Why is Crypto Used for Terrorist Funding Over Dollars?
For terrorist groups, using crypto brings advantages and disadvantages. Although, some may stop using it altogether.
- The Hamas attack on Israel has put crypto’s role in conflicts under the microscope.
- Israel froze over 100 accounts linked to Hamas, and are looking at more.
- Crypto provides some benefits over the U.S dollar, but drawbacks too.
With the recent Israel-Hamas conflict kicking into a new gear, stories have recently emerged of Hamas using cryptocurrency to finance its campaign against Israel. Israeli law enforcement has frozen over 100 accounts linked to Hamas on Binance, the world’s largest crypto exchange, since the October 7th attacks.
In the U.S, 102 legislators across both the House and Senate have signed a letter expressing concern about terrorist organizations’ ability to use cryptocurrency to fund their activity. But why would they choose crypto over the tried-and-true U.S dollar?
The Allure of Pseudonymity
One of the main reasons terrorists and other criminals are drawn to cryptocurrency is its pseudonymity. With traditional financial systems like banks, your identity is tied to your accounts and transactions.
Anonymity means being completely unidentifiable. Cash transactions are largely anonymous, with no recorded link between the payer and payee. However, cryptocurrency does not provide true anonymity, but rather pseudonymity—or using an alias or pseudonym rather than your real identity.
Your cryptocurrency wallet has a complex series of letters and numbers as its “address” rather than your name. When you send or receive crypto, your real name is not tied to the transaction, only your wallet.
However, the transaction still gets recorded in the permanent blockchain ledger under your wallet’s pseudonymous address. Through advanced blockchain analysis, law enforcement can often connect those pseudonymous wallet addresses to real individuals.
To try and further hide their activity, terrorists are increasingly using privacy coins like Monero, Zcash and Dash which are harder to trace.
Instant Transfer of Funds
Crypto can make it easier to move money around the world with fewer checks. Traditional banks have strict anti-money laundering controls and may flag or block suspicious transactions. But cash in large quantities is bulky and difficult to transport.
In most advanced jurisdictions, crypto exchanges are required to have extensive anti-money laundering (AML) and know-your-customer (KYC) procedures, too. Although, it doesn’t always work out that way. In some cases, exchanges like Binance have been unable to catch groups like Hamas from using their platform to access funding.
Although, if you have your own exchange, that doesn’t matter. BitcoinTransfer, a cryptocurrency exchange based in Idlib, Syria, also facilitated several financing campaigns associated with the group, Al-Qaeda. According to Chainalysis , the exchange appeared to be under the full control of terrorist groups and their affiliates.
Crypto Could Be Falling out of Fashion
Crypto also opens to door to financing from around the globe. Instead of sending an envelope of cash, supporters can send cryptocurrency to an affiliated wallet. A March 2022 article by the Combating Terrorism Center at West Point revealed that some terrorist groups like ISIS and al-Qaeda were experimenting with cryptocurrencies in Syria and posing as charities to solicit funds.
However, some were quite open about their intentions. According to the report , one “charity” called Al Sadaqah allegedly described itself as “‘an independent charity organization that is benefiting and providing the Mujahadeen in Syria with weapons, financial aid and other projects relating to the jihad.”
In 2022, it is estimated that only 0.24% of total cryptocurrency volume was associated with terrorism. That number could soon be sinking even lower.
The recent attacks by Hamas have refocused minds on the connection between conflicts and crypto, with intelligence and law enforcement agencies more eager than ever to sever the link. There’s also the fact that, due to the inherent transparency of the blockchain, “cryptocurrency is not an effective solution to finance terrorism at scale,” according to Chainalysis .
Some are already winding down their operations, or at least appear to be. On April 27, 2023, Al-Qassam Brigades (AQB), the military wing of Hamas, announced they would be shutting their longstanding cryptocurrency donation program, citing worries about the safety and repercussions for their donors.
