Hamas’ Cryptocurrency Use Draws Attention to Terror Finance Enforcement Gaps

More than 100 Democratic and Republican members of Congress sent a letter to the White House last Tuesday urging the Biden administration to take action to stop terrorist organizations from raising funds using cryptocurrencies. Despite the U.S. Department of the Treasury having just issued new sanctions against 10 groups linked to Hamas — an important and necessary step — the letter reveals that significant gaps remain in Washington’s efforts to curb terrorist financing.

Led by Senator Elizabeth Warren (D-MA), 107 members of the House and Senate urged Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson and National Security Advisor Jake Sullivan to explain Treasury’s efforts to “address the serious national security threats posed by the use of cryptocurrency to finance terrorism.” This followed a Wall Street Journal report that Hamas had raised about $41 million in cryptocurrencies over the last two years and Palestinian Islamic Jihad had raised more than double that amount. Hamas has been using cryptocurrency platforms since at least 2019 and is one of the most sophisticated terrorist organizations in the crypto domain, according to Ari Redbord, former senior advisor to the previous undersecretary for terrorism and financial intelligence and global policy lead for blockchain-intelligence company TRM Labs.

Earlier this week, Israeli law enforcement seized millions of dollars from Hamas’ crypto accounts, and cryptocurrency exchanges have frozen and closed other terrorist-linked accounts.  Following the 2021 conflict between Israel and Hamas, the Israeli government seized multiple digital wallets affiliated with the terrorist organization.

In a related development, after issuing sanctions against Hamas financiers and a Gaza-based cryptocurrency exchange on Wednesday, the Department of the Treasury put the financial industry on notice about money laundering concerns raised by virtual currency mixers, which have been used to launder billions of dollars. On Thursday, the department released a Notice of Proposed Rule Making requiring financial institutions to report to Treasury’s Financial Crimes Enforcement Network (FinCEN) all instances of virtual currency mixing that occurs outside the United States.

Right now, terrorists, money launderers, and other illicit actors can exploit the decentralized nature of cryptocurrencies to dodge regulations aimed at ensuring the integrity of the global financial system. Cryptocurrency exchanges allow for near-instantaneous peer-to-peer transactions that can be made anonymous by using currency mixers — services that combine multiple crypto transactions and distribute the funds to obscure the original source. Pending bipartisan Senate legislation would require FinCEN to issue further regulations to diminish illicit finance risks associated with these and other aspects of the cryptocurrency ecosystem.

While Deputy Secretary of the Treasury Wally Adeyemo affirmed Treasury’s commitment to “aggressively combatting illicit use of” cryptocurrencies “by terrorist groups, including Hamas and Palestinian Islamic Jihad,” crypto funds currently represent a fraction of Hamas’ financing. Iran remains the primary source of Hamas’ illicit funds, supplying roughly $100 million in military and financial support per annum. And yet Hamas is increasingly using cryptocurrencies to supplement the funding it gets from Iran because it is “much easier than smuggling cash over Egypt’s border,” Matthew Price, former Internal Revenue Service investigator and strategic engagement lead with crypto analysis firm Elliptic told The Wall Street Journal.

Using digital currencies, terrorist organizations can evade sanctions and expand their operations. Proper regulation and collaboration between financial regulators, law enforcement, and cryptocurrency exchanges can help prevent this. At the same time, the Biden administration needs to enforce sanctions on Iran to restrict their financial mobility. Leaving these issues unaddressed will only further enable Hamas and other terrorist groups to carry out attacks globally, including attacks aimed at U.S. partners, allies, and the American homeland.

Michael Sugden is a research analyst and editorial associate with the Center on Cyber and Technology Innovation (CCTI) at the Foundation for Defense of Democracies (FDD), where Elaine Dezenski is senior director and head of FDD’s Center on Economic and Financial Power (CEFP). For more analysis from the authors, CCTI, and CEFP, please subscribe HERE. Follow Elaine on X @ElaineDezenski. Follow FDD on X @FDD, @FDD_CCTI, and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focused on national security and foreign policy.