The intersection of cryptocurrency and geopolitical conflicts has been increasingly visible, as illustrated by the use of digital currencies in the Israel-Hamas conflict. The recent escalation in violence between Israel and Hamas has put a spotlight on the potential for extremist groups to leverage cryptocurrencies for funding.
Following a significant attack by Hamas on Israeli soil on October 7, attention has turned to the use of Bitcoin, Dogecoin, and other digital currencies, as well as cryptocurrency exchange platforms, in financing these groups. Subsequently, on October 19, The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) responded by proposing new rules.
These target “Convertible Virtual Currency Mixing” services as a primary concern for money laundering activities, intending to thwart their use by adversarial entities, including Hamas and the Palestinian Islamic Jihad. In response to this challenge, there has been a growing collaborative effort between law enforcement agencies and cryptocurrency exchanges to monitor and regulate the flow of crypto usage in the Israel-Hamas war.
Introduction: A New Era of Conflict Financing
The Israel-Hamas conflict has been marked by many traditional forms of engagement, but the digital age has introduced a new element into the fray: cryptocurrency. As the world grapples with the evolving nature of warfare, the use of digital currencies in conflicts like the one between Israel and Hamas has raised significant concerns and sparked a novel form of cooperation between law enforcement and financial institutions.
The use of cryptocurrencies by militant organizations, including Hamas, to amass funds for their operations in Israel has reignited concerns over the misuse of digital currencies for unlawful activities.
In reaction, some legislators are advocating for more stringent regulations to limit the use of cryptocurrencies by criminals and entities on the U.S. sanctions list. Crypto companies, on the other hand, maintain that they actively prevent such users from accessing their services. They also contend that cryptocurrencies can actually aid law enforcement in monitoring and capturing illicit activities.
Anonymity and Access
Cryptocurrencies have become a tool for groups that are sanctioned or otherwise restricted from accessing global financial markets. Their inherent properties, like the potential for anonymity and ease of cross-border transactions, make them an attractive option for entities like Hamas. This has led to an urgent need for a nuanced approach to combat the misuse of these digital assets.
Financing and Sanctions
For Hamas, cryptocurrencies offer a way to bypass international sanctions and raise funds directly from supporters worldwide. This method of raising capital is difficult to track and control compared to traditional banking, posing a real challenge for governments and regulatory bodies trying to curb the flow of funds to conflict zones.
Why Do Militant Groups Use Crypto To Raise Money?
The U.S. government has officially designated Hamas, along with groups like Palestinian Islamic Jihad and Hezbollah, as foreign terrorist organizations, resulting in sanctions from the Treasury Department that restrict their access to the global financial system. While much illicit financial activity still occurs through conventional banking and cash transactions, cryptocurrencies have emerged as a significant avenue for funding these sanctioned groups and for money laundering, due to the ability of crypto users to rapidly transfer value globally via digital wallets.
Hamas has been actively soliciting cryptocurrency donations since at least 2019 through channels such as Telegram.
According to Elliptic, a firm specializing in blockchain analytics, crypto wallets associated with Palestinian Islamic Jihad have received up to $93 million in cryptocurrencies from August 2021 to June of the current year.
Similarly, research by Tel Aviv-based firm BitOK indicates that wallets tied to Hamas have collected approximately $41 million in cryptocurrencies over a comparable timeframe.
The Role of Exchanges
Cryptocurrency exchanges have become the gatekeepers in the battle against the financing of groups like Hamas. These platforms, where cryptocurrencies are bought, sold, and traded, have the technology to monitor and flag suspicious transactions.
Implementing KYC and AML Regulations
By enforcing strict know-your-customer (KYC) and anti-money laundering (AML) regulations, exchanges can play a critical role in identifying and stopping the illicit flow of funds. These measures require users to provide personal identification, making it harder for groups to move money anonymously.
Law Enforcement and Exchange Partnerships
The success of these regulatory measures depends heavily on the collaboration between law enforcement agencies and cryptocurrency exchanges. By sharing intelligence and flagging suspicious activities, they can effectively clamp down on unauthorized transactions.
Legal and Ethical Implications
This partnership raises important questions about privacy and the role of financial institutions in policing global transactions. There’s a delicate balance between safeguarding individual rights and ensuring that cryptocurrencies do not become tools for financing conflict.
Case Study: Israeli Responses to Crypto Funding
Israeli authorities have intensified their campaign to sever the financial channels between the cryptocurrency market and Hamas following recent hostilities. The Financial Times reports that in the aftermath of Hamas’s attacks, Israeli officials have shut down over a hundred cryptocurrency accounts on Binance, the world’s leading crypto exchange, and are scrutinizing up to 200 more.
Binance has acknowledged the blocking of a limited number of accounts, citing adherence to global sanctions regulations but has not elaborated further.
The concern among global regulators and governments about the potential for terrorist groups to exploit the less stringent monitored crypto markets for financial transactions has been heightened by these recent events. Tom Alexandrovich from the Israel National Cyber Directorate pointed out the critical role of cryptocurrency in funding terrorism during the conflict, noting a significant increase in such transactions since the onset of the attacks.
In a related development, Tether, a major player in the crypto trading space, has frozen 32 addresses linked to activities it classified as related to “terrorism and warfare” in Israel and Ukraine, holding over $873,000. The specifics of these accounts, such as the timing of the freezes and the distribution of the assets, were not disclosed.
Additionally, Israeli law enforcement has identified approximately 150 fundraising campaigns affiliated with Hamas and similar groups since the beginning of October. Israeli police have confirmed freezing accounts tied to Hamas used for fundraising purposes, but no details have been provided regarding Binance.
This crackdown comes in the context of previous allegations by U.S. financial regulators of Binance’s involvement with funds connected to Hamas, highlighted in a Commodity Futures Trading Commission lawsuit that claimed the exchange’s executives were aware of transactions linked to Hamas as far back as 2019.
Appeals for Bitcoin via Facebook, Instagram and Telegram
Following the assault on October 7, the Israeli defense ministry announced the confiscation of digital wallets linked to Hamas, which had accumulated $41 million (€39 million) from 2019 to 2023. Additionally, Elliptic, a UK-based firm specializing in virtual currency analytics, reported that the Palestinian Islamic Jihad group amassed $94 million (€89 million) in cryptocurrency in recent times.
Moreover, on October 18, the U.S. imposed sanctions on “Buy Cash”, a company based in Gaza, alleging its involvement in enabling cryptocurrency transactions for Hamas and the Palestinian Islamic Jihad.
David Carlisle, Elliptic’s co-founder, noted in a blog post on October 11 that Hamas’s cryptocurrency activities first surfaced in January 2019. Specifically, the al-Qassam Brigades, the militant arm of Hamas, was exposed soliciting Bitcoin donations through platforms like Facebook and Instagram.
While initial endeavors in this “funding 2.0” approach garnered just a few thousand dollars, Hamas has progressively leveraged social media platforms for fundraising purposes. Furthermore, the Palestinian group, designated a terrorist organization by both the EU and the US, is not the sole actor in such activities. Nicholas Ryder, a law professor and expert on terrorist financing networks at Cardiff University, pointed out the rising trend of merging cryptocurrency with social media platforms such as Facebook, Instagram, and Telegram.
There’s a perception that Hamas’s recent financial influx via Bitcoin and other digital currencies suggests that without these funds, the Islamist group would struggle financially, potentially impacting its capability to launch attacks on Israel.
The topic of cryptocurrency and its potential use for various activities has sparked much discussion. Tom Keatinge, the director of the Centre for Financial Crime Research and Security Studies at the Royal United Service Institute, a leading UK security think tank, comments, “While the topic is in vogue and intrigues many due to its novelty and cachet, its practicality for raising or transferring funds is questionable.”
Hamas, recognized by Forbes in 2014 as one of the wealthiest terrorist groups, operates on an estimated annual budget of about $1 billion. The majority of these funds are sourced from donors in the Gulf region, as highlighted by German news outlet Deutsche Welle. In this context, the $41 million in cryptocurrencies seized by Israeli authorities might seem insignificant for Hamas. However, the actual use of such funds, especially in a digital wallet, can be murky. Chainalysis, a U.S.-based blockchain analysis firm, discusses the challenges in differentiating between funds intended for terror activities and others in a digital setting.
Ryder comments on the increasing prominence of cryptocurrency as a funding method, emphasizing its growth over the years. One of the appealing factors, according to Keatinge, is the simplicity of transactions, such as donating from the comfort of one’s home. “Cryptocurrencies offer a swift and uncomplicated method, bypassing traditional banking systems,” Ryder adds.
As international authorities intensify efforts against conventional terrorist financing channels, these organizations seek alternative fundraising strategies. Keatinge analogizes the situation to a balloon, explaining that as one financing method is constrained, another expands.
Conclusion: Balancing Innovation with Security
The intersection of cryptocurrency and conflict represents a new battlefield in the digital age. The proactive and collaborative efforts of law enforcement agencies and cryptocurrency exchanges in the Israel-Hamas conflict demonstrate a path forward.
However, this path must be navigated carefully to balance the promise of financial innovation with the imperative of security and peace. It’s important to distinguish between the technology itself and its applications. Like any technology, blockchain’s value is shaped by how it’s used. Its misuse in geopolitical conflicts, however, underscores the need for international regulatory frameworks and collaborative approaches to curb its misuse.
The challenge for the international community is to harness the positive potentials of blockchain while establishing measures to prevent its misuse. Failing to address these concerns may not only downgrade the technology’s value but also jeopardize global security efforts.