Terrorism Financing Risk 

In 2023, the FATF issued a report on terrorism financing through crowdfunding. The report highlights the potential for terrorists and groups to exploit fundraising platforms and social media to solicit funds for their activities from across the globe. This presents a significant risk for terrorism financing, especially in rewards and donation-based crowdfunding, given the intricate nature of crowdfunding operations, use of anonymizing methods, and the insufficient expertise in detecting terrorist financing within the crowdfunding industry.

Fraud and Money Laundering Risk

The accessibility of crowdfunding platforms and the lack of risk based verification procedures create risks for fraud and money laundering. Bad actors take advantage of these weaknesses by creating fake campaigns that seem legitimate, luring unsuspecting donors to contribute funds. They may also use multiple fake accounts to inflate donation amounts or launder illicit funds through seemingly legitimate projects. These practices undermine the integrity of crowdfunding platforms and erode trust among donors and backers.

Identity theft/ Cyber security risks

Crowdfunding is highly vulnerable to identity theft and cybersecurity risks due to the collection of personal information from donors and campaign creators. Any crowdfunding platforms with weak security measures are susceptible to hacking, allowing unauthorized access to sensitive data, including names, addresses, and financial information. This stolen information poses a significant risk for identity theft, financial fraud, and other malicious activities. Moreover, stolen identities could be exploited to set up fraudulent campaigns, exacerbating the security and trust issues within the platform.