Explore the alleged use of crypto by militant groups, including Hamas, Palestinian Islamic Jihad

Hamas's swift and deadly attack on Israel has raised questions about the financing behind this unexpected operation. Crypto has emerged as a potential answer. In the year leading up to the attacks, three militant groups—Hamas, Palestinian Islamic Jihad (PIJ), and their Lebanese ally Hezbollah—reportedly received significant sums through digital currencies. This revelation is based on Israeli government seizure orders and blockchain analytics reports.

Crypto Funds Flow

Analysis conducted by leading cryptocurrency researcher Elliptic revealed that digital-currency wallets linked to the PIJ received approximately $93 million in cryptocurrency between August 2021 and June 2022. Similarly, research by Tel Aviv-based crypto analytics and software firm BitOK indicated that wallets associated with Hamas received around $41 million during a similar period.

These findings come in the wake of the attack launched by PIJ and Hamas militants, resulting in the deaths of around 900 civilians and the abduction of over a hundred more. In response, Israel initiated a series of attacks on Gaza, resulting in the loss of at least 700 Palestinian lives. Hamas's armed wing, the Izz ad-Din al-Qassam Brigades, declined to comment on the use of crypto by these groups, while the PIJ and Hezbollah couldn't be reached for statements.

All three militant groups are designated foreign terrorist organizations by the U.S. government and face sanctions from the Treasury Department. This designation limits their access to the international banking system, with transactions involving these entities risking criminal prosecution and potential sanctions.

Struggles to Sever Financial Access

The use of cryptocurrencies by these groups highlights the challenges faced by both the U.S. and Israel in severing their access to foreign funding. Despite their designated status, PIJ and Hamas managed to accumulate weapons and equipment under the watchful eye of the Israeli government, resulting in one of the most significant border breaches since the 1973 Yom Kippur War.

It remains uncertain whether the crypto funds received were directly used to finance the assault. Moreover, the exact amount of crypto seized by Israeli authorities from these wallets is unclear, but researchers suggest that it likely represents a small fraction of the total funds that flowed through them. Israeli Defense Minister Yoav Gallant emphasized the increasing complexity of combating terrorist financing through digital currencies.

Government Actions

In response to the situation, Israel's National Bureau for Counter-Terror Financing issued orders for the seizure of crypto held in various client accounts at Binance, the world's largest cryptocurrency exchange. The U.S. Justice Department is conducting a broader investigation into Binance's anti-money-laundering controls.

A spokesperson for Binance stated that the exchange actively collaborates with law enforcement agencies, including those in Israel, to combat terror financing. Israeli police have taken action by freezing additional crypto accounts used by Hamas for soliciting donations on social networks, part of their ongoing efforts to locate the "financial infrastructure in cryptocurrencies used by terror entities to fund their activities."

Cryptocurrency Challenges

Cryptocurrency enables users to bypass traditional banks by instantly transferring tokens between digital wallets, typically held at cryptocurrency exchanges. The U.S. Treasury Department has identified gaps in financial crime controls at such exchanges, enabling terrorist groups like Islamic State and al Qaeda to misuse them for donations.

While crypto is one of the tools used by Hamas to raise funds, experts emphasize that the group employs various methods, including bringing cash into Gaza from Egypt. Iran has long been identified as the primary benefactor of these militant groups, providing annual funding of approximately $100 million.

As Joby Carpenter, a specialist in crypto and illicit finance at ACAMS, an industry group for financial crime-fighting professionals, noted, "Crypto is another string in their bow." Hamas has been publicly seeking crypto donations since at least 2019, underscoring the role of digital currencies in their fundraising efforts.