Despite herculean efforts, countering terrorist financing has proven to be hard.

The reasons for that include the complexity of the international financial system, some states’ reluctance to enforce existing measures, and terrorist groups’ ability to innovate and diversify to obtain new sources of funds and hide what they have.

While the terror–crime connection is very old (from Russian anarchists in the 19th century to the US Weathermen in the 1970s), new technologies mean that we now face a terror–cyber–crime nexus.

Islamic State promoted what Magnus Ranstorp has called ‘microfinancing’ of the caliphate and encouraged ‘gangster jihad’, enabling it to amass nearly US$6 billion in 2015 (including about $500 million from oil and gas, $360 million from ‘taxes’ and extortion, and $500 million from looting bank vaults in Mosul).

The cash allowed it to invest in its ‘Committee for Military Manufacturing and Development’, which distributed weapons and ammunition across the caliphate and constructed new weapons, such as vehicle-borne improvised explosive devices, on an industrial scale. Well-armed and well-funded, IS proved very effective in multi-domain military operations.

Despite its diminished territorial footprint (it now controls less than 1% of the area it did in 2017), the group’s ability to make money remains largely unaffected. International commitment to sanctioning IS-associated money launderers and financial facilitators has been limited.

IS has a network that operates across the globe, raising funds from multiple sources, ranging from individuals’ donations to illicit oil deals, including with the Assad regime (absurdly, for years the regime and IS have been trading illicit oil through Muhammad al-Qatirji and his Qatirji Company).

Anecdotal evidence indicates that IS and other jihadist groups are now deepening their exploitation of the cybersphere. For example, they’re very interested in cryptocurrencies; at least one Islamic scholar has declared bitcoin permissible under sharia law, and the person-to-person bitcoin exchange LocalBitcoins lists three bitcoin sellers in Syria.

In 2014, IS supporter Ali Shukri Amin argued that Salafi-jihadis should use bitcoin rather than the currencies of the infidels. He noted that the financial system prevents individuals from supporting the mujahidin, as bank transfers are recorded.

Junaid Hussain—who rose to become the number 3 leader of IS and was on the US government’s most-wanted list before a Hellfire missile took him out in 2015—combined a unique form of hacktivism with terror while he led the CyberCaliphate hacker group. He worked with Ardit Ferizi, a Kosovar hacker, who was arrested in Malaysia, extradited to the US and sentenced to 20 years for providing material support to America’s enemies. Ferizi had hacked the personal data of more than 1,300 American military and government personnel on an online retailer’s fileserver and given the data to IS, which then disseminated a ‘kill list’. Notably, Ferizi had demanded a payment of two bitcoins (worth at the time around $500) in exchange for leaving the server alone and explaining how he’d hacked it.

In December 2017, a woman was arrested in New York for obtaining $62,000 in bitcoin to send to IS. She had initially tried to travel to Syria, but, when that failed, she used false information to acquire loans and multiple credit cards, which she turned into bitcoin and other digital currencies before sending it via Pakistan, China and Turkey to fund IS.

In 2017, the Jeddah-based Islamic Research and Training Institute, a research wing of the Islamic Development Bank, signed an agreement with Belgium-based SettleMint and Ateon to look at the feasibility of an Islamic blockchain. The institute was seeking to ensure that the technology is compliant with sharia law, which prohibits riba (interest, usury) and requires all financial transactions to have ‘material finality’.

In 2018, Mufti Muhammad Abu Bakar, a sharia adviser and compliance officer at Blossom Finance in Jakarta, drafted a paper arguing that bitcoin is permissible under Islam because in places such as Germany it’s recognised as legal currency. Earlier this year, at the annual sharia conference of the Accounting and Auditing Organization for Islamic Financial Institutions, time was allocated to discuss bitcoin to determine whether it is riba, which is prohibited, or ribawi (items that are exchanged in equal measures once ownership is transferred).

In other words, Islamic scholars are recognising the possibility of using cryptocurrencies more extensively.

And Salafi-jihadis aren’t the only ones seeking to exploit the cryptocurrency revolution. Neo-Nazi groups are also seeking to use it to raise funds. In 2017, the Daily Stormer website attracted around US$60,000 in bitcoin and cryptocurrency donations. The far-right neo-Nazi activist Weev, who runs the site, has collected around US$1.8 million that way.

If we’re to properly address the potential that cryptocurrencies offer to non-state actors, we must recognise that a Westphalian concept of sovereignty in the regulatory system gives our adversaries an advantage, as jihadist and far-right groups either reject that concept or exploit it.