Is cryptocurrency enabling Hamas? Efforts to halt terror funding revive.

UniqueThis 1 December 1, 2023

The Israel-Hamas conflict in Gaza has pushed into the limelight an issue that’s been seething on the back burner for nearly a decade: the funding networks for terrorism.

Now U.S. and other Western governments have refocused on the problem. This goes especially for terrorists’ use of digital money – or cryptocurrency – that can be flashed around the world without the scrutiny of banks or regulators. 

A story focused on

Anti-terrorism is a cat-and-mouse game. The Oct. 7 Hamas attack put a focus on the use of cryptocurrency by terrorist groups. Now, the United States shows signs of cracking down. Will the vigilance last?

And there’s a larger strategic issue: Just as Israeli and other intelligence agencies disregarded signs of a military buildup in Gaza, finance watchdogs were preoccupied with other matters. They missed the chance to squeeze Hamas’ and other groups’ funding before these groups could act. (Hamas has been designated a terrorist organization by the U.S. State Department since 1997.)

“We have taken our eyes off the ball,” says Louise Shelley, director of the Terrorism, Transnational Crime and Corruption Center at George Mason University. “I know it from the most reputable sources that the government is not collecting the data that it needs to be on either cryptocurrency or the use of credit cards, which is an essential way that Hamas is being funded at the moment.”

Actions in recent weeks suggest this may change. The U.S. Treasury, for example, reached a $3.4 billion settlement with the cryptocurrency exchange Binance over its lack of safeguards. 

The Israel-Hamas conflict in Gaza has pushed into the limelight an issue that’s been seething on the back burner for nearly a decade: the funding networks for terrorism.

Now, U.S. and other Western government watchdogs, legislators, and others have refocused on the problem. And especially on terrorists’ use of digital money – or cryptocurrency – that can be flashed around the world without the scrutiny of banks or regulators.

It’s easy to overstate the importance of cryptocurrency. Violent nonstate groups receive far more money through other formal and informal financial systems than from using bitcoin and other digital money, terror-finance experts say. But it’s still a concern, and the larger problem is a strategic one.

A story focused on

Anti-terrorism is a cat-and-mouse game. The Oct. 7 Hamas attack put a focus on the use of cryptocurrency by terrorist groups. Now, the United States shows signs of cracking down. Will the vigilance last?

Just as Israeli and other intelligence agencies disregarded signs of a military buildup in Gaza, finance watchdogs were preoccupied with other matters. They missed the chance to squeeze Hamas’ and other groups’ funding before these groups could act. (Hamas has been designated a terrorist organization by the U.S. State Department since 1997.)

“We have taken our eyes off the ball on terrorism issues,” says Louise Shelley, director of the Terrorism, Transnational Crime and Corruption Center at George Mason University. “I know it from the most reputable sources that the government is not collecting the data that it needs to be on either cryptocurrency or the use of credit cards, which is an essential way that Hamas is being funded at the moment.”

There are signs this may change. 

Hamas’ brutal Oct. 7 attack on Israel has brought with it renewed scrutiny. On Nov. 27, the U.S. Treasury Department disclosed the existence of a terror-finance task force it joined with a dozen other nations and fraud-fighting groups in the immediate aftermath of the attack. Those nations include Israel, Australia, Germany, and tax havens Liechtenstein, Luxembourg, and Switzerland.  

And cryptocurrency has become a focus. For example:

• Among the first entities sanctioned by the Treasury less than two weeks after the October attack was a Gaza-based cryptocurrency exchange, called Buy Cash Money and Money Transfer Company. Israel has linked the firm to a Hamas fundraising campaign and the United States. The U.S. Treasury claims the firm has been used by an Al Qaeda affiliate in Turkey and individuals connected to the Islamic State of Iraq and Syria (ISIS).

• Also in October, a bipartisan group of 105 U.S. senators and representatives urged the Biden administration to crack down on terrorists’ use of cryptocurrency. The action came a week after The Wall Street Journal reported that Hamas and its ally Palestinian Islamic Jihad received as much as $134 million in digital funds between August 2021 and June 2023.

• On Nov. 21, the Treasury’s Financial Crimes Enforcement Network announced a record $3.4 billion fine in a settlement with the world’s largest cryptocurrency exchange, Binance. The government accused the firm of turning a blind eye to transactions made by Hamas, Palestinian Islamic Jihad, Al Qaeda, and ISIS. Binance also agreed to five years of federal monitoring to ensure it would not facilitate such transactions in the future.

• In a Nov. 28 letter to Congress, the Biden administration asked for more power to scrutinize cryptocurrency exchanges that allow transactions by illicit groups. In a speech the following day, Deputy Treasury Secretary Wally Adeyemo warned that the federal government would curtail cryptocurrencies if the industry failed to police such money flows.

The Binance settlement “is pretty huge,” says Matthew Levitt, director of the Reinhard Program on Counterterrorism and Intelligence at The Washington Institute for Near East Policy. “It sends an extremely strong message to the industry. ... We’re serious about this.”

But many familiar with the battle against terror financing have seen this pattern before: A high-profile terrorist attack garners intense but temporary interest. Attention surged after 9/11 with the focus on the money flowing to Al Qaeda. It surged again when a U.S.-led coalition began fighting ISIS in Iraq and Syria in 2014. But interest flagged each time as other crises diverted Washington’s attention.

“It’s a space of finite resources and constantly changing prioritization,” says Alex Zerden, a terror-financing expert formerly at the U.S. Treasury and now head of his own risk advisory firm, Capitol Peak Strategies in Washington. “Over the past several years, terrorist financing hasn’t been the dominating priority in an era of Russia’s invasion of Ukraine, potential conflict with China, [and] the use of both sanctions and export controls” against nations rather than nonstate groups.

The problem with this on-again, off-again approach is that heightened vigilance is most needed before a terrorist attack, not after it.

“The preparatory piece ... costs much more money than the actual attack itself,” says Celina Realuyo, professor of practice at the Perry Center for Hemispheric Defense Studies at National Defense University. Fighters have to be transported, housed and fed in the run-up to any action. “An attack is in the thousands” of dollars, she adds. “But the support network is in the millions.”

Will the current scrutiny of Hamas financing also fade over time? 

“There’s concern that this [war in Gaza] may be a watershed for Hamas to enable greater charitable support as well as greater investment opportunities,” says Mr. Zerden of Capitol Peak Strategies. “The counterbalance is that there is renewed attention after years of de-prioritization against Hamas’s terrorist financing activity from like-minded governments. ... So you have these two competing forces. Which one is going to prevail? Unfortunately, only time will tell.”