The Israeli government has taken control of cryptocurrency accounts that it claims are associated with Hamas. In response, lawmakers in the United States have called for stricter measures to combat the employment of cryptocurrencies by Hamas and its affiliated entities.
However, it is important to recognize that cryptocurrencies represent only a single avenue through which violent militant groups and organizations designated as terrorist entities obtain and utilize funds. The following information outlines our current understanding of the role played by cryptocurrencies in these activities.
Why is Crypto Used in Illicit Finance?
In the wake of an Israeli government seizure of cryptocurrency accounts allegedly linked to Hamas, there have been calls from U.S. lawmakers to strengthen measures aimed at countering the use of cryptocurrencies by Hamas and its affiliated groups.
Nevertheless, it is crucial to acknowledge that cryptocurrencies serve as just one means through which violent militant groups and designated terrorist organizations acquire and employ funds. Provided below is an overview of our present knowledge regarding the role played by cryptocurrencies in these illicit activities.
Can Crypto Not Be Tracked?
Indeed, this is not always the case.
Blockchain technologies like Bitcoin and Ethereum establish an immutable public ledger of transactions. Consequently, it becomes possible to observe the inflow and outflow of funds from a specific wallet address, along with its interactions with other wallets.
While it may prove challenging for an external party to identify transactions on the blockchain, firms specializing in blockchain analytics possess tools enabling them to track these funds.
However, to establish a connection between these transactions and an individual or group, researchers rely on supplementary information that is not explicitly recorded on the blockchain.
Crypto exchanges possess the capability to record which customer owns a particular wallet address, and law enforcement agencies can unveil the identities behind these wallets.
Moreover, cryptocurrency users can employ various techniques to further obscure their transactional history, such as utilizing crypto “mixers” or transferring funds to exchanges or other entities where they can blend in with the assets of other customers, making them difficult to distinguish.
How Much Crypto is Used in Terrorist Financing?
The exact figures remain uncertain.
According to experts, militant groups employ a range of methods to transfer funds, including cash, traditional banking systems, shell companies, charities, and informal financial networks. Cryptocurrencies, they assert, constitute a relatively minor component in this landscape.
As reported by Bloomberg, a United Nations official stated in 2022 that a few years ago, approximately 5% of terrorist attacks were believed to be financed through cryptocurrencies. However, this proportion could potentially rise to 20%.
The Financial Action Task Force (FATF) acknowledged this year that cryptocurrencies present “increasing terrorist financing risks.” Nevertheless, they emphasized that the “overwhelming majority” of terrorist financing still relies on fiat currencies.
In a blog post, crypto researchers Chainalysis clarified that when illicit financial flows are detected within a cryptocurrency firm, it does not imply that all of the firm’s transactions are compromised.
Chainalysis further explained that terrorist financing constitutes only a small fraction of the overall crypto market, representing less than 1% of illicit activities within this domain.
What About Other Forms of Illicit Finance?
Terrorist financing represents only a fraction of the illicit activities involving cryptocurrencies, which encompass scams, ransomware, and theft.
According to Chainalysis, cryptocurrency-related crimes reached an all-time high of $20.1 billion in 2022. However, this figure is considered a conservative estimate and does not include instances where cryptocurrencies are used as proceeds from non-crypto offenses like drug transactions.
UN reports suggest that cyber attacks resulting in cryptocurrency theft also serve as a significant means of funding for North Korea.
In response to a surge in crypto-related scams, certain banks in the UK have taken measures to restrict customers’ access to cryptocurrencies.
(Reference: Reuters)