CRYPTO-EXTRMISTSDomestic Extremists and Cryptocurrency

Domestic extremists have been receiving a steady stream of cryptocurrency donations since 2016, and after the “Unite the Right” rally in Charlottesville, Virginia, in 2017, the extremists’ use of cryptocurrency has spiked, leading many financial services providers to “deplatform” certain extremist groups.

The Foundation for the Defense of Democracy (FDD) has just published a new report – Crypto-Fascists: Cryptocurrency Usage by Domestic Extremists. Here is the report’s Introduction:

According to data from the analytics firm Chainalysis, “domestic extremists have been receiving a steady stream of cryptocurrency donations since 2016.”(1)  However, since the notorious “Unite the Right” rally in Charlottesville, Virginia, in 2017, their use of cryptocurrency has spiked. That event spurred many financial services providers to “deplatform” certain extremist groups. Many of these providers, including credit card processors, banks, and payment providers such as PayPal and Venmo, have increasingly refused to serve white supremacist groups, particularly in the United States. Thus, Bitcoin and other cryptocurrencies present attractive digital alternatives. (Older technologies have also proven attractive; some white supremacist groups have resorted to asking for donations through the mail.)(2)

Some white supremacist groups accept cryptocurrency donations to support content they produce, such as video streams, podcasts, and radio shows. In these cases, cryptocurrency can help protect the identities of both the content producers and the viewers. In other cases, groups take cryptocurrency as payment for merchandise they produce and sell, such as apparel, books, and various accessories. In these cases, cryptocurrency usage often exists alongside traditional payment methods, supplementing rather than supplanting debit cards, credit cards, and other forms of payment.

Cryptocurrency can also be used to pay for legal defense, purchase supplies (including VPNs), or provide general support to a group or to particular individuals. In addition to protecting the privacy of donors, cryptocurrency frequently lies beyond the grasp of courts that have imposed financial penalties on extremists. For example, the neo-Nazi publication The Daily Stormer accepts cryptocurrency donations allegedly in part to avoid paying off millions of dollars in civil judgments against publisher Andrew Anglin.(3)

As Anglin’s case shows, domestic extremists may benefit from the lack of an adequate regulatory and compliance framework around cryptocurrency. Moreover, ongoing enhancements of user privacy in certain cryptocurrencies, notably the emergence of “privacy coins” such as Monero, can further insulate these groups from law enforcement and compliance professionals. Domestic extremists may also use techniques known as “mixing” and “coinjoining” to camouflage their transactions within larger flows of cryptocurrency trading activity.

To address the challenges posed by domestic extremists’ use of cryptocurrency, policymakers, private-sector firms, and civil society actors should become more vigilant. The U.S. government should designate more violent white supremacist groups as terrorist organizations, as today only one such organization (the Russian Imperial Movement) has been designated. Designating others would help to cut off their funding flows and other means of support. Policymakers should also enhance the regulation of the cryptocurrency industry. This should include establishing uniform standards for cryptocurrency exchanges and virtual asset service providers; bringing “stablecoins” and privacy coins, as well as decentralized finance, within the regulatory perimeter; and supporting global standards for virtual assets, among other measures. Blockchain analysis firms and nonpartisan watchdog groups should monitor extremists’ use of cryptocurrency and assess the risks associated with different exchanges. Extremists will continue exploiting cryptocurrency to support their illicit activities unless policymakers fill today’s regulatory gaps while the private sector and civil society amplify their efforts to expose the profits of hate.

1) “Alt-Right Groups and Personalities Involved in the January 2021 Capitol Riot Received Over $500k in Bitcoin from French Donor One Month Prior,” Chainalysis, January 14, 2021. (https://blog.chainalysis.com/reports/capitol-riot-bitcoin-donation-alt-right-domestic-extremism)

2) Alex Newhouse, “From Classifieds to Crypto: How White Supremacist Groups Have Embraced Crowdfunding,” Middlebury Institute of International Studies, 2019, page 3. (https://www.middlebury.edu/institute/sites/www.middlebury.edu.institute/files/2019-06/Alex%20Newhouse%20CTEC%20Paper.pdf)

3) Michael Kunzelman, “Neo-Nazi website founder accused of ignoring $14M judgment,” Associated Press, December 11, 2020. (https://apnews.com/article/technology-race-and-ethnicity-montana-courts-1554c9a9254449b75018cee56317c557)