EU plans to regulate virtual currency
The EU plans to regulate virtual currency to help cut down on terrorist funding streams iStock

The European Commission has unveiled plans to clamp down on the anonymous use of virtual currencies such as bitcoin to make it harder for terrorist organisations such as Islamic State (IS), also known as Daesh, to finance illegal operations.

The proposals, which were revealed in a new paper titled the Action Plan For Strengthening The Fight Against Terrorist Backing, argues that harsher financial regulation is now needed in the wake of numerous terrorist atrocities over the past year.

"Innovation in financial services and technological change, for all its benefits, creates new opportunities which may sometimes be abused to conceal terrorist financing. New financial tools such as virtual currencies create new challenges in terms of combating terrorist financing," the report states. "For innovative financial tools, it is critical to be able to manage the risks relating to their anonymity, such as for virtual currencies. Critical to this question is less the forms of payment themselves, but rather whether they can be used anonymously."

According to the paper, there is now a huge risk that virtual money is being exploited to conceal transfers as no 'reporting mechanism' is currently in place to flag suspicious activity. Furthermore, the commission notes that virtual currencies are not yet regulated by the European Union (EU). To combat this, the paper lists a number of ways the fight against terrorist financing can be 'stepped up immediately'.

One of these methods is extending the scope of the most recent Anti-Money Laundering Directive (AMLD), which was set up to prevent the abuse of financial systems by terrorists.

"The Commission will accelerate its work under the AMLD to provide for the identification of [countries] with strategic deficiencies in the area of anti-money laundering or countering terrorist financing... member states should apply enhanced due diligence measures on financial flows coming from and going to these listed countries. The Commission will come forward with this list by June," the document states.

The Paris attacks

The paper also reports that the growing threat of terrorist activity in the EU, such as the recent attacks in Paris, now 'underlines the need' of ramping up measures to combat the group's often illusive revenue streams.

"Terrorist organisations and individual terrorists need financing – to maintain their networks, to recruit and supply, and to commit terrorist acts themselves. Cutting off sources of finance, making it harder to escape detection when using these funds, and using any information from the financing process to best effect can all therefore make a powerful contribution to the fight against terrorism," the paper notes.

Furthermore, the paper reveals plans to examine how prepaid cards are used to 'finance the logistics of terrorist attacks anonymously'. "The terrorist financing risk posed by prepaid cards is essentially linked to those anonymous (reloadable or non-reloadable) prepaid cards run on domestic or international schemes. The key question is how to address the concerns raised by the anonymity of such general purpose cards without wiping out the benefits that these instruments offer in their normal use," it states. "The Commission is currently exploring the detailed design of such measures, taking into account their impact and the need for proportionality."

Increased regulation has long been planned by EU officials. Only last year, European and justice ministers met in Brussels to discuss methods of cracking down on terrorist financing.