The US has largely blocked terror groups from moving money through banks, but tens of billions of dollars in illicit funds still transit the financial system each year, the Treasury said Friday.
In two new reports on money laundering and terror financing risks, the Treasury said some $300 billion in illicitly generated funds each year enters the economy, most of it from fraud but large chunks from the drug trade and other activities.
It said efforts to crack down on laundering these funds continue to expand, and for the most illegal activities -- drugs and terror -- have been increasingly successful.
Terror groups have been forced to move to physically transferring money amid crackdowns on their use of banks, money transfer businesses and charities to obtain and move funding, according to the reports.
"Because other more effective funds transmission routes are disrupted, the use of cash smuggling to move funds across US borders -- while slower, less efficient, and more expensive than regulated or unregulated financial institutions -- continues to be employed by a variety of terrorist groups," they said.
But that is "making them more vulnerable," a senior Treasury official said.
The US system itself still has important and evolving vulnerabilities, the reports said.
One is an increase in ostensible charity collections by individuals not tied to registered and recognized charities.
Another is the rise of online networks for money transfers, including encrypted, anonymous transfers of virtual currencies like Bitcoin.
Such networks "have attracted the attention of various criminal groups, and may be vulnerable to abuse by terrorist financiers," one of the reports said.
"For example, a posting on a blog linked to ISIL [the Islamic State group] has proposed using Bitcoin to fund global jihadist efforts," it said.