Despite Kenyan Interior Minister Kithure Kindiki’s recent attempt to revive the old crypto terrorism funding narrative, evidence suggests that criminal elements primarily use conventional financial systems when transferring funds. Contrary to Kindiki’s claims, crypto transactions can be traced and this is evidenced by the arrests of hackers and seizure of stolen crypto assets.
When the Kenyan interior minister Kithure Kindiki appeared before a parliamentary committee investigating Worldcoin’s activities, he used the opportunity to reiterate the government’s opposition to cryptocurrencies. Throughout his presentation, Kindiki repeatedly tried to link cryptocurrencies with money laundering and terrorism funding.
Although some of the “evidence” presented by Kindiki has been disproved, the Kenyan minister’s remarks may nonetheless be included in the parliamentary committee’s final report. There is a possibility that such a report as well as Kindiki’s presentation may even influence how the government and parliament approach the crypto question. However, how much of what Kindiki said will be considered or incorporated in the final report could depend on how far players in the Kenyan crypto and blockchain space can push back against Kindiki’s claims.
“Cryptocurrency is a possible ground for money launderers and terror financiers,” CS Kindiki tells Ad Hoc Committee investigating Worldcoin activities in Kenya pic.twitter.com/uN67MAcnWj
— Citizen TV Kenya (@citizentvkenya) September 14, 2023
So what did Kindiki say and why should that alarm crypto enthusiasts in and outside Kenya?
Well, before tackling the question, it may be important for readers to understand why Kenyans still crave cryptocurrencies despite the repeated Central Bank of Kenya (CBK) warnings against their use. Similarly, not even the reports of Kenyans losing money to scammers posing as legitimate crypto investment platforms seem to have deterred users.
Crypto Use in Kenya
Part of the reason for this could be the fact that cryptocurrencies and digital assets like the stablecoin tether (USDT) are increasingly being used as an alternative store of value. Cryptocurrencies are also seen as a cheaper and more efficient way of remitting funds within and across borders. For those not afraid of taking risks, crypto trading is seen as a better alternative to trading stocks denominated in local currency. There are obviously many more reasons to counter Kindiki’s assertions but these cannot be exhausted in this article.
Now going back to his Sept. 14 presentation, Kindiki kickstarted this by pointing out the fact that cryptocurrencies are not legal tender in Kenya. He argued that since they lack this designation they therefore fall outside the CBK’s regulatory ambit. For Kindiki, that alone is enough to conclude that they are being used to fund terror or for money laundering. Interestingly, Kindiki also admitted that the conventional financial system is being used to launder money or facilitate funds transfer to terror groups.
However, Kindiki’s main concern seems to be that when this terror funding and money laundering occurs within the crypto sector, there are no “regulatory checks” to stop this. It would appear that the interior minister is more interested in having these checks in place than actually stopping money launderers from using the financial system. In any case, Kindiki does not reference particular instances where terrorists have used crypto to fund their activities. He also failed to provide evidence to support claims that money launderers now prefer crypto to cash.
Conventional Banking Systems and Money Laundering
While several studies have shown that terrorists are increasingly using or experimenting with crypto-based fundraising, many of these have concluded that conventional banking systems and cash are still the preferred money-moving channels for bad actors. To illustrate, South Africa, which has one of the most sophisticated financial systems in Africa, was earlier this year added to the Financial Action Task Force (FATF)’s grey list. This was even done after the country moved to regulate crypto assets.
Instead, it is said the country’s failure to adequately address the 60-plus concerns raised by the independent inter-governmental body is what led to the grey-listing. According to the FATF and others, this inability to resolve the identified deficiencies probably means money launderers and terrorists could be using South Africa’s financial system to further their objectives.
Some reports even suggest that the Kenyan banking system is being used to move funds belonging to South African-based terrorists. This could mean that Kenya, which was removed from the grey list in 2014, may be in the same boat as South Africa. Yet, without hard evidence proving that criminal elements are using the Kenyan and South African financial systems to fund their activities, any claims suggesting this are just speculation. If we are to use the same logic, then Kindiki’s assertions about cryptocurrencies should be similarly treated as speculation.
Meanwhile, in addition to the money laundering and terror funding claims, the Kenyan interior minister also highlighted the traceability of cryptocurrencies as another reason why he is opposed to their use. While this may be a common view, many crypto enthusiasts and even criminals now understand that this is not necessarily true.
Crypto Transactions Traceable
The recent conclusion of the Bitfinex hack case is one good example that disproves this infamous narrative. Despite successfully stealing and concealing nearly 120,000 bitcoins, Ilya Lichtenstein and his wife Heather Morgan were arrested some seven years later. As noted by investigators, the husband and wife duo did attempt to cover their tracks by using bitcoin mixing software but even that did not help.
At the time of their arrest, the couple had only successfully cashed out a small portion of the loot worth over $4 billion. The fear of being traced could be one plausible reason why they chose against offloading the entire loot. Indeed, as the software firm Chainalysis explained in its July 23 blog post, the combination of blockchain analysis and traditional police work is what helped law enforcement trace the funds. Similarly, the less high-profile case of a Zimbabwean businessman who hired a tech firm to trace his stolen bitcoins again renders the traceability argument moot.
So while some people may like to believe what the Kenyan interior minister said, the reality is that crypto transactions are by and large traceable. So, therefore, instead of complaining the Kenyan minister can make a difference by helping to educate and train the country’s law enforcement agents or the CBK on how it can track or trace crypto transactions.
Freezing Digital Assets
In making his case against cryptocurrencies, Kindiki claimed that in cases where it is concluded that certain funds are destined for terror groups, it is “almost impossible” for authorities to take action. However, there are many instances in which unregulated entities like crypto exchanges or stablecoin issuers have frozen funds at the request of law enforcement.
While this may not be popular with some in the crypto community, this ability to censor certain transactions does undercut Kindiki’s claim.
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