Whilst the onset of the digital age and the subsequent rise of cryptocurrencies has heralded an era of exciting innovation, it has also brought with it unprecedented and ever-changing challenges to global security.
By virtue of crypto’s degree of anonymity, speed of international transfer, and its borderless, decentralised nature, it has become a haven for illicit activities to operate, reportedly used by the likes of the Taliban, ISIL, ISIS, and topically, Hamas and Palestinian Islamic Jihad (PIJ). Equally, however, the murky waters of crypto transactions makes it difficult to accurately determine the quantity of these financial exchanges.
So, what data?
Since 2021, Israel’s National Bureau for Counter Terror Financing (NBCTF) has frequently thwarted the use of cryptocurrency by Gaza-based terror orgs, seizing 189 Binance accounts worth ‘tens of millions of dollars in volume’, controlled by entities ‘affiliated’ with Hamas. Including Binance accounts such as Al Mutahadun For Exchange, Dubai Company for Exchange, and Al Wefaq Co. For Exchange.
Already by July 2021, just several months after the last major round of conflict between Gaza and Israel, wallets tied to Hamas had accumulated cryptocurrency assets totalling $7.7 million, according to Elliptic, a blockchain analysis firm. In addition to this, according to crypto analytics at Tel Aviv-based firm BitOK, an estimated $41 million had been raised by Hamas between 2021 and 2023.
What is more, in July 2023, the NBCTF instructed the seizure of further wallets linked to PIJ. Elliptic analysis of the wallets seized indicated that transactions between the parties involved totalled a mighty sum of approximately $93 million between 2020 and 2023.
I am, however, acutely aware of the infamous $93 million figure that has been circulating in recent months has been a subject of scrutiny, especially by those who see the figure as misconstruing, and in turn demonising the use of cryptocurrency. Elliptic since set the record straight, confirming that ‘in no way does this mean that PIJ had “raised” all of these funds or that they even all belonged to PIJ.’ It is more realistic that some of the wallets seized by the NBCTF belonged to small crypto brokers used by PIJ, affiliating them in some way or another with the organisation.
Nevertheless, it is worth bearing in mind that since October 7, funding for these Gaza-based terror orgs has unfortunately continued. In late November there had been a reported 70% increase in money donated to ‘Hamas-linked charities.’
The broader concern
Of course, Hamas and PIJ’s use of cryptocurrency is not an exceptional blend of terrorist orgs and cryptocurrency. In the last decade there have been numerable instances of similar abuses of the crypto platform.
In 2016, the Mujahideen Shura Council (MSC), a Gaza-based Salafi terrorist group, launched a Bitcoin-driven fundraising campaign on Twitter and Telegram, called “Jahezona” (Equip Us), which, with success, raised $8,000 in funds.
In around 2020, crypto became a ‘method of large-scale transfers’ between Iran and its hawala networks, spread across Gaza, Lebanon, Syria and Turkey, according to the current and former Israeli officials and ex-U.S. officials. Crypto has since adopted a function in distributing funds, of which Hamas receives up to $100 million annually.
In June 2023, the NCBTF seized millions of shekels worth of cryptocurrency belonging to the Lebanese terrorist group Hezbollah and Iran’s Islamic Revolutionary Guard Corps’ (IRGC) Quds Force.
The illicit uses of crypto are self-evident, and certainly not exhaustive.
A warranted response?
The ongoing Hamas-Israel conflict has resonated with broader concerns over the role of cryptocurrency in the financing of terrorism.
October 7 has become ‘ammunition’ for the ‘anti-crypto army’ in Washington, with a proposed bipartisan bill—the Terrorism Financing Prevention Act— introduced on December 8, 2023. Equally October 7 has given ‘further impetus’ to Senator Elizabeth Warren’s bipartisan Digital Asset AML Act (DAAMLA), which was followed up on December 11.
[implementing the Act] “would mitigate the illicit finance risks that crypto poses by closing loopholes and bringing the digital asset ecosystem into greater compliance with the anti-money laundering and countering the financing of terrorism (AMF/CFT) frameworks that govern much of the financial system”
Or in other words, it would “effectively ban” crypto in America, according to Galaxy’s head of firmwide research, Alex Thorn. Perhaps of equal concern is that Senator Warren’s renewed attempt at implementing the DAAML Act was informed by the misunderstood $93 million figure.
All that bad?
Zooming out of Washington, is the demonising of crypto entirely warranted? In contrast, crypto fundraising for humanitarian causes in Israel has been thriving. For example, since October 7, Crypto Aid Israel had received over $240,000 in crypto donations to support those effected by the attacks.
In any event, across the Atlantic, the EU’s Markets in Crypto Assets Regulation (MiCA), specifically its ‘Consultation Package 3’, is due to take effect in early 2024. The Package itself concerns highly relevant mandates, such as ‘monitoring, detection, and notification of market abuse.’ More generally, MiCA signifies the ‘first major jurisdiction in the world’ to institute a comprehensive set of rules for the cryptocurrency sector, prompting France’s Finance Minister Bruno Le Maire, to hail MiCA as a “landmark” that “will put an end to the crypto Wild West.”
The recent events in both Washington and Brussels arguably reflect two ends of a spectrum where the EU is leading ahead, whilst the US Congress is arguably lagging behind.
Surely there is a constructive middle-ground between giving the free reins to illicit activity on crypto and completely outlawing this financial tool, especially in today’s political climate.