, the control of oil-producing fields, and the proceeds derived from lootings, confiscations, and fines (Heissner et al.,.2017). By the end of 2015, as a proto-state, the group was estimated to generate in excess of $2.4 billion per year, making it the richest terrorist organisation in modern history (Martin and Solomon,.2017:34). Despite its defeat in Iraq and most of Syria by late 2017, ISIL ‘continue[s] to pose a significant and evolving threat around the world’ (UNSC, 2018:1). According to the UN, 26 ISIL is primarily ‘now organised as a global network, with a flat hierarchy and less operational control over its affiliates’ (ibid:2). This has effectively resulted in a gradual shift from its stated focus on the project of ‘building and expanding’ its self-proclaimed Islamic caliphate, to that of coordinating external operations through local cells in neighbouring countries, encouraging followers to organise attacks wherever they may reside (Levallois.et.al,.2017:16). Therefore, although no longer in control of substantial swaths of territory and resources, the group persists in three main forms as a terrorist actor: as the group’s core remaining in Syria and Iraq; as affiliated cells and branches in numerous countries; and in the form of its worldwide support base. First, the ISIL core is composed of the group’s militants whom, after losing its territorial caliphate, continue to fight as insurgents in the region under the authority of Abu Bakr al-Baghdadi (Ensor,.2018). The core of the group remains distributed among the two countries, with as many as 30,000 militants still operating mostly in covert cells or hiding in sympathetic communities (Lederer,.2018). Second, in the form of its global network of affiliated cells, transnationally linking foreign-based ISIL supporters and ‘fighters located in conflict zones and elsewhere’ (UNSC,.2018:6). These linkages increase the capabilities and skills of affiliated networks and individuals whom, whilst operating with reduced backing from the group, continue to receive its endorsement. Third, ISIL continues to enjoy the ideological support of committed sympathisers. These are individuals (lone actors) or groups of individuals who carry out inspired attacks on ISIL’s behalf without its prior knowledge or support. ISIL’s said composition has a number of implications for the group’s current patterns of financing. Since the fall of its caliphate, the core has slowly become a ‘less reliable financial backer of its affiliates and operatives’ (Levitt,.2018), what has led these to increasingly diversify their income as to become financially independent (UNSC, 2018:4). According to the UN, affiliated cells across the Middle East, Africa, and Asia are said to rely on sources of finance such as kidnappings, theft, extortion, human trafficking, and the illicit drug trade. Moreover, despite having lost 90% of its revenues since 2015, the core continues to move funds (primarily derived from extortion and checkpoint controls) through networks and facilitators across the Middle East by using hawala systems and cash couriers. The group is also said to be infiltrating legitimate regional businesses through the use of fronts, ostensibly clean individuals able to access the formal financial sector (ibid). With regards to operations undertaken by affiliated members and sympathisers, current and historical trends 27 point to the continuation of low-cost, medium and small-sized terrorist attacks by the group (EU,.2017), favoured instead of spectacular plots which may take months or years to mount (Callimachi,.2016). In fact, in a 2015 publication, the group explained: ‘with less attacks in the West being group attacks and increasing amounts of lone-wolf attacks, it will be more difficult for intelligence agencies to stop an increasing amount of violence and chaos from spreading’ (Levitt,.2017:3). Most importantly, given these features, the benefits of a prospective VC adoption for the group’s various actors appear limited. The increasing financial independence between the ISIL’s core and its affiliated cells suggests a downward trend in the group’s need for moving funds across jurisdictions. Hence, the need for innovation in financial instruments facilitating this transfer is narrow, particularly given the effectiveness and attractiveness of current methods such as hawala and cash couriers (explained below). A further limiting aspect is the group’s primary reliance upon cash-intensive activities as a source of revenue for both its core and affiliated cells. Given that converting large amounts of cash into VCs remains a difficult process, and that exchanges are increasingly subject to AML/CTF regulations, it is unclear whether adopting VCs is practical or viable for the group in said contexts, even if these were to allow for total anonymity. Furthermore, their persistent volatility makes VCs an unreliable method to transfer funds in the large amounts the group would require. With regards to the foreseen continuation of past patterns of operational financing, VCs are similarly unlikely to present advantages to affiliated cells or sympathisers seeking to undertake attacks abroad in the name of ISIL. As Levitt (2017:2-5) notes, such attacks have often been ‘carried out very quickly, with minimal funding and preparation’, and these actors keep costs to a minimum ‘since they have few members to train and equip, rely on simple weapons … [and] are not subject to the high and indirect costs of developing and maintaining a terrorist organisation’. For instance, according to a 2015 study, ‘over 90% of jihadist cells operating in Europe between 1994 and 2013 were “self-funded”, typically through savings, welfare payments, personal loans, or the proceeds of petty crime’ (Neumann,.2017:100). Thus, it is likely that ISIL attacks will continue to be funded by established methods like cash, prepaid cards, and credit cards, which represent a far more practical way to acquire materials, pay for travel, or hire vehicles. For example, the ‘go-to explosive’ for ISIL’s attacks in Europe, TATP, can be manufactured by easily obtainable ingredients often found in ordinary households (Callimachi,.2016). These factors suggest that ISIL’s widespread adoption of VCs as a method of operational financing remains unlikely, at least under these 28 circumstances, and notwithstanding substantial developments surrounding the technology itself, such as improvements relating to ease of use or enhanced anonymity. In considering other potential VC uses, perhaps the most viable in the near term is their sporadic exploitation as a means for online fundraising by technologically-adept ISIL supporters, or to to buy materials or weapons in the dark web. Although evidence of these remains anecdotal, ISIL has been reported to use the dark web as a means to spread propaganda, to recruit and radicalise militants, to raise funds, and to acquire explosives and weapons. For instance, in 2015, an 18-year-old American pled guilty to providing material support to ISIL after tweeting instructions on how to use bitcoin to send funds to the group (DOJ, 2015), while an Indonesian-based, ISIL-affiliated terror cell was believed to have collected bitcoin donations on the dark web (Weimann,.2016:43). Similarly, the weapons used to perpetrate the Paris 2015 attacks were reportedly acquired through a German vendor on a dark web store (Ibid). These examples suggest that VCs may indeed be exploited by terrorist actors, albeit in an ad hoc manner to fulfil specific goals. Nevertheless, a widespread adoption of VCs by ISIL as means of continuous finance is unlikely, despite the group’s adaptability and opportunism. These represent an unreliable method of transferring and spending large quantities of funds, particularly because of their volatility and the difficulty in exchanging these for easily spent and widely accepted government-backed currency. Since DLT provides for a complete and public record of transactions, VC use also gives authorities a complete record of the money trail, enabling law enforcement to track the movement of funds if appropriate measures are not consistently taken by those seeking to obscure their origin. Compared to other methods, VCs also require equipment in the form of computer hardware and software, making these less cost-effective than other more rudimentary forms of transferring value. Finally, as illustrated, VCs are far from simple or user-friendly, since these require intensive technical knowledge and expertise, particularly by those seeking to illegitimately use them in the context of financial criminal activity. 4.2 Methods: Hawala and Cash Couriers Hawala ISIL continues to rely on hawala, an informal payments system based on trust which is 29 widely used in countries with inefficient financial infrastructures and policies (UN,.2018; El Qorchi et al., 2001). hawala brokers (hawaladars) operate all around the world, being a significant driver of economic and financial development in developing countries (Redin, Calderon, and Ferrero, 2014). It is estimated that hawala networks enable the transfer of $400 billion per year, with a majority of legitimate transactions involving migrants sending money to their families, who benefit from low commission rates compared to those of traditional banking (Moore,.2015). Hawaladars rely on networks of other hawaladars linked by family, tribal, or ethnic connections, and depend on their reputation and performance for effective delivery (FATF,.2013). However, hawala is often considered the most reliable and effective means through which terrorist actors move money, being linked to exploitation by groups including ISIL, Al-Qaeda, and the Taliban. Operationally, its speed, low transaction costs, cultural convenience, versatility, and anonymity, contribute to hawala’s widespread legal and illegal use (El Qorchi et al., 2001). In theory, these networks also allow for unlimited funds to be transferred among parties (Freeman, 2015). According to the FATF, providers usually charge 25-50% of the equivalent banking fees, this varying according to the destination of transfer (2013:17). These often require no identification, as transacting parties rely on passcodes to efficiently send and retrieve funds, and authorities rely on hawaladars bookkeeping as to ascertain their movement. Funds may be exchanged multiple times among several hawaladars before reaching its final destination (Schaeffer,.2008:101). These records are thus less accessible to authorities than those kept in banks, and can be falsified, ‘making them less easily followed by law enforcement’ (FATF,.2013:18-19). Moreover, although hawalas are legal in most countries, some continue to operate illegally - particularly because of high licensing and registration fees (Freeman and Ruehsen, 2013:10). Therefore, as Clarke (2015:137) points out, hawala is ‘mostly secure, relatively anonymous, and convenient for those who do not wish to deal with the scrutiny or due diligence procedures of banks’. Because of the sheer volume of transactions associated to the hawala network and other informal remittance systems and their bookkeeping methods, tracking terrorist financing in this context has been considered akin to looking for a needle in a haystack (Moore,.2015). Finally, their strict regulation and oversight without insider consensus is considered unlikely, as these would be driven underground, thereby providing ‘incentives for secrecy … and resistance to authority in general’ (Passas,.2005:8). 30 Cash Couriers Couriers are often used by illicit actors to physically transport cash across jurisdictions, these being the ‘simplest and oldest way of moving value’ (Passas,.2005:30). Funds are concealed in vehicles or packages, or carried by individuals transiting borders. ISIL has been known to use cash couriers, for instance, when requesting foreign terrorist fighters travelling to conflict zones to bring money to join the organisation (FATF,.2015:29). According to the UN, ISIL continues to rely on these as a means to distribute funds from its core to affiliated networks distributed across the Middle East (2018:4). Like Hawala, cash couriers offer terrorist organisations a number of advantages over other methods of financing. Albeit with limitations, these have been exploited in the past by groups such as Al-Qaeda to transfer money in vast amounts. According to the 9/11 Commission, the organisation used couriers to move as much as $1 million from Pakistan to Afghanistan ahead of the World Trade Centre attacks; with funds then being subsequently wired to the hijackers once in the US, or given to them to bring in cash as they entered the country (Freeman and Ruehsen,.2013:8). Cash couriers are also relatively reliable and secure, particularly because the cash itself is ‘anonymous and leaves no audit trail’, enabling illicit actors to disguise the proceeds of crime but also providing for their ease of spending at the intended destination (FATF,.2015:27,37). Unlike bank transfers, couriers leave no paper trail that can alert authorities of suspicious financial criminal activity. Similarly, given that terrorist organisations often rely on ‘trusted personnel’ in order to move the money, this method provides for reliability and cost-efficiency, since intermediaries are not required (Freeman and Ruehsen,.2013:9). Moreover, given the lack of financial infrastructures in Iraq and Syria after prolonged conflicts, cash couriers represent an effective method of funding, since cash becomes paramount to pay for goods and services. However, cash couriers are a relatively slow means of moving funds, especially when compared to hawala or electronic fund transfers. This is the case, in particular, when funds are transported across multiple jurisdictions by roads. Couriers are also restricted in that very ‘large amounts of cash are heavy and bulky’, what has ‘obvious drawbacks in terms of storage and transport to where they are needed (FATF,.2015:9). Nonetheless, cash couriers represent a simple way for ISIL to move funds; these can be readily spent at their destination since cash is a widely accepted liquid asset, and couriers represent a relatively secure means to transfer value when seeking to avoid detection and/or interception by authorities. 31 4.3 Conclusions As illustrated, VCs offer ISIL limited and isolated uses, what makes them an unlikely method of sustained financing for its core, affiliates, and supporters. This is particularly clear when considering two of the group’s known and established methods of financing: hawala and cash couriers. On the one hand, these offer ISIL numerous benefits, such as reliability, security, inexpensiveness, and simplicity, what accounts for their widespread exploitation by a number of terrorist actors. On the other, VCs remain an unreliable means of transferring funds in meaningful quantities given their high volatility and partial anonymity, that they require technical knowledge and expertise particularly when used for illicit activities, and that they are not liquid assets that can be readily spent. Moreover, given ISIL’s current patterns of financing and operational strategy, their attractiveness has been shown as confined to their sporadic use, and not as a means of ongoing financing. This points to the fact that the risks of VC exploitation for the purposes of terrorist financing appear limited. 32 5. Critical Security and Virtual Currencies In preceding chapters, the risks of terrorist adoption of VCs as a method of financing have been deemed limited, given that these mostly offer sporadic and isolated uses. The case of ISIL has been employed to draw useful generalisations on that of other terrorist actors, showing that based on their current methods and patterns of financing, the benefits of VC adoption remain restricted. Thus, in examining potential adoption based not only on the defining characteristics of this technology, but on the process of terrorist financing itself, threats have been considered contained. In light of these factors, what are the security implications associated to the rise of this technology? What can the CSS field tell us about the placing of VCs within the realm of security? This chapter applies the theoretical framework developed in the second chapter to critically examine the emergence of VCs as a question of security, and a number of practices leading to their securitisation. It first discusses broad practices whereby VCs have become securitised to subsequently discuss the benefits of de-securitisation. 5.1 A Gradual Process of Securitisation VCs have emerged as a security issue through a number of practices. Here, instead of attempting to provide an exact chronology of this process, several examples are provided as to illustrate this broad process of securitisation and to discuss given implications. VCs have sometimes become identified in the media and political discourse as an inherent tool for illicit financing, often obscuring their legitimate benefits and applications. This technology (and bitcoin in particular) entered the mainstream in the wake of the Silk Road dark web marketplace shut down by the FBI, what represents one of the earliest examples of VC association to criminality. In 2013, Time magazine thus explained: ‘if you wanted to purchase anything on Silk Road, you would first have to possess a type of online money called Bitcoin’ (Roy,.2013). Reports portraying bitcoin and VCs primarily as crime facilitators became widespread thereafter. In the International Business Times, bitcoin was described as ‘the virtual currency facilitating cybercriminals, hitmen and drug dealers’; allowing them ‘to hide the proceeds of criminal activity … without the worry of being identified’ (Gilbert,.2013); while a Bloomberg article called bitcoin ‘the criminal’s best friend’ (Mihm,.2013). As per the CSS notion of performativity, the repetition of discursive 33 tropes exclusively linking VCs to criminality has oftentimes erased the benefits of this technology. Instead, VCs may be said to have acquired a fixed identity in much of public consciousness - primarily that of enablers of financial criminal activity. These examples point to the vilification of a technology that, whilst inherently neutral in nature, has been widely portrayed within the context of the dangerousness of matter. Following high-profile terrorist attacks in Paris in November 2015, Reuters reported that EU countries ‘plan a crackdown on virtual currencies and anonymous payments made online and via prepaid cards in a bid to tackle terrorism financing after the Paris attacks’ (2015), despite there being no concrete evidence at the time that VCs had been employed by those responsible. In fact, regulatory interest on VCs on the part of the EU and other global entities existed long before the Paris attacks took place. Europol outlined potential VC risks in a report published the previous September; the FATF, for instance, had published its VC risk assessment in 2014, while the US Treasury Financial Crime Enforcement Network first offered guidance in 2013. However, in the wake of the Paris attacks, discourse on potential terrorist exploitation became ubiquitous, with some calling for increased VC regulation or even their outright ban as to prevent terrorist actors from using the technology (Prisco,.2016). In employing the CSS operationalisation of entangled agency, the 2015 Paris attacks can be seen as a pivotal event facilitating the association of VCs to terrorist financing. Given the failure of authorities to disrupt the operation, public policy and media focus turned to VCs, portraying these as tools that could be easily and readily used by terrorist organisations to fund similar attacks while failing to establish a concrete linkage. Beyond media discourse, from a policy perspective perhaps the most significant and drastic illustration of the securitisation of VCs is their implicit, absolute, or ‘qualified’ ban in a number of countries around the world. According to a 2018 report from the US Law Library of Congress, countries including Algeria, Bolivia, Egypt, Iraq, Morocco, Nepal, Pakistan, the UAE, and Vietnam, have enacted an absolute ban on ‘any and all activities involving cryptocurrencies’ while others such as Qatar and Bahrain have banned their citizens from locally engaging in related activities, while allowing them ‘to do so outside their borders’ (2018:2). Other jurisdictions, such as Bangladesh, Iran, Thailand, Lithuania, Lesotho, China, and Colombia are said to allow citizens to use VCs, while barring ‘financial institutions within their borders from facilitating transactions’ (ibid), what prevents citizens from converting government-backed currencies into VCs thereby severely restricting the legitimate applications of this technology. Similarly implicit bans also reportedly exist in 34 countries such as the Dominican Republic, Indonesia, Kuwait, Macau, Oman, Saudi Arabia, and Taiwan (ibid:4). According to the same report, a number of jurisdictions indeed cited ‘national security’, illicit financial activity or terrorist financing concerns as the primary justification for the enactment of these legislations. For instance, Egypt’s Central Bank justified its 2018 prohibition by stating that VCs could damage national security and its central financial systems, while also referring to their potential use to ‘fund terrorism and terrorists activities’. In a 2017 decree, Moroccan authorities emphasised their illicit uses when declaring VC transactions illegal, and so did Qatar in 2018; Bangladesh, Lesotho, Macau, Indonesia, Iran, and the UAE all explicitly cited their susceptibility to use in money laundering or terrorism funding when enacting prohibitions between 2017 and 2018. From a securitisation theory perspective, in alluding to the logic of security, these jurisdictions successfully brought VCs outside the domain of political negotiation. The financial authorities (central banks, regulators) of these countries, as securitising actors, declared their own financial infrastructures and national security as directly threatened by the emergence of VCs, thereby becoming ‘referent objects’ in security. The subsequent enactment and implementation of these measures can thus be seen as successful instances of VC securitisation around the world, primarily justified with reference to speculative concerns. In this respect, in applying the CSS approach to security to the emergence of VCs, a number of processes whereby this technological innovation has been deemed a threat and a risk to security can be traced and critically examined. However, perhaps more importantly, in adopting a securitisation theory lense, the successful placing of VCs within an area of exception and outside the domain of normal politics has been identified. As mentioned, the successful securitisation of VCs in a number of jurisdictions is exemplified by their explicit, implicit, or qualified ban in countries around world, where oftentimes their portrayal as a threat to security has justified the implementation of these otherwise unjustifiable measures. 5.2 De-Securitising Virtual Currencies According to securitisation theory, processes of securitisation can have a number of negative implications when issues such as VCs are framed in the language of security and taken outside the domain of political negotiation. Specifically, the justification of increased or even 35 total state control over this issue can lead to counterproductive measures and the stagnation of beneficial financial innovation. Regarding the inefficiency of certain attempts at regulating this technology, efforts to curtail the demand for VCs have sometimes not only been unsuccessful, but resulted in states’ reduced ability to adequately oversee their uses. A telling example is that of China. After China’s central bank forced VC exchanges in the country to stop trading in 2017, the two largest Chinese exchanges migrated to Hong Kong, experiencing ‘a massive surge in daily trading volume and demand’ while continuing to serve Chinese and international users and opening a ‘gateway for Chinese cryptocurrency traders into the global market’ (Young, 2018). Moreover, following these measures, the volume of peer-to-peer transactions on alternative platforms also increased from 2.5 million RMB to over 100 million RMB (Levin, 2017:11). As Chainanalysis co-founder Jonathan Levin noted in a 2017 hearing before the US House of Representatives, peer-to-peer transactions that circumvent exchanges are ‘censorship-resistant’, being ‘out of the purview of the state’, what effectively diminishes oversight (ibid). Therefore, whilst exchanges can be regulated and brought under AML/CTF legislation, the VC ban in China and elsewhere can be both ineffective and fuel illicit uses, pushing users towards peer-to-peer and/or alternative and unregulated means of using the technology where assets cannot be frozen or seized, and where information on user identity does not always need to be provided. Another negative consequence derived from this securitisation is the stagnation of promising financial innovation. As has been repeatedly argued, VCs and DLT offer numerous benefits to both individual users and organisations. For the realm of security, of particular significance is its potential as a tool to counter the finance of terrorism as well as illicit financial activity, which can be employed to address fundamental AML/CTF challenges. Although the cost of the global AML/CTF regime is estimated at $8 billion dollars per year, ‘less than 1% of illicit financial flows are currently seized by authorities’ (De Costa, 2017). This speaks to the need to develop effective countermeasures to deal with the complexity of contemporary financial crime, valued at $2 trillion per year (PwC,.2016). As discussed in the literature review, the ineffectiveness of this global framework has often been attributed to ‘information sharing challenges’ among jurisdictions and the regime’s substantial ambiguity, while adherence to AML/CTF regulations is currently expensive and time-consuming. However, Blockchain technology can be channeled to ensure transparency, a faster and more efficient data sharing, and increased security (Institute of International Finance, 2017). 36 Recognising its potential, for instance, Australia’s financial intelligence agency announced in May 2018 that it was building a blockchain in order to automate some AML and KYC reports, both of which are required from financial institutions under AML/CTF legislation (Coyne,.2018). In this regard, the securitisation of this technology can have negative implications not only for individual users looking to benefit from their numerous legitimate applications, but also for the very fight against global financial crime flows. The application of a securitisation theory framework to VCs ultimately reveals some of the practices whereby these have been successfully framed in the logic of security, as well a number of negative consequences deriving from their securitisation. A critical approach to security also emphasises that VCs, in themselves, do not represent a threat to security. This technology, like virtually any other innovation, has the potential to be used both legitimately and illegitimately. As illustrated, not only is it inherently neutral, but it offers a number of beneficial features, for instance in facilitating financial inclusion and helping in the fight against financial criminal activity. Moreover, whilst in invoking the logic security VCs have been brought into an area of exception, a critical security approach reveals that potential risks are better dealt with and negotiated within the domain of regular politics. In practice, this suggests that measures to contain possible future threats associated to VCs need to be proportionate, measured, and relevant, as well as developed by involving experts and stakeholders within the VC community. Therefore, the de-securitisation of this technology can ensure that innovation is not stifled, and that regulations are effective, whilst also allowing for this revolutionary technology to flourish and to continue to be used in positive and legitimate ways. 37 5. Conclusions The argument presented in this dissertation has been twofold. First, it has argued that the risks of terrorist adoption of VCs are contained, given that these offer terrorist actors limited benefits, particularly when compared against established methods of financing. In examining patterns of terrorist financing and the defining characteristics of VCs, it has shown that some of features that are repeatedly alluded to as to justify terrorist financing concerns are far from a given. Issues of anonymity, decentralisation, and speed and cost efficiency of transactions have been discussed, revealing that VCs are currently not completely anonymous, fully decentralised, or an efficient method to move funds quickly and cheaply for terrorist financing purposes. Moreover, in considering the case of ISIL, it has been argued that, based on the groups current organisational and operational financing needs and methods, the benefits offered by VC adoption are limited to their use to fulfil sporadic and ad hoc purposes. Using desirability criteria, known methods of financing such as hawala and cash couriers have been revealed as more attractive than VCs, particularly as it relates to questions of volume, reliability, security, speed, cost, and simplicity. Second, in adopting a critical security lense, the security implications associated to the rise of VCs have been critically examined. This has revealed some of the processes whereby this technology has become placed within the realm of security, as well as some of the negative consequences associated to its securitisation. The vilification of VCs in the media, as well as their ban in a number of jurisdictions around the world have been cited as examples of this broad process of securitisation. Through these practices, VCs seem to have acquired a fixed identity as enablers of illicit financial activity, what has justified the implementation of extreme measures on the part of a number of states to exert total or increased control over this technology. Moreover, in discussing some of the implications of this process of securitisation, it has been argued that this has often resulted in ineffective or even counterproductive regulations and measures, whilst reducing the potential of this technology to be used in positive and legitimate ways. The argument presented thus points to the need to negotiate any potential risks associated to VCs in the political realm, where stakeholders and experts can be involved, and balanced, appropriate, and measured approaches can be devised. In turn, this can ensure that regulations are effective, whilst allowing for this revolutionary financial innovation to flourish. However, the argument presented is not exempt from limitations. For instance, more 38 research can be done into how different terrorist actors might benefit from VC adoption, beyond the case of ISIL, given the importance of considering terrorist financing within the context of individual groups. Similarly, a more comprehensive consideration of particular VCs could also serve to pinpoint how terrorist actors might benefit from using some over others. Moreover, given the scope and length limitations of this dissertation, a number of issues have been considered somewhat superficially. The analysis presented can be broadened, utilising the delineated theoretical framework as to more exhaustively consider how different practices have led to the securitisation of VCs, as well as how these can be successfully de-securitised. Nonetheless, this dissertation effectively problematises some of the discursive practices and entrenched perceptions that have surrounded the emergence of VCs. By drawing on a range of academic and non-academic sources, it has aimed to provide a fresh critical perspective on an issue that has often been misrepresented. Perhaps, its primary contribution is therefore to encourage a critical and balanced approach when seeking to devise measures to contain the risks of disruptive innovations. This can serve to guarantee that these are effective, whilst also ensuring that prospective benefits are not curbed. 39 References Abuza, Z. (2003). 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