International Journal of Law And Criminology
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VOLUME
Vol.05 Issue04 2025
PAGE NO.
1-5
The risks of cryptocurrencies to U.S. national security
Algirdas Degutis
Criminal Justice Research Department, Law Institute at Lithuanian Centre for Social Sciences, Vilnius, Lithuania
Received:
03 February 2025;
Accepted:
02 March 2025;
Published:
01 April 2025
Abstract:
Cryptocurrencies have gained significant popularity over the past decade, attracting both legitimate
users and illicit actors. While they offer a decentralized and secure method of transaction, the anonymous nature
of cryptocurrencies presents serious threats to U.S. national security interests. This paper examines how
cryptocurrencies are being used by malicious actors for activities such as money laundering, terrorism financing,
and cyber-attacks. Additionally, it explores the challenges faced by U.S. Homeland Security in addressing these
threats, and the implications for national security, law enforcement, and financial stability. The paper concludes
with recommendations for strengthening U.S. regulatory frameworks and improving international cooperation to
mitigate these risks.
Keywords:
Cryptocurrencies, Homeland Security, National Security, Terrorism Financing, Money Laundering,
Cybersecurity, U.S. Government, Regulatory Challenges.
Introduction:
Cryptocurrencies, which are digital or
virtual currencies that use cryptography for security,
have gained significant traction over the past decade.
Initially, they were designed to operate as
decentralized alternatives to traditional fiat currencies,
with Bitcoin being the first and most prominent
example. However, the rise of cryptocurrencies has
introduced a new set of challenges for national security
agencies, particularly within the context of U.S.
Homeland Security. While cryptocurrencies present
opportunities for financial inclusion, lower transaction
fees, and increased privacy for users, their
pseudonymous nature and decentralized framework
make them an appealing tool for illicit activities.
The decentralized characteristic of cryptocurrencies
means that no central authority, such as a government
or financial institution, controls them. This is a key
feature that attracts both legitimate users and
criminals alike. For legitimate users, cryptocurrencies
offer greater autonomy over personal finances, secure
transactions,
and
protection
from
currency
devaluation. However, this same decentralization
makes it difficult for authorities to regulate and track
transactions, opening up avenues for exploitation by
malicious actors. Terrorist organizations, criminal
syndicates, and even rogue state actors have
increasingly turned to cryptocurrencies to conduct
illicit activities, bypassing traditional financial systems
that are monitored by government agencies.
Cryptocurrencies provide a convenient platform for
terrorism
financing,
money
laundering,
and
cybercrimes such as ransomware attacks. These
activities directly challenge U.S. national security
interests, as they complicate law enforcement efforts
and hinder the tracking of illicit financial flows. Terrorist
organizations can use cryptocurrencies to raise and
transfer funds anonymously, avoiding the scrutiny of
financial institutions that would normally flag
suspicious transactions. Likewise, criminal networks
employ digital currencies to launder money, making it
harder for authorities to trace the origins of illicit funds.
In addition, the rise of cybercrime in the form of
ransomware attacks has been largely fueled by
cryptocurrencies, as victims are often required to pay
ransoms in digital currencies, making it difficult for
authorities to track down perpetrators.
The U.S. government has recognized these threats and
has begun taking steps to address them, such as
implementing regulations to monitor cryptocurrency
exchanges and reporting requirements for digital asset
transactions. However, the fast-evolving nature of
cryptocurrency technology and the international
aspect of many cryptocurrency-related crimes pose
significant challenges to effective regulation and
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International Journal of Law And Criminology (ISSN: 2771-2214)
enforcement.
Cryptocurrencies
can
be
easily
transferred across borders, complicating efforts to
track illegal activities and cooperate with foreign
governments.
In this paper, we will explore the growing role of
cryptocurrencies as a threat to U.S. homeland security
interests. Specifically, we will examine how
cryptocurrencies are exploited for terrorism financing,
money laundering, and cybercrime, and analyze the
regulatory challenges faced by U.S. authorities in
combating these threats. Understanding these risks
and the limitations of current regulatory measures is
essential for improving U.S. security policies and
preventing the exploitation of digital currencies by
malicious actors.
Cryptocurrencies, digital assets built on decentralized
blockchain technology, have revolutionized the way
financial transactions are conducted. With Bitcoin’s
creation in 2009, cryptocurrencies have become an
increasingly popular alternative to traditional financial
systems, providing benefits such as lower transaction
costs
and
increased
privacy.
However,
this
decentralization, coupled with the pseudonymous
nature of blockchain transactions, poses a significant
challenge for national security agencies, including U.S.
Homeland Security. Cryptocurrencies are increasingly
being used for illicit activities such as terrorism
financing, money laundering, and ransomware attacks,
creating new risks for U.S. national security.
The
anonymity
and
cross-border
nature
of
cryptocurrencies make it difficult for law enforcement
to trace and prevent these activities. As such,
cryptocurrencies present a significant threat to U.S.
homeland security interests, and it is imperative to
understand how these digital currencies are being
exploited by malicious actors and the measures that
need to be taken to address these threats.
METHODS
This paper adopts a qualitative research approach to
examine the growing threat posed by cryptocurrencies
to U.S. Homeland Security interests. The research
methodology centers around a comprehensive review
of existing literature, government reports, case studies,
and relevant legal frameworks to understand how
cryptocurrencies are used by illicit actors and the
challenges faced by U.S. authorities in combating these
threats.
The following steps were taken to conduct the
research:
1.
Literature Review and Data Collection The first
step in the research process was to conduct an
extensive literature review of peer-reviewed academic
articles, government publications, and policy reports
from organizations such as the U.S. Department of
Homeland Security, the Financial Crimes Enforcement
Network (FinCEN), and the U.S. Department of the
Treasury. These documents were analyzed to
understand how cryptocurrencies are utilized by
criminal
organizations,
terrorist
groups,
and
cybercriminals.
Key sources include:
o
U.S. Government Reports: Documents issued
by the U.S. Department of Justice (DOJ), Federal Bureau
of Investigation (FBI), and the Department of Homeland
Security provided insights into how cryptocurrencies
are used in the commission of crimes. Reports from the
U.S. Treasury's Office of Terrorist Financing and
Financial Crimes also offered valuable data on how
digital currencies are employed to circumvent
traditional financial oversight.
o
Case Studies: Specific case studies, such as
those involving ransomware attacks or instances of
cryptocurrency being used to fund terrorism, were
reviewed to understand the operational tactics
employed by malicious actors. These real-world
examples helped to contextualize the theoretical
understanding of cryptocurrency threats within actual
security incidents.
o
Academic Journals and Research Papers:
Research articles that focused on the intersection of
technology, finance, and security were analyzed to gain
a deeper understanding of the challenges in regulating
cryptocurrencies. These included studies on the
pseudonymity and encryption features of digital
currencies, as well as blockchain’s role in obfuscating
illicit transactions.
2.
Legal and Regulatory Analysis A significant
portion of the research focused on analyzing the legal
and regulatory frameworks established by U.S.
authorities to monitor and control the use of
cryptocurrencies. Key regulatory bodies, such as the
Securities and Exchange Commission (SEC) and FinCEN,
have issued guidelines aimed at curbing the misuse of
cryptocurrencies for illegal purposes. The research
examined these regulations to evaluate their
effectiveness and the challenges they present in
enforcement.
Key points of focus included:
o
Anti-Money Laundering (AML) Regulations:
FinCEN’s regulatory framework for virtual currencies,
which aims to treat cryptocurrency exchanges similarly
to traditional financial institutions, was scrutinized to
assess its impact on preventing money laundering and
financing for illicit activities.
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International Journal of Law And Criminology (ISSN: 2771-2214)
o
Know Your Customer (KYC) Requirements:
Analyzing the effectiveness of KYC regulations and their
implementation at cryptocurrency exchanges, focusing
on their ability to prevent the anonymity that terrorists
and criminals seek when transacting in digital
currencies.
o
The Bank Secrecy Act (BSA): Understanding the
BSA’s influence on cryptocurrency transactions, and
how this law is enforced by the U.S. government in its
efforts to track financial activities related to terrorism
and organized crime.
o
International Regulatory Frameworks: The
paper also examined how international regulations,
such as those introduced by the Financial Action Task
Force (FATF), interact with U.S. regulations. Given that
cryptocurrencies are inherently global, understanding
the international regulatory landscape was crucial for
identifying gaps in cross-border enforcement.
3.
Data Analysis of Cryptocurrency Transactions
To gain a deeper understanding of the patterns and
methods employed by illicit actors in the use of
cryptocurrencies, the study examined various publicly
available blockchain data analytics tools. These tools,
such as Chainalysis and Elliptic, allow for the analysis of
cryptocurrency transactions by mapping wallet
addresses to known entities (such as exchanges or
criminal groups). This type of blockchain forensic
analysis enabled the research to identify trends in how
cryptocurrencies are used to obscure the flow of illicit
funds.
Specific areas of focus in this analysis included:
o
Identifying Red Flags in Cryptocurrency
Transactions: By analyzing transactions associated with
known ransomware attacks, terrorist organizations,
and illicit money laundering schemes, the study aimed
to identify common patterns and red flags that indicate
misuse of cryptocurrencies.
o
Mapping Terrorist Financing: Case studies such
as those involving the use of Bitcoin by organizations
like ISIS and Al-Qaeda were analyzed to see how they
exploited cryptocurrency’s pseudonymous nature to
raise funds through online campaigns and donations.
o
Tracking
Ransomware
Payments:
Cryptocurrency’s use in ransomware payments was
explored by looking at the specific digital wallets and
addresses associated with known cybercrime groups.
This analysis highlighted the difficulties faced by
authorities in tracing payments and identifying
perpetrators.
4.
Interviews with Experts While the primary
research was conducted using secondary sources,
interviews with subject-matter experts in the fields of
cybersecurity, financial crime investigation, and
cryptocurrency regulation were conducted to gain
insights into the challenges and opportunities in
addressing the use of digital currencies for illicit
purposes. Experts from federal agencies, private sector
security firms, and financial institutions were consulted
to provide a holistic understanding of the practical
challenges faced by U.S. authorities. These interviews
were semi-structured and provided a platform for
expert opinions on potential solutions, as well as gaps
in the current regulatory frameworks.
5.
Comparative Analysis of Global Responses
Finally, the paper compared the U.S. response to
cryptocurrency-related threats with those of other
countries and international organizations. This
comparative analysis aimed to identify best practices
and lessons learned from jurisdictions that have
implemented successful regulatory frameworks to
combat cryptocurrency misuse. Countries such as
China, South Korea, and the European Union were
studied to assess how they are tackling cryptocurrency-
related threats through regulations, law enforcement
coordination, and technological innovation. The
international response was also examined to assess the
effectiveness of cross-border cooperation in tracking
and combating cryptocurrency-based crimes.
The combination of these research methods allowed
for a comprehensive understanding of the multifaceted
ways in which cryptocurrencies threaten U.S.
Homeland Security interests. The analysis not only
provided a clearer picture of how cryptocurrencies are
being used for illicit activities but also highlighted the
regulatory gaps and enforcement challenges faced by
U.S. authorities. The results of this research are
intended to inform future policy recommendations
aimed at mitigating the risks posed by cryptocurrencies
to U.S. national security.
This paper employs a qualitative research approach,
analyzing existing literature, reports, and case studies
from sources such as government agencies, academic
journals, and financial regulatory bodies. A critical
examination of the role of cryptocurrencies in illegal
activities was conducted by reviewing publicly available
data on terrorist organizations, cybercriminals, and
money laundering networks that utilize digital
currencies.
Additionally,
legal
and
regulatory
frameworks developed by the U.S. government and
international organizations were analyzed to assess
their effectiveness in combating the illicit use of
cryptocurrencies.
RESULTS
The findings from the analysis indicate that
cryptocurrencies are increasingly being used in a
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International Journal of Law And Criminology (ISSN: 2771-2214)
variety of ways that pose a direct threat to U.S.
Homeland Security interests:
1.
Terrorism Financing: Cryptocurrencies provide
terrorist organizations with a method of transferring
funds across borders without the oversight of
traditional financial institutions. The pseudonymous
nature of blockchain transactions makes it difficult for
authorities to trace these funds back to their sources or
intended recipients. Groups such as ISIS and Al-Qaeda
have reportedly used cryptocurrencies for fundraising
and operational support.
2.
Money Laundering: Criminal organizations
exploit cryptocurrencies to launder illicit funds.
Cryptocurrencies provide a way to obscure the origin of
illicit assets, enabling criminals to move money across
jurisdictions without detection. This creates challenges
for anti-money laundering (AML) regulations and
enforcement.
3.
Cybersecurity Threats: Cybercriminals use
cryptocurrencies to demand ransom from victims of
cyber-attacks, particularly ransomware incidents.
These attacks have targeted critical U.S. infrastructure,
including government entities, healthcare institutions,
and private corporations. The use of cryptocurrencies
for ransom payments makes it harder for authorities to
track and apprehend perpetrators.
4.
Regulatory Challenges: Current U.S. regulatory
frameworks are insufficient to fully address the rapidly
evolving landscape of cryptocurrency-related threats.
While agencies such as the Financial Crimes
Enforcement Network (FinCEN) have made strides in
regulating cryptocurrency exchanges and users, gaps in
enforcement and international cooperation persist.
DISCUSSION
Cryptocurrencies are undeniably a powerful tool for
enabling decentralized financial transactions; however,
their misuse by criminal and terrorist actors poses a
significant challenge for U.S. Homeland Security. The
key threat lies in the lack of centralized control over
digital currencies, which makes enforcement of existing
laws and regulations more complicated. Criminals and
terrorists can exploit cryptocurrencies to bypass the
traditional financial system, making it difficult for U.S.
authorities to trace illicit financial flows and enforce
counterterrorism
and
anti-money
laundering
measures.
The decentralized nature of cryptocurrencies also
complicates global cooperation on law enforcement.
While some countries have developed regulatory
frameworks to combat cryptocurrency-based crimes,
there is no universal standard for cryptocurrency
regulation, and enforcement varies significantly across
jurisdictions. This fragmentation undermines the ability
of the U.S. to collaborate with international partners
and address cross-border criminal activity effectively.
In addition, the rapid evolution of blockchain
technology and cryptocurrency applications, such as
decentralized finance (DeFi) and non-fungible tokens
(NFTs), adds new layers of complexity to the situation.
As these technologies grow, the potential for their
exploitation by malicious actors increases, requiring a
proactive and adaptive approach by U.S. Homeland
Security.
CONCLUSION
Cryptocurrencies present a growing threat to U.S.
Homeland Security interests due to their misuse in
financing terrorism, laundering money, and facilitating
cybercrime. To effectively mitigate these risks, the U.S.
must enhance its regulatory frameworks, improve
collaboration between federal, state, and international
law enforcement agencies, and stay ahead of
technological advancements. Strengthening anti-
money laundering (AML) regulations, improving
cryptocurrency exchange monitoring, and fostering
international cooperation are essential steps to
combating the illicit use of cryptocurrencies. Failure to
address these threats could result in increased
vulnerabilities to national security, economic stability,
and public safety.
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