The Houthi rebels in Yemen, fueled by Iranian backing, are a clear and present danger to regional and global security. They are targeting international shipping lanes and undermining the fragile state of Yemen. Their despicable contempt for human life requires a strong and unequivocal counterstrike. We need to be clear and loud in opposition to what they’re doing and fight to limit their overreach. Are we actually curtailing their power? Or, with the best of intentions, are we running the risk of driving more people into dangerous situations?

Sanctions Pushing Houthis Into Crypto

The Biden administration's strategy of imposing sanctions on Yemeni financial institutions to cripple the Houthis' ability to operate seems, on the surface, like a logical step. After all, starving them of cash should, in theory, curtail their ability to go to war and wreak havoc. The evidence is piling up that these sanctions are causing a perverse outcome. They’re not defeating the Houthis, they’re forcing them, and the wider Yemeni populace, into the burgeoning world of cryptocurrency.

The numbers don't lie. One Yemen-based crypto exchange saw an amazing 270% increase in trading volume. This increase occurred just after the Houthis were relisted on January 11, 2021 as a Specially Designated Global Terrorist. Yet another 223% increase after they were re-designated a foreign terrorist organization. These aren't coincidences. These are tangible, measurable reactions to the direct impact of US policy. We may be inadvertently driving the Houthis into a financial system that is thousands of times harder to trace, monitor, regulate, and police. Unfortunately, the Yemeni people are paying the price as well. The goal of all sanctions is to create a financial blockade. The Houthis are learning how to get around it by adapting and finding solutions, including through the use of cryptocurrency.

Traditional Controls More Effective?

Here's the hard truth: sanctions are a blunt instrument. In reality, they do more harm than good to the very people they purport to protect. When challenged by serious actors, they fail to deliver on their professed aims. The emergence of Houthis using crypto should highlight a deeper problem with our approach. We’re giving up on the tools that actually get results. These proven strategies—traditional financial controls, international cooperation, and targeted intelligence gathering—are being supplanted by a new approach that is ineffective at best and actively harmful at worst. In so doing, we are, in a sense, surrendering the keys to the warfare arena as the financial battlefront.

Consider this: for decades, we've built a robust system of international banking regulations designed to combat money laundering and terrorist financing. Though imperfect, these regulations offer an invaluable policy framework for tracking and curtailing illicit financial flows. They set the bar high. They hold that banks must know their customers, report suspicious activity on them, and cooperate with law enforcement. Sanctions incentivize the sanctioned actors to circumvent and undermine the system. They plunge deep into the murky depths of the unregulated crypto underworld to escape.

Funding Terrorism With Digital Cash

Cryptocurrency has become a clear and present danger. More importantly, it has become a proven tool for funding terrorism and other criminal enterprises. Organizations such as ISIS and al-Qaeda have already been testing the waters with cryptocurrency. They use it to issue debt and move capital between countries. The Houthis’ embrace of crypto is one of the most radical escalations of this threat to date. By doing so, we equip them to act beyond the normal financial ecosystem. This pretty much provides ISIS with a blank check to fund their activities, buy arms and promote their radicalized belief system.

Imagine a world where terrorist groups can seamlessly transfer millions of dollars across borders without detection, using anonymous crypto wallets and decentralized exchanges. Now picture the catastrophic effects of a well-funded big terrorist attack, made possible with cryptocurrency. This is not a hypothetical situation, this is a very serious likelihood. We need better international regulations and enforcement mechanisms to address this growing threat. The second step is to understand that our sanctions policy is contributing to the very harm we’re trying to address.

To lose that capacity is deeply frightening to contemplate. We’re handing these groups a tool that would otherwise weaken the efficacy of our traditional defense systems. How do you fight an enemy you cannot see, cannot cut off the funding for and can hardly comprehend. This is not only a question of money, but one of power, influence, and whose interests will shape the future of global security.

A Comprehensive, Strategic Approach Needed

We need to do better than just investing more and expecting sanctions to do the work. It’s high time to take a more complete and strategic approach to engage the Houthi militant organization. This includes:

  • Enhanced Intelligence Gathering: We need to invest in intelligence capabilities to track Houthi financial activities, both within the traditional system and in the crypto world.
  • Diplomatic Pressure: We need to work with our allies to pressure Iran to stop supporting the Houthis and to enforce international sanctions.
  • Support for Moderate Elements: We need to support moderate elements within Yemen who are working to build a more stable and peaceful future.
  • Targeted Financial Controls: We need to use targeted financial controls to disrupt Houthi financial networks, while minimizing the impact on the Yemeni population.

It's time for a dose of realism. Sanctions can be an important tool, but they’re not a cure-all in any instance. Not only do they frequently have unintended effects. They are simple to sidestep for a motivated actor. We need to get past what was an understandable but ultimately mistaken reaction to the attack, and take a more focused and sophisticated approach to defeating the Houthi threat. The success of our national security—and the long-term stability of our evermore interconnected world—depends on it.