Yesterday, the Department of Justice announced that Ali Shukri Amin, a 17-year-old from Virginia, pled guilty to conspiring to provide material support and resources to the Islamic State in Iraq and the Levant (ISIL). According to the statement of facts signed by Mr. Amin, he assisted members of ISIL by explaining how to use Bitcoin to mask transfers of funds to ISIL. The explanations included publishing an article “Bitcoin and the Charity of Jihad,” which received a great deal of press last year. Amin also used Twitter and blog posts to discuss the use of cryptocurrency to fund ISIL.

The prosecution of Ali Amin raises several issues for companies that transmit virtual currencies:

• First, it underscores the importance of having strong anti-money laundering controls. It is easy for FinTech companies to view anti-money laundering statutes and regulations as merely a burden that must be shouldered to avoid regulatory penalties. This prosecution shows that concern over terrorists creatively using virtual currency to hide transactions that fund terrorism is not purely theoretical.
• Second, it increases the possibility that the government will overreact to the possible use of cryptocurrency for terrorist financing and impose unduly harsh regulations to prevent it.
• Third, there is a related concern that this story will create a false impression on the part of the media and the public that money laundering is the only use of virtual currency.

Industry concern that this prosecution will lead to a government crackdown on virtual currencies probably is overstated for several reasons:

• The actions to which Mr. Amin pled guilty actually are old news. The press reported on Mr. Amin’s articles a year ago. To the extent that these posts were viewed as requiring a harsh regulatory response, it already has occurred.
• The statement of facts signed by Mr. Amin does not state that ISIL acted on these reports to use virtual currencies. Therefore, this case does not (yet) suggest that ISIL actually was using virtual currency to fund terrorism.
• It also is important to view this prosecution from the perspective of law enforcement. Virtual currency entrepreneurs who read about this prosecution generally do not closely follow terrorist financing cases, simply because that is not their job. From their perspective this prosecution is a particularly noteworthy terrorist financing story, perhaps the only one they have read this year. By contrast, law enforcement agents regularly read reports about the use of various payment systems to launder drug proceeds and finance terrorism. Most of these stories involve actual transfers of large amounts of money. Therefore, this prosecution will not have the same significance to them.
• Finally, various state and federal agencies already have imposed strict anti-money laundering regulations on virtual currency transmission. A virtual currency business that complies with these strict regulations will not be attractive to terrorist financiers. This means that to the extent this prosecution leads to a crackdown on virtual currency companies, it would be more likely be in the form of greater enforcement of existing strict regulations rather than new, harsher regulations.