Is crypto a terror financing tool for Hamas?

Mumbai: The multi-pronged attack on Gaza strip in Israel by Hamas on October 7 brings the solicitation of cryptocurrency donations into the limelight yet again.

The Financial Action Task Force (FATF), an intergovernmental organisation founded by G7 nations to develop policies to combat money laundering, even warned about the perpetual risk of crypto assets becoming a haven for criminals and terrorists. Crypto-financed terrorist attacks may increase from 5 per cent to 20 per cent of the total attacks in the coming years, as disclosed by an UN official.

As recent as October 2023, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed a new regulation to enhance transparency in convertible virtual currency mixing (CVC mixing) to combat its malicious use by Hamas, Palestine Islamic Jihad (PIJ), and the Democratic People’s Republic of Korea (DPRK). CVC Mixers obfuscate the origin of transactions, offering greater anonymity and increasing the risk of money laundering.

The Israeli authorities, including the Shin Bet, the Police, the Ministry of Defence and other agencies, managed to freeze the crypto wallets linked to Hamas and other terror outfits with the help of Binance, a cryptocurrency exchange platform. These wallets had received $41 million between 2019 and 2023. In another instance, the Israeli cyber team further collaborated with British law enforcement to seize an account at the British bank Barclays, found to be raising funds for Hamas. Previously, in July 2023, the National Bureau for Counter-Terror Financing of Israel (NBCTF) disclosed 26 Tron wallets and 67 Binance accounts funding PIJ. These wallets received $93.7 million in Tether, USD Coin, and Tron, making the seizure of the wallets significant. Hezbollah, a Lebanon-based and Iran-backed terrorist organisation, also came under the Israeli government’s radar. The Israeli agencies seized $1.7 million worth of crypto from wallets linked to Hezbollah, which were moved first to hawala services and then to Hezbollah-controlled wallets.

According to Chainalysis, a blockchain analysis company specialising in crypto and blockchain analysis, 0.24 per cent of all cryptocurrency transactions in 2023 were associated with some illicit activity. According to the UN, between 2-5 per cent of traditional fiat (cash), or approximately $800 billion to $2 trillion in current US dollars, was associated with some form of illicit activity. In India and the world over, the hawala system continues to thrive.

Talking to Bizz Buzz, Rajagopal Menon, Vice President, WazirX, said, “Cryptocurrency is extremely transparent, far more so than the traditional cash economy, and this is well documented. Also, crypto is the worst tool for illicit activities.”

One, KYC is stringent in the industry.Two, it’s simply not possible to move large sums of money into crypto without getting noticed, and three, it is trackable, all transactions are immutable and public. Lastly, it is trivial for law enforcement to get into laptops and mobiles used for these transactions, he said.

Abu Mustafa, a prominent fundraiser for ISIS, had urged raising funds in 2015 through darknet Bitcoin to escape US authorities. Crypto fundraising campaigns have been integral to supporters of ISIS whose families have been detained and held in internment camps. While Bitcoin remained the most utilised cryptocurrency, other blockchains included Ethereum, Monero, and Tron. Al-Qaeda, a terrorist group based in Syria, operated a Bitcoin money laundering network through its Telegram and Facebook accounts. The US Department of Justice seized $2 million worth of cryptocurrency between 2019 and 2020. Shreds of evidence also indicate an increased demand for virtual assets to raise funds by terrorist outfits in South and Central Asia. TRM Labs uncovered multiple fundraising campaigns associated with ISIS and its affiliate ISKP in Tajikistan, Afghanistan, Pakistan, and Indonesia.

The joint efforts by Indian and Israeli agencies exposed a cryptocurrency theft of Rs 4 million from India, which ultimately found its way into wallets operated by al-Qassam Brigades of Hamas.

ManharGaregrat, country head - India and Global Partnerships at Liminal, a wallet infrastructure and custody solutions platform, said, “The crypto market is driven by multiple factors and the global geo-political situation is one of them. Since the start of the Israel-Hamas conflict, we have not witnessed any significant fluctuation in the prices of digital assets but things may look different in the short to mid-term. Israel is an active player in crypto mining and any disruption in the mining process may result in a sharp rise in Bitcoin hash rate. Any increase in BTC hash rate could have a direct impact on its price in the short term.”