Ecosoc:: Regulation of Cryptocurrency and The Fight Against Terrorism & Money Laundering

Anna Książczak & Simone Mostratisi
AUMUN 2018
ECOSOC:
Regulation of Cryptocurrency
and the fight against Terrorism
& Money Laundering
United Nations Economic & Social Council #1

AUMUN 2018
Index
1. Introduction to the Study Guide
2. Committee introduction
3. Topic one: The Regulation of Cryptocurrency
1. Introduction to the topic
2. History
3. The potential of cryptocurrencies
4. New challenges
5. Challenges for States
6. Regulation efforts
7. Questions a resolution must answer (QARMA)
8. Recommended reading
9. Bibliography
4. Topic two: The fight against Money Laundering and the Funding of Terrorism
1. Introduction
2. Focusing on the matter
3. Where do terrorist organisations get their money from?
4. How do terrorist transfer funds?
5. How much does a terrorist operation cost?
6. What are governments doing to stop terrorist financing?
7. What are some of the difficulties with tracking down terrorist financiers?
8. How can governments more effectively combat terrorist financing?
9. International legal instruments
11. Bibliography 

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1. Introduction to the Study Guide
Dear Delegates, 
It is a pleasure to welcome you to the 2018 AUMUN Conference. 
 
The following pages intend to guide you in the research of the topics that will be debated at AUMUN
2018 in committee sessions. Please note this guide only provides the basis for your investigation. It
is your responsibility to find as much information necessary on the topics and how they relate to the
country you represent. Such information should help you write your Position Paper and to stay in
character at all times. 
 
The more information and understanding you acquire on the two topics, the more you will be able to
influence the Resolution writing process through debates (formal and informal caucuses), and the
AUMUN experience as a whole. Please feel free to contact us if and when you face challenges in
your research or formatting your Position Papers.
 
We encourage you to learn all you can about your topics first and then study your country with
regard to the two selected topics:  
Topic 1: The regulation of cryptocurrencies.

Topic 2: The fight against money laundering and the Funding of Terrorism.
Please remember that all committee’s members need to be well versed and ready to debate both
topics. 
 
We strongly believe that this new approach at treating international urgent topics, directly studying
and reading from the very first and most reliable sources will bring a completely different preparation
from our delegates. Having the possibility of working on official documents will give you the
opportunity to immediately recognize authoritative sources, giving you a great heads-up on how to
further research matters that interest you for your own personal gain or for a commitment-based
work. 
 
Enjoy researching and writing your Position Papers.  
We look forward to seeing you at the Conference!
Your chairs Anna Książczak & Simone Mostratisi  

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2. Committee introduction
The Economic and Social Council (ECOSOC) is one of the six main organs of the United Nations
established in Chapter X of the United Nations in General Assembly in 1945. ECOSOC is the
principal body for coordination, policy review, policy dialogue and recommendations on economic,
social and environmental issues. It is also for implementation of the internationally agreed
development goals. ECOSOC consists of 54 Members of the United Nations elected by General
Assembly, out of which eighteen members of ECOSOC shall be elected each year for a term of three
years. A retiring member shall be eligible for immediate re-election. Each member of ECOSOC shall
have one representative. Partnership with more than 3,900 non-governmental Organisations play as
the status of the observers resolved related economic and social issues (Article 61). ECOSOC meets
for four weeks sessions each July and hold several regular meetings with professionals, experts, and
NGOs. ECOSOC engages a wide variety of stakeholders in the dialogue on sustainable development
through a programmatic cycle of meetings. It also provides a forum on a range of issues outlined in
the United Nations Charter X especially from Articles 62 to 66 in which detail the functions and
powers of ECOSOC as following:
1. ECOSOC may make or initiate studies and reports with respect to international
economic, social, cultural, educational, health, and related matters and may make
recommendations to any such matters to the General Assembly, to the Members of
the United Nations and to the specialised agencies concerned (Article 62).
2. ECOSOC may furnish information to the Security Council and shall assist the Security
Council upon its request (Article 65).
3. ECOSOC may perform services at the request of Members of the United Nations and
at the request of specialised agencies with the approval of the General Assembly
(Article 66).
Mandate:
ECOSOC serves as the central mechanism for the activities of the UN system and its
specialised agencies, supervises the subsidiary and export bodies in the economic, social
and environmental fields. At the 2005 Word Summit, the ECOSOC mandated a biennial
Development Cooperation Forum (DCF). It has been tasked to promote the integration of
the economic, social and environmental aspects of sustainable development. Since 2014,
ECOSOC focused on the sustainable urbanisation. The agenda of 2014 also focuses on

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youth employment and expanding the voice of youth that further achieve the Millennium
Development Goals and shape the post-2015 development agenda. In the meantime of
strengthening funding methods from increasing investment and reforming taxation, still
committed to sustainable development, gender equality and health issues.

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3. Topic one: The Regulation of Cryptocurrency
1. Introduction to the topic
Cryptocurrency is commonly defined as “any form of currency that only exists digitally, that usually
has no central issuing or regulating authority but instead uses a decentralised system to record
transactions and manage the issuance of new units” (Merriam-Webster, 2018).
The trick about cryptocurrencies is the blockchain technology. It allows for a system where every
user has access to the ledger of transactions. This means that the account is verified among the
users, without the need for an authority to keep track of the transactions and create trust in the
system. At the same time, it allows users to remain in relative anonymity, as even though there is an
accessible record of all transactions, it often requires vast resources and determination to track the
transaction to a real life person (Hałaburda and Sarvary, 2016). Both the decentralised character and
anonymity of the system carry some advantages but also some risks for individual states and the
international community. The controversy surrounding cryptocurrencies leads states to adopt
different strategies in approaching them. While some states such as the US allow cryptocurrencies
to flourish, other states such as Algeria ban them altogether.
Given that cryptocurrencies defy national borders, this discrepancy presents a challenge for the
international community. How to find a reasonable compromise, which would balance the
advantages and disadvantages? The following pages should provide you with some basic
information needed to eventually answer this question.
2. History
The first one to envision ledgers verified by users was the sci-fi writer H. G. Wells in the 1930’s. As
the Internet started developing in the late twentieth century, the idea was popularised among the
online community. Eventually, in 2008 someone under pseudonym Sakashi Nakamoto published a
paper outlining the blockchain technology (Campbell-Verduyn, 2018). It was proposed as a means
to solve the problem of high transaction costs and the need for anonymity connected to trading on
the Internet. Although it is not clear who Sakashi Nakamoto is or was, the paper started circulating
and in 2009, Bitcoin was created based on this idea. To this day, Bitcoin largely remains the most
popular cryptocurrency and it is this paper’s main focus, except where otherwise provided.

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The blockchain technology slowly started gaining attention and other also cryptocurrencies were
created. The first main public event is connected to the WikiLeaks affair of 2011. After revealing
classified information relating to the US involvement in Afghanistan, many banks and financial service
providers refused to process donation payments to WikiLeaks. In reaction, Julian Assange,
WikiLeaks founder, announced that the platform would start accepting donations in Bitcoin
(Campbell-Verduyn, 2018). Despite the media attention, cryptocurrencies remained restricted to the
online geek community. This started changing in 2013 as Bitcoin began to be mentioned in the
media in relation to the Silk Road, an online market for illegal services. At the same time, also
positive features of cryptocurrencies surfaced, such as the alternative means to controversial
quantitative easing of central banks after the financial crisis of 2008 (Campbell-Verduyn, 2018).
Thanks to the media attention, it started to be an interesting speculative investment opportunity
(Hałaburda and Sarvary, 2016). The exchange value of Bitcoin kept rising and falling but at the end
of 2013 it reached 1200 USD. In relation to the initial value of below 15 USD in the beginning of
2013, it is indeed astonishing (Hałaburda and Sarvary, 2016).
With the rise of public awareness, cryptocurrencies began to be incorporated to the global
economy. More service providers, such as AirBnB or eBay started accepting Bitcoin as a possible
means of payment (Campbell-Verduyn, 2018). Alongside this development, policy makers became
interested in regulating cryptocurrencies. In 2013, the US Senate held a hearing on Bitcoin. The
potential risks were stressed but overall, the positive side prevailed, and the hearing was not
followed by any regulation. Other countries took a different approach. China banned its banks and
other financial institutions from using cryptocurrencies. Vietnam made use of cryptocurrencies illegal.
(Hałaburda and Sarvary, 2016). In this context, it is worth reviewing the potential advantages and
disadvantages of cryptocurrencies.
3. The potential of cryptocurrencies
There are some obvious advantages of cryptocurrencies. They are resistant to counterfeit and
represent a solution to the double spending problem - it is clear where each Bitcoin is and it cannot
be spent twice. Other advantages relate to its accessibility and the role that cryptocurrencies could
play in elevation from poverty. Providing people with cheap and accessible basic financial services is
one of the ways. Having a Bitcoin wallet instead of an expensive credit card could provide an
alternative to small businesses and individuals in less developed economies. In addition, Bitcoin can
provide a cheap way to send remittances, on which the economies of some developing countries
are relatively dependent. This is important as remittances are generally correlated to economic
development in the receiving countries. Currently, the high costs of processing remittance payments
is attributed to underdeveloped financial systems, lack of access to banking services and insufficient

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market transparency. These problems could be addressed through an increased use of

cryptocurrencies.. Nowadays, the massive spread of smartphones has already made mobile
payments very attractive, with cryptocurrencies possibly following the same development (Trautman
and Harrell, 2017).
4. New challenges
Naturally, there are also some drawbacks in the Bitcoin system. The ledger is updated by the so
called miners and in the process a considerable amount of computational power is necessary, which
relates to high energy consumption. Some cities start to voice concerns, with New York State
Department of Public Service reporting that “these companies [miners] are using extraordinary
amounts of electricity – typically thousands of times more electricity than an average residential
customer would use” (Armstrong, 2018). The Department is also linking Bitcoin mining to rising cost
of energy for regular residents (Armstrong, 2018). With Bitcoin’s energy bill exceeding that of Austria,
a part of the Bitcoin community is also worried about the sustainability and carbon footprint of the
system and is trying to think of alternative solutions (Digiconomist, 2018).
Another concern for the Bitcoin community is the potential for a monopoly. When miners compete
for the reward, only the first miner to validate the transaction receives it. This means that all others
incur a cost but do not get the reward, which is why being a lone miner is risky. Instead, miners have
the incentive to join a so called mining pool to share the costs and rewards with each other. In case
such a mining pool reached a share of 51% of the validation operations in the whole market, the
whole system would be at mercy of a single entity capable of influencing the whole ledger and
everybody’s money. This risk is called the “51% attack”. In 2014, GHash.io, one of the leading
mining pools, was reported to have reached over the 51% of the mining power in the network. The
Bitcoin community became worried. Even though all actors had the incentive to upkeep the system,
the element of independent control was suddenly gone and a summit of key Bitcoin figures, mining
hardware manufacturers and biggest mining pools was organised to address the problem. GHash.io
made a voluntary pledge not to exceed a 40% limit and encouraged others to do the same. The
summit resulted in the creation of a committee run by GHash.io to address the problem more
permanently (Coindesk, 2014). Some see this example as a verification of the self-regulatory
potential of cryptocurrencies. Others point out instances of other cryptocurrencies which are facing
problems as well. In May 2018, Bitcoin Gold, the 26th largest cryptocurrency, was under a 51%
attack and a worth of 18,6 million USD was stolen (CCN, 2018).
There are also challenges relating more to the economic nature of the system. Bitcoin creators
wanted to install a scarcity element into the system and ensured a finite supply of Bitcoins. As the

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amount of transactions rises, a deflationary pressure might be created and prices could be pushed
down. Other cryptocurrencies tried to address this issue by regularly emitting a quantity of the
currency. However, it is challenging to manage the supply exactly right to prevent both inflation and
deflation. (Hałaburda and Sarvary, 2016). In addition, it starts to resemble the activities of the central
bank which defeats the main characteristic of a cryptocurrency.
Finally, cryptocurrencies are often considered to be a very risky financial investment. Not being
backed by any central authority or any underlying fundamentals to guide the price, they can be quite
volatile, making them into a candidate for the next financial bubble (UN, 2017) A case in point is
Bitcoin by the end of 2017, when it lost almost half of its value (Business Insider, 2017). If
cryptocurrencies become more embedded in global economy, the risk that individual holders face
could spread into the broader financial sector. Given the increasing interconnectedness of the world,
this could be a matter of concern to the international community. This leads us to consider the risks
of cryptocurrencies from the point of view of states.
FIG. 1: BITCOIN ENERGY CONSUMPTION INDEX, DIGICONOMIST, 2018
Czech Republic Chile Austria Bitcoin Philippines Venezuela

Finland

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5. Challenges for States
While some risks present an immediate challenge, some are more remote. One of the purely
theoretical risks at this point is the threat that cryptocurrencies present to the financial stability and
monetary policy of the state. If cryptocurrencies become more popular, they could start to compete
with the traditional banking system, threatening with the loss of control over money supply and the
lender-of-last-resort capability (Sotiropoulou and Guégan, 2017). Again, the volume of
cryptocurrency transactions so far is nowhere near the level where it could present a systemic threat
(He et al., 2016).
A more imminent problem often mentioned in relation to cryptocurrencies is the funding of illegal
activity. Although, it is true that all transactions are recorded, Bitcoin wallets, through which
transactions are made, can be created without the supervision of any financial institution. Thus,
users are able to create their own financial products which makes any supervision or tracing quite
complicated (Doles Silva, 2017). This limits the ability of state authorities to prevent funding illegal
activities such as drug trafficking or organised crime, creating also a transboundary problem. This
risk is not hypothetical. As mentioned earlier, Bitcoin was chosen for its anonymity as a preferred
means of payment on the dark web server, Silk Road. Estimates from early 2018 say that a quarter
of Bitcoin users and a half of all Bitcoin transactions are related to illegal activities (Foley et al. 2018).
Another challenge is that cryptocurrencies can be used to circumvent international economic
instruments such as sanctions or capital controls. By bypassing the traditional payment system,
people were able to purchase Bitcoins and then obtain otherwise heavily regulated or unavailable
foreign exchange online. Such cases were reported in China, Venezuela, Cyprus and Greece (He et
al., 2016).
Cryptocurrencies are also problematic when in comes to taxation. Transactions taking place across
borders and without the need to reveal one’s identity involve the temptation not to be reported and
the states lack effective means of enforcement of tax evasion rules (He et al., 2016). Some say that
cryptocurrencies should be taxed just like investment into other financial assets (Dabrowski and
Janikovski, 2018)
6. Regulation efforts
Keeping in mind the growing popularity of cryptocurrencies in the market and the amount of
resources necessary to dismantle the system, there are benefits to be gained from international
cooperation. Why are international/global standards so necessary? In case of national differences,
given the transboundary nature of cryptocurrencies, there is a risk of “regulatory arbitrage or flight to

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unregulated safe havens” (FATF, 2018b). For any measures to be effective, they need to be applied
universally. The table below shows that this is not the case at this point in time.
FIG 2: G20 REPORT, FATF, 2018B:
Measures currently applied Countries
Prohibition (on issue/use/dealing/settling of virtual

China, India, Indonesia
currencies/crypto-assets)
Regulation of intermediaries/exchanges and others Australia, France, Germany, Italy,

(using of existing AML/CFT regulation) Japan, Switzerland, US
Suspicious Transaction Reporting Only Argentina, South Africa
Brazil, Canada, EU, Mexico, Netherlands, Russia,

Preparing laws of regulations
Saudi Arabia, South Korea, Spain, Turkey, UK
To address the issue, the first step would be to solve the definitional problem. Is Bitcoin a currency
or an asset? Clarifying this is important for subjecting cryptocurrencies to the right regulatory
framework. The approaches that individual countries take differ significantly. While the French Central
Bank considers cryptocurrencies rather as an asset, Japan created a special new legislative
category and the Financial Action Task Force uses the phrase “virtual currencies/crypto-assets”.
Another challenge is asserting jurisdiction over a particular transaction or a wallet owner. Given that
the transactions cross borders within a split second, it might get complicated. Even when jurisdiction
is determined, a barrier of receiving information from abroad might have to be dealt with
(Sotiropoulou and Guégan, 2017).
Once these challenges are solved, it is worth considering what part of the system should be
regulated. Looking at Bitcoin, in theory, there are three options: the Bitcoin system, the uses of
Bitcoin and the participants. The Bitcoin system itself is difficult to regulate as there is no institution
to address the regulation to. Instead, there are miners and developers, mostly of unknown identity.
The possibilities of the state are therefore mostly limited to monitoring the system and providing
warnings of potential problems with the blockchain technology. Getting back to the “51% attack”, it
seems that the Bitcoin community is trying to build up its own resilience to problems and it is hard to
imagine the role of the state or intergovernmental institution in this environment.

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FIG 3: VIRTUAL CURRENCIES/CRYPTO-ASSETS REGULATION IN G20 PARTICIPANTS (G20

REPORT, FATF, 2018B):
Preparing laws or regulations

Regulation on intermediaries /excharges
Prohibition (on issue /use/dealing/settling)
Suspicious Transactions Reporting only
The state could be more active when it comes to the uses of Bitcoin. This relates back to funding of
illicit activities. So far, one of the most active entities in standard-setting in this area was the Financial
Action Task Force (FATF). This intergovernmental organisation is tasked with developing
recommendations to combat money laundering and terrorism funding (FATF, 2018a). Their
recommendations relating to cryptocurrencies mostly consists of the regulation of “gatekeepers”,
namely entities providing the exchange services from traditional-to crypto-currencies. The FATF
recommends that they should be covered by the same anti-money laundering rules and that the
“gatekeepers” should be responsible for preventive measures and reporting suspicious money flows
(He et al., 2016). The list of recommendation also includes customer due diligence (verifying
customers) when entering into business and exchanging larger amounts of cryptocurrencies. The
FATF recommends tracking IPs’ or national identity number, always in accordance with national
privacy standards (FATF, 2015). At the same time, the FATF did not advise for regulating the users
and the transactions serving for purchase of goods and services (He et al., 2016). The problem with
that is that if cryptocurrencies gain more popularity, the need to exchange money will lower and for

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the regulation to remain effective it will need to target participants entirely within the system, such as
wallet providers.
The European Banking Authority (EBA) has also been quite active in issuing recommendations. To
face the immediate risk, the EBA recommended for countries to discourage its financial institutions
from buying or holding cryptocurrencies. In addition, it recommended for the EU Anti Money
Laundering Directive to cover also cryptocurrency transactions (He et al., 2016). Last May some of
these recommendations were included in the 5th Anti-Money Laundering Directive which passed
through the European Parliament. It now subjects two types of actors to regulation: cryptocurrency
exchanges and wallet providers (EU, 2018).
The last option is to regulate the participants in the system. Such regulation could relate to customer
protection with rules such as a disclosure of irreversibility of transactions, even in case of an error or
theft, thereby making sure that the participants are aware of the risks. Some countries are also
experimenting with licensing cryptocurrency exchange platforms in order to improve customer
protection. Either they are subjecting them to existing licensing standards for financial service
providers or creating new licensing regimes specific for cryptocurrencies.
What is certain is that cryptocurrencies are an issue worth addressing on the ECOSOC forum, as it
provides an opportunity to coordinate activities among states. This leads to a more effective
approach whether in harnessing the benefits of cryptocurrencies for the benefit of humanity or
combating the risks in order to protect it. To open the debate on possible recommendations, at least
the following questions need to be addressed in a resolution.
1. Should cryptocurrencies be treated as an asset, a currency or should they have their own
special category?
2. What is the consensus on the existence and severity of risks connected to cryptocurrencies?
3. What should be the common standards of use of cryptocurrencies and what is the best way to
address the risks?
8. Recommended reading
FATF (2015): Guidance For a Risk-based Approach To Virtual Currencies. Available at:
http://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-RBA-Virtual-Currencies.pdf

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- More detailed information about the FATF recommendations, including the policies of
selected states.
Dabrowski M and Janikowski L (2018): Virtual currencies and central banks monetary policy:
challenges ahead. EU, Directorate-General for Internal Policies. Available at:
http://www.europarl.europa.eu/cmsdata/149900/CASE_FINAL%20publication.pdf
- An extensive analysis requested by the European Parliament, detailing the opportunities

and risks of cryptocurrencies.
Digiconomist (2018): Bitcoin Energy Consumption Index. Available at:
https://digiconomist.net/bitcoin-energy-consumption
- Bitcoin Energy Consumption Index, a good source for estimates on energy consumption
and carbon footprint of mining, and possible alternatives
9. Bibliography
1. Armstrong S (2018) The fightback against the bitcoin energy guzzlers has begun. Wired UK, 31 July.
Available at: https://www.wired.co.uk/article/bitcoin-mining-energy-consumption-new-york
(accessed 1 September 2018).
2. Campbell-Verduyn M (2018) Bitcoin and Beyond: Cryptocurrencies, Blockchains, and Global

Governance. Routledge, New York, USA.
3. CCN (2018) Bitcoin Gold Hit by Double Spend Attack, Exchanges Lose Millions. Available at:
https://www.ccn.com/bitcoin-gold-hit-by-double-spend-attack-exchanges-lose-millions/ (accessed 3
September 2018).
4. Corcoran K (2017) Bitcoin heads into Christmas on a slump. Business Insider UK. Available at:
http://uk.businessinsider.com/bitcoin-price-value-slumping-on-christmas-morning-2017-12 (accessed
16 August 2018).
5. Dabrowski M and Janikowski L (2018) Virtual currencies and central banks monetary policy:
challenges ahead. EU, Directorate-General for Internal Policies. Available at: http://
www.europarl.europa.eu/cmsdata/149900/CASE_FINAL%20publication.pdf

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6. Digiconomist (2018) Bitcoin Energy Consumption Index. Available at: https://digiconomist.net/

bitcoin-energy-consumption (accessed 3 September 2018).
7. Doles Silva (2017) Cryptocurrencies and International Regulation. UNCITRAL 50th Anniversary
Congress Papers. Available at: https://www.uncitral.org/pdf/english/congress/Papers_for_Congress/
29-DOLES_SILVA-Cryptocurrencies_and_International_Regulation.pdf (accessed 13 August 2018).
8. EU (2018) Factsheet, 5th AML Directive, available at http://europa.eu/rapid/press-

release_STATEMENT-18-3429_en.html
9. Financial Action Task Force (FATF) (2018a). About. Available at: http://www.fatf-gafi.org/about/
(accessed 16 August 2018).
10. FATF (2018b) G20 Report. Available at: http://www.fatf-gafi.org/media/fatf/documents/reports/

FATF-Report-G20-FM-CBG-July-2018.pdf (accessed 16 August 2018).
11. FATF (2015) Guidance For a Risk-based Approach To Virtual Currencies. Available at: http://
www.fatf-gafi.org/media/fatf/documents/reports/Guidance-RBA-Virtual-Currencies.pdf (accessed
16 August 2018).
12. Foley S, Karlsen JR and Putniņš TJ (2018) Sex, Drugs, and Bitcoin: How Much Illegal Activity Is
Financed Through Cryptocurrencies? ID 3102645, SSRN Scholarly Paper, 15 January. Rochester,
NY: Social Science Research Network. Available at: https://papers.ssrn.com/abstract=3102645
(accessed 1 September 2018).
13. Hałaburda H and Sarvary M (2016) Beyond bitcoin: the economics of digital currencies. Palgrave,
UK.
14. He D, Habermeier K, et al. (2016) Virtual Currencies and Beyond: Initial Considerations. Staff
Discussion Notes IMF 16(03): 1. DOI: 10.5089/9781498363273.006.
15. Merriam-Webster Dictionary (2018) Definition of Cryptocurrency. Available at: https://

www.merriam-webster.com/dictionary/cryptocurrency (accessed 1 September 2018).
16. Sotiropoulou A and Guégan D (2017) Bitcoin and the challenges for financial regulation. Capital
Markets Law Journal 12(4): 466–479. DOI: 10.1093/cmlj/kmx037.

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17. Trautman LJ and Harrell AC (2016) Bitcoin versus Regulated Payment Systems: What Gives.
Cardozo Law Review 38: 1041–1098.
18. United Nations (2017) November 2017 Briefing on the World Economic Situation & Prospects.
Available at: https://www.un.org/development/desa/dpad/publication/world-economic-situation-
and-prospects-november-2017-briefing-no-108/ (accessed 17 August 2018).
19. UN DESA (United Nations Department of Economic and Social Affairs) (2017) Regulating the no
man’s coin - the rapid rise of cryptocurrencies has regulators scratching their heads. Available at:
https://www.un.org/development/desa/en/news/policy/cryptocurrencies.html (accessed 17 August
2018).

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4. Topic two: The fight against Money Laundering and

the Funding of Terrorism
1. Introduction
"Money laundering" is not a legal term in international law but is used to loosely describe the "turning
of dirty money into clean money". The act by which illicit funds are made to appear legitimate (which
the term refers to) is defined in key international instruments, most notably the UN Convention
Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and the UN Convention Against
Transnational Organized Crime. The latter defines money laundering as: “The conversion or transfer
of property, knowing that such property is the proceeds of crime, for the purpose of concealing or
disguising the illicit origin of the property or of helping any person who is involved in the commission
of the predicate offence to evade the legal consequences of his or her action; or the concealment or
disguise of the true nature, source, location, disposition, movement or ownership of or rights with
respect to property, knowing that such property is the proceeds of crime”1.
The act of conversion and concealment is crucial to the laundering process, but it is important to
note that “laundered funds” never become legitimate. They only ever have the appearance of
legitimacy, not the reality, even though the so-called money trail may be complicated and obscure
the original criminal source of the funds. This is important because in jurisdictions where there is a
criminal asset confiscation scheme (proceeds of crime legislation), legitimate looking laundered
funds may still be forfeited to the State as criminal proceeds.
National strategies to combat money laundering must take into account the global nature of the
problem and therefore include not only effective criminal laws prohibiting money laundering and
persuasive penalties for those convicted, but also efficient and effective confiscation or forfeiture
mechanisms as well as effective laws to permit international cooperation around information sharing,
extradition and mutual legal assistance.
2. Focusing on the matter
The fifth edition of the 2017 Global Terrorism Index has recorded a total of 25,673 deaths due to
terrorism around the world last year. As grim as that figure is, it represents a 13 percent decrease in
deaths between 2015 and 2016. Afghanistan, Iraq, Nigeria, Syria and Pakistan accounted for three
1 Article 6, UN Convention Against Transnational Organized Crime

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quarters of the death toll, even though five of those countries (Iraq is the exception) recorded a
reduction in deaths since 2015 2.
Nigeria is notable as having the biggest
reduction in deaths with 3,100 fewer
people killed in 2016 than 2015. That's
primarily due to a an 80 percent fall in
the number of people killed by terror
group Boko Haram. The following
infographic shows the 10 countries
worst affected by terrorism in 2016,
according to the Global Terrorism
Index3 .
Amid the fight-back against the so-

called Islamic State group, Iraq had the
most deaths of any country by far in 2016 with 9,765. Afghanistan came second with 4,574 while
Syria rounded off the top three with 2,102.
The economic cost of terrorism equated to a

crippling 24 percent of Iraq's GDP last year. This is
according to the new Global Terrorism Index from the
Institute of Economics & Peace. Relatively speaking,
no other country is impacted more, with the second
most affected nation Afghanistan with 13 percent of
GDP.
The largest costs are caused by the loss of life. On

average, 81 percent of the economic impact is
accounted for by death. Not considered in the
calculations are the costs associated with
intelligence agencies budgets’ for which are likely to
have increased significantly in recent years.
2 Statista on terrorism: https://www.statista.com/topics/2267/terrorism/ : The Countries Worst Affected By Terrorism
3 Vision of humanity, measuring and understanding global terrorism: Global terrorism index

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3. Where do terrorist organisations get their money from?
1. Charities:
Donations were once the largest source of terrorist funding, coming mostly from charities
and wealthy individuals. For years, individuals and charities based in Saudi Arabia were the
most important source of funds for al-Qaeda, according to a 2002 CFR Task Force Report4.
A 2004 update to that report shows Saudi officials have taken steps to disrupt terrorist
financing in their country, yet charities continue to play a role in the sponsorship of terrorist
groups. "In the Islamic world, there are tens of thousands of charities," says Robert O.
Collins, coauthor of the new book Alms for Jihad5 . While as few as a hundred may sponsor
terrorism, "these are some of the wealthiest charities," Collins says. Experts say some of
these organisations raise funds with the express intent of supporting terrorists; others seek
to promote Islam through legitimate programs, but can be coopted by Jihadists who then
use the funds to promote their own radical cause.
2. Illegal activities:
Loretta Napoleoni, an expert on terrorist financing, says the largest source of terrorists’
income is the illicit drug trade6 . Many terrorist groups have supported themselves through
other illegal commerce as well. In his book, Illicit, Moisés Naím explains that the terrorists
behind the 1993 World Trade Centre bombing raised money by selling counterfeit t-shirts on
New York City’s Broadway, and the perpetrators of the 2004 Madrid train bombings sold
counterfeited CDs and trafficked drugs to support their activities. Hezbollah, the Irish
Republican Army, and the Basque ETA are also believed to have generated revenue through
counterfeiting scams. In 2002, federal agents broke up a methamphetamine ring in a dozen
U.S. cities that, according to officials, funnelled proceeds to Hezbollah. The Revolutionary
Armed Forces of Colombia (FARC) has long used the cocaine trade to finance its
operations. Afghanistan’s flourishing poppy crops, which the United Nations says are
responsible for as much as 86 percent of the world opium supply, are widely believed to be
a major source of terrorist funding. Al-Qaeda reportedly profited from the Afghan poppy
trade before fleeing the country when the Taliban-led government was ousted in 2001.
3. Front companies:
4 Council on foreign relations: Terrorist financing
5 Robert O. Collins on the book Alms for Jihad
6 Loretta anapoeleoni on “Tracking Down Terrorist Financing”, Apr 16, 2006

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Many terrorist organisations attempt to operate legitimate businesses, which generate their
own profits and can also be used as a front for money laundering. Ties to terrorism have
been found amid the trade of livestock, fish, and leather. Businesses involved in agriculture
and construction have also been found to support terrorism. In 2001, the New York Times
reported that Osama bin Laden owned and operated a string of retail honey shops
throughout the Middle East and Pakistan7 . In addition to generating revenue, the honey was
used to conceal shipments of money and weapons.
4. How do terrorists transfer funds?
Quite often, terrorists transfer money in plain sight: "If it isn’t done through the ordinary banking
system, it’s done through shell companies”, says Bill Tupman, a senior lecturer at the University of
Exeter who specialises in transnational crime. In their book, Chasing Dirty Money, Peter Reuter and
Edwin M. Truman say financial crime is so widespread that as much as 10 percent of the global GDP
is estimated to be laundered funds. Despite heightened efforts to track terrorist financiers, the
vastness of the modern financial system means government officials often find themselves looking
for the proverbial needle in the haystack.
Another, more traditional means of transfer is also widely used by terrorists. Hawalas are time-
honoured, trust-based remittance agencies popular across Asia and found throughout the world,
particularly in Muslim communities. Hawala is a method of transferring money without any money
actually moving. Interpol's definition of hawala is "money transfer without money movement”.
Another definition is simply “trust". Hawala is an alternative remittance channel that exists outside of
traditional banking systems. Transactions between hawala brokers are made without promissory
notes because the system is heavily based on trust and the balancing of hawala brokers' books8.
Hawala, also known as Hundi, means transfer or remittance. With no more than a handshake and a
password, individuals are able to transfer money across the world.
5. How much does a terrorist operation cost?
Though the 9/11 attacks are believed to have cost as much as a half million dollars 9, most terrorist
operations have much more modest budgets. The UN estimates the 2002 bombing of a Bali
7 The New York Times: “A NATION CHALLENGED: AL QAEDA; Honey Trade Said to Provide Funds and Cover to bin Laden”, Oct 11, 2011
8 Investopedia: “what is Hawala?”
9 Council on foreign relations: Terrorist financing

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nightclub cost about $50,000. By comparison, the 2004 Madrid train bombing is believed to have
cost between $10,000 and $15,000. The 2005 attacks on London’s mass transit system cost about
$2,000, says Napoleoni.
6. What are governments doing to stop terrorist financing?
The 9/11 attacks brought an international sense of urgency to disrupting terrorists’ financial
networks. Within a few weeks, the UN Security Council adopted a wide-ranging resolution10
demanding countries take action to suppress terrorist financing. The following month, the Financial
Action Task Force, an intergovernmental body, issued a list of recommendations that became the
basis for many governments’ efforts. These included passing legislation specifically criminalising
terrorist financing, requiring financial institutions to report suspicious transactions, creating a greater
degree of international cooperation in tracking down terrorist financiers, and ratifying the UN
convention on financing terrorism, a step that has been taken by 150 countries. Like several other
nations, the United States created a special agency (the Office of Terrorism and Financial
Intelligence) to coordinate these efforts. The Patriot Act, along with subsequent legislation, created
tough legal measures to combat terrorist financing. While these measures have been fairly effective
within the United States, Napoleoni says terrorists have simply “shifted all the money to Europe”11.
7. What are some of the difficulties with tracking down terrorist

financiers?
The greatest difficulty is that terrorist networks have stayed aware of governments’ efforts to stymie
their activities and adjust their operations accordingly. Napoleoni says "terrorist financing mutates
continuously," which generally keeps terrorists a step ahead of the authorities. Terrorists have
increasingly relied on illegal activities, like smuggling or counterfeiting, to generate revenue that is
difficult to track through the financial system. Terrorists have also begun to rely more on cash,
leaving less of a paper trail. According to Napoleoni12, much of the funding for Abu Musab al-
Zarqawi’s al-Qaeda organization in Iraq is brought into the country by couriers carrying cash. The
July 2005 attacks in London were also funded entirely by cash, which Napoleoni says is
untraceable. The London attacks highlight another development in terrorist finance: the use of
domestic sources in planning and funding attacks. The bombings were planned inside Britain by
British citizens who raised all the money locally for the attacks. Because the plotters only used cash
10 Security council resolution on financing terrorism, resolution No.1373, 2001
11 Loretta Napoeleoni on her article “Tracking Down Terrorist Financing”, April 16, 2006
12 EADEM

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and didn’t cross any national borders, it was difficult to track their financial activities. Enforcement of
new financial laws has also proven difficult. According to the British Bankers’ Association, UK banks
spend about $430 million each year to comply with anti-terror and anti-money laundering laws.
Experts say the U.S. Department of Treasury is overwhelmed by the number of suspicious activity
reports it receives, which have risen some 350 percent since 2001.
8. How can governments more effectively combat terrorist

financing?
Because terrorist networks transcend national boundaries, improving international cooperation is

essential. "One of the problems of coordination," Wolosky says, "is reaching common ground on
’what is a terrorist organisation’”. The UN General Assembly has tried for more than a decade to
agree on a definition for terrorism, which would help underpin a comprehensive treaty banning the
practice. Beyond that, Napoleoni calls for an international body dedicated to information-sharing and
an international court to oversee the terrorism blacklist of individuals and organisations.
FIG 4: ESTIMATED TOTAL INCOME OF THE ISLAMIC STATE FROM 2014 TO 2016 IN
MILLION US DOLLARS (STATISTA INDEX ON INTERNATIONAL TERRORISM)
Minimum Maximum
Terrorists use techniques like those of money launderers to evade authorities' attention and to
protect the identity of their sponsors and of the ultimate beneficiaries of the funds. However, financial

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transactions associated with terrorist financing tend to be in smaller amounts than is the case with
money laundering, and when terrorists raise funds from legitimate sources, the detection and
tracking of these funds becomes more difficult.
To move their funds, terrorists use the formal banking system, informal value-transfer systems,
Hawalas and Hundis and, the oldest method of asset-transfer, the physical transportation of cash,
gold and other valuables through smuggling routes.
*http://calert.info/details.php?id=725
9. International legal instruments
1. INSTRUMENT REGARDING THE TAKING OF HOSTAGES:
A. 1979 International Convention against the Taking of Hostages13:

Provides that “any person who seizes or detains and threatens to kill, to injure, or to
continue to detain another person in order to compel a third party, namely, a State, an
international intergovernmental organisation, a natural or juridical person, or a group of
persons, to do or abstain from doing any act as an explicit or implicit condition for the
release of the hostage commits the offence of taking of hostage within the meaning of this
Convention”.
13 International Convention against the taking of hostages, 1979

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2. INSTRUMENT REGARDING TERRORIST BOMBINGS:
A. 1997 International Convention for the Suppression of Terrorist Bombings14:
Creates a regime of universal jurisdiction over the unlawful and intentional use of explosives
and other lethal devices in, into, or against various defined public places with intent to kill or
cause serious bodily injury, or with intent to cause extensive destruction of the public place.
3. INSTRUMENT REGARDING THE FINANCING OF TERRORISM:
A. 1999 International Convention for the Suppression of the Financing of Terrorism15:
Requires parties to take steps to prevent and counteract the financing of terrorists, whether
direct or indirect, through groups claiming to have charitable, social or cultural goals or
which also engage in illicit activities such as drug trafficking or gun running;
“Commits States to hold those who finance terrorism criminally, civilly or administratively
liable for such acts”;
“Provides for the identification, freezing and seizure of funds allocated for terrorist activities,
as well as for the sharing of the forfeited funds with other States on a case-by-case basis.
Bank secrecy is no longer adequate justification for refusing to cooperate”.
B. 2000 United Nations convention against organised crime16:
The Convention represents a major step forward in the fight against transnational organised
crime and signifies the recognition by Member States of the seriousness of the problems
posed by it, as well as the need to foster and enhance close international cooperation in
order to tackle those problems. States that ratify this instrument commit themselves to
taking a series of measures against transnational organised crime, including the creation of
domestic criminal offences (participation in an organised criminal group, money laundering,
corruption and obstruction of justice).
14 International Convention for the suppression of Terrorist Bombings, 1997
15 International Convention for the Suppression of the Financing of Terrorism, 1999
16 United convention against organised crime, 2000

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Is a deeper and more specific regulation about money’s origins necessary?

How can the international community involve world financial institutions in this new regulation?
Is there a common legal framework that establishes which means are legal and which are not when
it comes to laundering?
How can national banks provide more security concerning illegal money laundering?
11. Bibliography
1. What is 'Hawala, Investopedia, n.d. Available at: https://www.investopedia.com/terms/h/

hawala.asp
2. The New York Times: “a Nation challenged: Al Qaeda; honey Trade said to provide funds and cover
to Bin Laden”, 11 October 2001. Available at: https://www.nytimes.com/2001/10/11/world/nation-
challenged-al-qaeda-honey-trade-said-provide-funds-cover-bin-laden.html
3. Maurice R. Greenb, Maurice R. Greenberg: “Terrorist Financing Report of an Independent Task

Force Sponsored by the Council on Foreign Relations”, n.d.
4. Statista: “Documents and graphics about terrorism financing”, n.d. Available at: https://
www.statista.com/statistics/202864/number-of-terrorist-attacks-worldwide/
5. Niall McCarthy, “The Countries Worst Affected By Terrorism”, Nov 15, 2017. Available at: https://
www.statista.com/chart/11849/the-countries-worst-affected-by-terrorism-in-2016/
6. International monetary fund official page: “Anti-Money Laundering/Combating the Financing of

Terrorism”, n.d. Available at: https://www.imf.org/external/np/leg/amlcft/eng/
7. Niall McCarthy, “The Global Economic Impact Of Terrorism”, Nov 17, 2017. Available at: https://
www.statista.com/chart/11875/the-global-economic-impact-of-terrorism/
8. The International Centre for the Study of Radicalisation, n.d. Available at: https://icsr.info/

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9. International monetary fund official website, n.d. Available at: https://www.imf.org/external/np/leg/

amlcft/eng/
10. UNITED NATIONS office on counter terrorism, n.d. Available at: http://www.un.org/en/
counterterrorism/legal-instruments.shtml
11. US department of state, n.d. Available at: https://www.state.gov/j/inl/c/crime/c44634.htm
12. UNODC official website, n.d. Available at: https://www.unodc.org/unodc/en/organized-crime/intro/

UNTOC.html
13. Compliance alert blog, n,d. Available at: http://calert.info/details.php?id=725

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Ecosoc:: Regulation of Cryptocurrency and The Fight Against Terrorism & Money Laundering

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Anna Książczak & Simone Mostratisi

United Nations Economic & Social Council #1

1. Introduction to the Study Guide

3. Topic one: The Regulation of Cryptocurrency

1. Introduction to the topic

3. The potential of cryptocurrencies

5. Challenges for States

7. Questions a resolution must answer (QARMA)

2. Focusing on the matter

3. Where do terrorist organisations get their money from?

4. How do terrorist transfer funds?

5. How much does a terrorist operation cost?

6. What are governments doing to stop terrorist financing?

8. How can governments more effectively combat terrorist financing?

9. International legal instruments

10. Questions a resolution must answer (QARMA)

United Nations Economic & Social Council #2

1. Introduction to the Study Guide

Topic 1: The regulation of cryptocurrencies.

United Nations Economic & Social Council #3

United Nations Economic & Social Council #4

United Nations Economic & Social Council #5

3. Topic one: The Regulation of Cryptocurrency

1. Introduction to the topic

United Nations Economic & Social Council #6

3. The potential of cryptocurrencies

United Nations Economic & Social Council #7

market transparency. These problems could be addressed through an increased use of

United Nations Economic & Social Council #8

FIG. 1: BITCOIN ENERGY CONSUMPTION INDEX, DIGICONOMIST, 2018

Czech Republic Chile Austria Bitcoin Philippines Venezuela

United Nations Economic & Social Council #9

5. Challenges for States

United Nations Economic & Social Council #10

FIG 2: G20 REPORT, FATF, 2018B:

Measures currently applied Countries

Prohibition (on issue/use/dealing/settling of virtual

Regulation of intermediaries/exchanges and others Australia, France, Germany, Italy,

Suspicious Transaction Reporting Only Argentina, South Africa

Brazil, Canada, EU, Mexico, Netherlands, Russia,

United Nations Economic & Social Council #11

FIG 3: VIRTUAL CURRENCIES/CRYPTO-ASSETS REGULATION IN G20 PARTICIPANTS (G20

Preparing laws or regulations

United Nations Economic & Social Council #12

7. Questions a resolution must answer (QARMA)

United Nations Economic & Social Council #13

- An extensive analysis requested by the European Parliament, detailing the opportunities

Digiconomist (2018): Bitcoin Energy Consumption Index. Available at:

2. Campbell-Verduyn M (2018) Bitcoin and Beyond: Cryptocurrencies, Blockchains, and Global

United Nations Economic & Social Council #14

6. Digiconomist (2018) Bitcoin Energy Consumption Index. Available at: https://digiconomist.net/

8. EU (2018) Factsheet, 5th AML Directive, available at http://europa.eu/rapid/press-

10. FATF (2018b) G20 Report. Available at: http://www.fatf-gafi.org/media/fatf/documents/reports/

15. Merriam-Webster Dictionary (2018) Definition of Cryptocurrency. Available at: https://

United Nations Economic & Social Council #15

United Nations Economic & Social Council #16

4. Topic two: The fight against Money Laundering and

2. Focusing on the matter

1 Article 6, UN Convention Against Transnational Organized Crime

United Nations Economic & Social Council #17

Amid the fight-back against the so-

The economic cost of terrorism equated to a

The largest costs are caused by the loss of life. On