Telegram’s cryptocurrency, Grams, and the Telegram Open Network (TON) Blockchain platform that hosts it are currently battling a lawsuit from the Securities and Exchange Commission (SEC). With the launch of Grams temporarily on hold until the court’s decision arrives–tentatively on April 30–it’s worth considering the threats already posed by terrorists on Telegram’s encrypted messaging platform, and how the release of its cryptocurrency could offer these bad actors new options to circumvent financial regulators and potentially undo years of progress in countering terrorism financing.
At the start of the new year, Telegram released a public notice about the TON Blockchain and its cryptocurrency, Grams. Although the TON Blockchain is currently still in its beta test phase, the company has promoted integrating the crypto-wallet service with its messaging application further down the line.
But before Telegram launches these new products, the company faces a major obstacle with the SEC, which sued Telegram last October for illegally offering digital asset securities. Since then, Telegram has been scrambling to gather information requested by the SEC to review individuals and entities related to the company’s initial currency offering, which raked in advance token sales of $1.7 billion. The current legal battle essentially comes down to whether or not Grams is technically a security.
The United States government’s regulatory stance on digital currencies is still unclear, which makes this upcoming ruling all the more important. Other government entities have weighed in on the security vs. not-a-security debate surrounding digital currencies like Grams. Most recently, the Commodity Futures Trading Commission (CFTC) filed a letter stating its position is that all digital currencies are commodities, but that some commodities are still listed as securities per the Commodity Exchange Act, essentially providing the SEC legal justification for subjecting Grams to security laws. If the court were to rule in the SEC’s favor, Telegram’s decision not to register with the SEC could prove problematic. It would likely result in financial penalties for the company, and at the very least would subject Grams to a host of legal regulations.
It’s perhaps no coincidence, then, that the SEC filed its lawsuit against Telegram on the same day that it released a joint policy statement with the CFTC Enforcement Network. That statement reminded institutions involved in digital asset trading of their obligations to combat money laundering and counter the financing of terrorism.
It’s also, perhaps, no coincidence that just a few weeks later, Telegram, working together with Europol, began targeting individual supporters and channel administrators linked to the Islamic State’s central media apparatus for account removal. These widespread and deep-reaching disruption efforts took down thousands of accounts, and forced the terrorist group to seek out new platforms to maintain their networks. Though a step in the right direction, it remains to be seen if Telegram’s takedown efforts will lead to a long-lasting victory against Islamic State supporters.
Telegram’s cooperation with Europol seemed to some a long-overdue response to years of concerns that the platform served as a sounding board for the terrorist organization’s propaganda. One study of the Islamic State’s English-language supporters on Telegram found that the majority of its channels’ primary function was the distribution of Islamic State-related material, and that users exploited Telegram’s internal file-sharing capabilities to share and distribute such material.
But the Islamic State is not the only group that exploits Telegram’s features for their benefit. Rebel fighters in Syria’s northwest have for years advertised weapons for sale online, essentially creating mini weapons marketplaces in Telegram channels that feature offerings for explosives and suicide belts, anti-tank weaponry, and other advanced firing systems. Unlike with Islamic State-linked accounts, there have been no wide-reaching efforts to address these online rebel weapons markets. More recently, Telegram has also become increasingly popular among white nationalists in the U.S., with a sharp uptick reported in the number of channels created in 2019. Beyond violent extremist groups, Telegram faces similar problems to other encrypted messaging services that are overrun with images of child sexual abuse. Quite simply, Telegram has become a key platform for criminals of all stripes, from terrorists to weapon smugglers. Integrating a cryptocurrency exchange into Telegram’s messaging service would make it that much easier for these and other malignant actors to raise and move funds.
Researchers at George Washington University’s Program on Extremism have been tracking the Islamic State’s U.S.-based financing efforts since the group’s inception, and found that the vast majority of these cases did not involve the use of cryptocurrencies. But there is evidence that U.S.-based Islamic State supporters have provided tactical knowledge on how to transfer money to the terrorist group using cryptocurrencies, which in the case of a New York woman amounted to over $60,000 in money laundering. Outside the U.S., Islamic State supporters in other parts of the globe have already turned to cryptocurrencies to fundraise for the group.
Cryptocurrencies remain a key threat space for the future, and services like Grams have the potential to offer terrorists and criminal actors a way to circumvent the international financial regulation regime. Companies like Facebook and Telegram have made sweeping promises about eliminating these actors’ footprints on their platforms in the past, and have followed through with limited success. Despite Telegram’s cooperation with Europol during the November takedown initiative, the company’s decision to skip registering Grams with the SEC casts doubt on whether future promises of managing the terrorism financing threat on its platform will be honored.
The U.S. countering terrorism financing system has proven adept at going after illicit funding in the post-9/11 era, but the rise of cryptocurrencies provides terrorist actors new lifeblood. Before Telegram and other social media companies declare their cryptocurrencies open for business, financial regulators and legislators need to take these companies’ nascent and, at times, struggling counterterrorism efforts (as well as their limited attempts to stop other illegal activity) into account, and think seriously about the long-term consequences.
Image: Telegram, an encrypted messaging app, has been used as a secure communications tool by Islamic State. Photo by Carl Court/Getty Images