The Institute of Certified Public Accountants of Cyprus (ICPAC) has issued a critical alert urging accounting professionals to bolster their monitoring and Know Your Customer (KYC) measures to combat the increasing use of crypto in terrorist financing.
The Cyprus regulatory authority has called on accounting and audit professionals to play a proactive role in detecting and preventing terror financing activities. The alert emphasizes a particular focus on five fund transfer methods, including cryptocurrencies, highlighting the necessity for heightened vigilance and robust compliance practices.
Cyprus Authority Issued a “Terror Financing Alert” on Crypto
ICPAC has released a “terror financing alert” to address the growing use of cryptocurrencies to fund terrorism. This alert stressed the need for stricter transaction monitoring and enhanced Know Your Customer (KYC) measures to combat this pressing issue.
ICPAC’s alert highlights the increasing threat of terrorist financing, which can occur through both legitimate and illegitimate funds. The primary tool to mitigate this risk is thorough transaction monitoring, irrespective of the transaction amount.
ICPAC identified several methods terrorists use to transfer funds, including financial institutions, electronic money institutions (EMIs), payment institutions, crowdfunding platforms, and cryptocurrencies.
The alert stresses that terrorists often exploit the anonymity of cryptocurrencies for cross-border peer-to-peer transfers and receive funds through crowdfunding or charitable donations. This makes it challenging to track and monitor illicit financial flows.
To combat these risks, ICPAC advises financial professionals to use specialized blockchain investigation tools to monitor suspicious wallets and transactions. The organization also emphasizes the importance of strict KYC procedures to prevent terrorist financing activities.
Source: www.icpac.orgCharitable organizations and non-profit organizations (NPOs) are particularly susceptible to exploitation by terrorists, and ICPAC urges these entities to scrutinize donations, especially those linked to conflict zones or jurisdictions under sanctions.
They also warned financial professionals to be vigilant about anonymous cross-border transfers, crowdfunding, and online fundraising campaigns.
The Crime of Not Reporting Suspicious Transactions
Members, associated firms, and compliance officers are reminded to report suspicious transactions. ICPAC warns that failure to report is considered an offense, and flagged transactions will be scrutinized through profiling, crypto wallet screening, and the use of specialized blockchain tools.
This directive aligns with global concerns about the use of cryptocurrencies in terrorism.
For instance, a U.S. Treasury official highlighted that Palestinian militant groups, including Hamas, have used small amounts of cryptocurrencies for funding but predominantly rely on traditional financial products and services.
Today, I asked Treasury’s Head of FinCEN and OFAC about the WSJ’s reporting on Hamas’s digital asset fundraising campaign.
Undersecretary Nelson CONFIRMED, on the record, that the WSJ’s numbers were inaccurate and that crypto was not even a popular tool for Hamas terrorists. pic.twitter.com/Y2nSJfe3Lk
— Tom Emmer (@GOPMajorityWhip) February 14, 2024
Palestinian Islamic Jihad, for example, raised $12 million through crypto fundraisers, as confirmed by blockchain analytics firm Elliptic. This finding contradicted an earlier report by the Wall Street Journal, which claimed significantly higher amounts.
The Journal subsequently corrected its findings based on Elliptic’s data. In response to Representative Tom Emmer’s inquiry, Brian Nelson, the U.S. Treasury’s Undersecretary for Terrorism and Financial Intelligence, confirmed that Hamas’s use of cryptocurrency is relatively small compared to what has been widely reported.
In addition to highlighting terrorists’ methods, ICPAC’s alert details specific steps for financial professionals to take in identifying and reporting suspicious activity.
This includes asking critical questions such as, “Is the account registered under the name of the charitable organization/NPO?” and “Are the contributions received from donors located in the same country as the NPO?”
They also emphasized the crucial role of the geographical profile of transfers, particularly to funds sent to or received from areas close to known terrorist groups.
ICPAC also noted that terrorists often transfer funds using bank accounts registered under the guise of charities or unrelated parties. Accounts in non-EU banking institutions further complicate the tracking of these funds.
The alert calls for heightened scrutiny of these transactions and advanced blockchain tools to trace suspicious activities effectively.
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