Identifying Modes and Typologies of Terrorism Financing in the Crypto Asset Industry
The crypto asset and Web3 industries have unlocked a wave of innovation in the digital finance sector. However, these advancements come with inherent risks. The fast, global, and often anonymous nature of crypto assets makes them vulnerable to misuse by malicious actors, not only for money laundering but also for more dangerous crimes like the financing of terrorism.
Recognizing these risks, the Indonesian government, through the Financial Services Authority (OJK), has taken proactive steps to safeguard the integrity of the digital financial ecosystem. Through OJK Circular Letter No. 16/SEOJK.07/2025, the OJK has established a comprehensive framework for Digital Financial Asset Traders to implement robust Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) programs. The objective is clear: to prevent digital platforms from becoming gateways for illicit funds entering the financial system.
What is the Financing of Terrorism?
Unlike money laundering, which primarily aims to conceal the origin of illicit funds, the purpose of terrorism financing is much more specific: to provide financial support for terrorist activities. A key distinction lies in the source of the funds. While money laundering always involves the proceeds of a crime, terrorism financing can be funded through assets obtained both legally and illegally.
The Three Stages of Terrorism Financing
According to OJK guidelines, the process of terrorism financing typically involves three main stages:
Collecting/Raising Funds
This initial stage involves terrorists, their organizations, or financiers gathering funds. As noted, these funds can originate from various sources, including legitimate activities like business profits or donations, as well as illegal acts such as robbery or extortion.
Moving/Storing/Transferring Funds
Once collected, the funds are moved from their source to those who will use them. This can involve providing, giving, or lending money to terrorists or their organizations. Crypto assets are particularly useful at this stage due to their ability to transfer value quickly across borders with a degree of anonymity
Using Funds
In the final stage, the funds are used by terrorist organizations to finance their activities. This can include purchasing weapons, covering operational costs, spreading propaganda, recruiting new members, or carrying out terrorist attacks.
Methods and Typologies of TPPT in Crypto Asset
The OJK Circular Letter highlights several methods of terrorism financing that can occur through Digital Financial Asset Traders, with two being particularly relevant:
Misuse of Investment Funds
In this scenario, funds disguised as legitimate investments are provided or collected for terrorists, either directly or indirectly. Perpetrators may pose as ordinary investors, while the profits—or even the principal investment—are diverted to fund terrorist activities
Involvement of Parties on Sanction Lists
This method occurs when individuals involved in an account, including its beneficial owners, are listed on the Daftar Terduga Teroris dan Organisasi Teroris (DTTOT), Indonesia's official List of Suspected Terrorists and Terrorist Organizations. The DTTOT serves as a critical reference for financial institutions to identify and flag entities associated with terrorism.
Conclusion
Understanding the stages and methods of terrorism financing is crucial for regulators, industry participants, and the public alike. The threat of TPPT in the digital realm is real, demanding both vigilance and robust systems to combat it. The growing complexity of financial products and technology increases the risk of Digital Financial Asset Traders being used as conduits for these crimes.
At CFX, we are committed to upholding the highest standards of security and compliance. CFX ensures that all licensed Digital Financial Asset Traders (PAKD) adhere to the robust, risk-based Counter-Financing of Terrorism programs, as stipulated in OJK Circular Letter No. 16/SEOJK.07/2025. These efforts are central to our mission to foster a safe, transparent, and trustworthy crypto ecosystem in Indonesia.