Crowdfunding is a method of raising funds from a large number of people, typically via the internet, for a specific project or venture.
Crowdfunding is becoming more and more popular and most campaigns are legitimate. The FATF, in October 2023 has issued the report “Crowdfunding for Terrorist Financing”.
The report explains that terrorists, such as the Islamic State of Iraq and the Levant (ISIL) and Al-Qaeda may seek to abuse crowdfunding platforms and aims to assist competent authorities to understand the nature of this activity.
What makes crowdfunding vulnerable to Terrorist Financing?
Crowdfunding can be attractive for terrorist financing since it allows:
The collection donations from a large number of supporters.
The promotion of their campaigns through social media.
Global operations and enables terrorists reach a wide range of audience.
Receiving anonymous donations in cryptocurrency
How Crowdfunding platforms can be abused for Terrorist Financing
Crowdfunding platforms can be abused for terrorism financing (TF) purposes in a number of ways. The report identified four main methods:
Abuse of humanitarian, charitable, or non-profit causes: In some cases individuals posing as representatives of humanitarian or social causes may collect donations to support terrorism, charities may divert funds raised for advertised humanitarian activities to TF, and non-profit organizations (NPOs) engaging in legitimate crowdfunding efforts may fall victim to extortion or skimming by terrorist groups operating in high-risk environments.
Use of dedicated crowdfunding platforms or websites: In 2022, there were more than 6 million crowdfunding campaigns around the world which makes it hard to detect which of those campaigns are illegal.
Use of social media platforms and messaging apps: Terrorists exploit these platforms to share campaign information, recruit supporters, avoid detection, and transmit sensitive data. Social media algorithms also reinforce extremist beliefs and expose users to specific fundraising causes.
Interaction of crowdfunding with virtual assets: While Bitcoin has been the most visible virtual asset used in crowdfunding, other types of virtual assets such as privacy coins are increasingly noted and can be exploited by terrorist financiers.
Crowdfunding payment methods
Crowdfunding can take place through various payment methods such as:
The use of anonymity-enhancing services such as tumblers and mixers can make it more challenging to trace the origin and destination of donations, which is something that can be exploited by terrorist financiers.
Challenges for investigators
Financial crime investigators may find it challenging to identify suspicious activities associated with crowdfunding because of the following reasons:
Lack of transparency in some crowdfunding platforms.
Often several actors are involved including social media platforms, payment processors, crypto asset providers and financial institutions which makes it more complex.
Some crowdfunding platforms do not always identify the senders’ accounts.
Donations are usually small and, in some cases, anonymous.
Donations are in large scale which can make it difficult to detect suspicious transactions among the largely legitimate crowdfunding activity.
In conclusion, crowdfunding can be used for legitimate purposes, it can also be exploited by bad actors, including terrorists.
By understanding the risks and challenges associated with crowdfunding, public and private sector entities can implement effective risk mitigation measures to prevent terrorist financing through crowdfunding.