KARACHI: Police in Pakistan say the use of digital currencies, including bitcoin, for international terror financing, as well as crimes such as extortion and ransom, is on the rise as authorities move to crack down on illegal methods of money transfer.
Bitcoin is the most common virtual currency and is used as a vehicle for moving money around the world quickly and anonymously via the web without the need for third-party verification.
Militant groups worldwide, including Daesh, are increasingly calling on supporters to donate using the digital currency.
Pakistan recently moved to meet 27 targets set for it in 2018 when the South Asian nation was placed on a Financial Action Task Force (FATF) “grey list” of countries with inadequate controls over terror financing. The task force has urged Pakistan to complete an internationally agreed action plan by February 2021. The next virtual plenary of the task force is scheduled for February 22-25.
“We are seeing this trend (of using bitcoin for crimes) since we tightened the noose around illegal systems of transferring funds,” Raja Umar Khattab, head of the Transnational Terrorists Intelligence Group in Sindh’s counterterrorism police, told Arab News.
Last month, Khattab arrested Hafiz Muhammad Omar bin Khalid, a Pakistani engineering student charged with sending bitcoin donations to militants in Syria.
Khalid had transferred over Rs.1 million ($6,200) when he was caught, according to Omar Shahid Hamid, counterterrorism department (CTD) deputy inspector general.
The student had also previously been arrested, and released, in 2018 for extending financial support to an Al-Qaeda militant in Afghanistan, officials said.
In December 2019, Khalid came across a Telegram account online that guided him on how to help the widows of Daesh militants in Syria.
“Help jihadis and their families by sending money through bitcoin,” said one user on the Telegram group, leading Khalid down a rabbit hole of searches into bitcoin wallets. That, in turn, led him to an associate named Zia Shaikh Turk, based in Hyderabad, who converted cash into bitcoin and sent it off to “jihadi brides” in Syria, according to Hamid.
The Pakistani widow of a militant, whom Khalid identified as Umm-e-Bilal, also asked him to open a mobile wallet account, according to interrogation reports made available to Arab News.
“Umm-e-Bilal asked me to open an EasyPaisa (Pakistani digital payment system) account as some of her acquaintances hadn’t heard of bitcoins, but wanted to contribute,” one intelligence report said, quoting Khalid. “I got Rs. 450,000 into my account, added another Rs. 100,000 of my own, converted them into bitcoin and sent them to Syria.”
Last year, a US citizen of Pakistan origin, Zoobia Shahnaz, was sentenced to 13 years’ imprisonment for providing material support to foreign militant organizations, specifically more than $150,000 to Daesh.
Shahnaz, 27, from Long Island, admitted to wiring more than $150,000 to individuals and shell entities that were fronts for Daesh in Pakistan, China and Turkey in 2017. She was engaged in a scheme to scam Chase Bank, TD Bank, American Express and Discover by fraudulently obtaining six credit cards, according to a court filing. She then bought more than $62,703 in bitcoin and other cryptocurrencies, and converted them into cash.
An official at the Federal Investigation Agency (FIA) told Arab News the unit had received numerous complaints in recent months by victims asked to pay ransom and extortion in the form of bitcoin. The official did not go on the record as he was not authorized to discuss the cases with the media.
“Cryptocurrency has been used in international as well as local cases of extortion, kidnapping for ransom, harassment and money laundering as there is no centralized monitoring system,” the official said.
In December, a female student in Karachi was blackmailed by an unknown sender who had uploaded her private photos to a pornographic website and demanded Rs. 3 million in bitcoin to remove them. The FIA traced the case to a man in an African country who had hacked the girl’s Snapchat account and eventually taken control of her phone. The alleged blackmailer has since removed the pictures himself.
In another case, a truck contractor in Karachi told Arab News he got a call from an Afghanistan number by a man who knew where he lived and had intricate details of his family’s movements. The man demanded extortion money in bitcoin or else his family would be harmed. The trader declined to be named out of fear for his family’s safety, but said he eventually paid the money using digital currency.
Such cases have led to calls for a ban on virtual currencies in Pakistan, while advocates for regulation have also become more active.
Last month, Rehan Masood, a lawyer for the Pakistani central bank, told the Sindh High Court the state bank had issued a warning about dealing in cryptocurrencies but not banned them.
Pakistan’s central bank issued a circular dated April 6, 2018, advising financial institutions, including banks and payment service providers, “to refrain from processing, using, trading, holding, transferring value, promoting and investing in virtual currencies/tokens.”
The circular said financial institutions “will not facilitate their customers/account holders to transact in VCs/ICO tokens. Any transaction in this regard shall immediately be reported to (the) Financial Monitoring Unit (FMU) as a suspicious transaction.”
TV host Waqar Zaka, an advocate for allowing cryptocurrency in Pakistan, who last January filed a court case against the FIA for arresting people for possessing bitcoin, described trading in virtual currencies as a fundamental right.
“Any ban will deprive Pakistanis of earning the biggest profits,” Zaka told Arab News. “The top countries on FATF have been dealing in cryptocurrency because they know that bitcoin doesn’t work without the Internet, which has a digital trace.”
Independent blockchain and cryptocurrency expert Hassan Raza agreed, saying a complete ban on blockchain-based payment networks should be “out of the question.”
“Terror financing is also done via the banking system, but those have not been banned,” he said, adding that the government should regulate digital tokens.
“Since every transaction in a public blockchain network like bitcoin is stored in a permanent and immutable distributed, public database, anyone is free to view them and conduct data analysis of any complexity on them,” Raza said.
“In fact, several people allegedly involved in illegal activity have been caught in this very manner.”