As Hate Groups Embrace Bitcoin, Advisors Warned to Check Out Clients

"Bitcoin does seem to be the preferred currency/investment of many groups, that seem to be anti-government, because of its promised anonymity and decentralization," Mehrsa Baradaran, a law professor at the University of Georgia, told ThinkAdvisor. "The draw of bitcoin to these groups is that they do not need intermediaries — they can access the investments or currency without advisors."

Overall, Hockett advises financial advisors to "steer very clear" of hate groups or extremists.  "These groups seem to be all about fomenting social and political unrest, which is antithetical to the long-term prosperity of investors and their advisors alike," Hockett said. "If there is anything investors both need and crave, it is a stable investment environment — and extremists, by definition, are extreme, not stable."

Moreover, in the short run, there are "significant risks of falling afoul either of the criminal law or of finance-regulatory law, particularly if the groups in question figure on the terror watch list or if the advisor's contractual and regulatory obligations to existing clients are breached by cozying-up to extremist groups," Hockett adds. 

Furthermore, Baradaran explained that financial advisors need to be "respected and trusted" by customers and the broader marketplace. "If they are seen enabling domestic terrorists, they will lose that public trust," she said.

"I think it behooves all financial advisors to know their customers and use discretion. They should take seriously their role as fiduciaries — not just for each individual customer, but for the public at large. They wouldn't want to be aiding and enabling groups that are harmful to the public. And … some of these extremist groups mean harm to their fellow citizens and they are not afraid to use violence," Baradaran warned. "This is dirty money and I would hope that financial advisors would avoid dealing with them at all costs."

Similarly, James Fanto, a professor at Brooklyn Law School, said that Financial Industry Regulatory Authority (FINRA) regulations and other rules require that financial advisors "know their customer" so they can "offer the customer suitable products, and so as not to run afoul of anti-money laundering restrictions."

"This way, if their firm makes a determination not to deal with hate groups, they can put that policy in place in appropriate circumstances," he explained. Also, he cautions that when enacting the policy, the firm "must be careful not itself to engage in prohibited discrimination against certain groups, if they fall into protected classes, and it must also be careful whom it labels as a 'hate' group [and] … not just use the identification made by a private, non-governmental organization."

When asked for her comments, Heidi Beirich, director of the Intelligence Project at the Southern Poverty Law Center, said that from the center's perspective, "we'd like companies to stop doing business with hate groups."

"Investments would simply allow these groups to amass more capital, which would be used for their unsavory activities — such as producing ugly propaganda," she adds.