LONDON (Reuters) - A new front has emerged in Israel's fight against funding Iran-backed militant groups from Hamas to Hezbollah: a fast-growing crypto network called Tron.
Faster and cheaper than its biggest rival, Bitcoin, Tron has surpassed its rival as a platform for cryptocurrency transfers associated with groups designated as terrorist organizations by Israel, the United States and other countries, according to interviews with seven financial crime experts and blockchain research specialists.
A Reuters analysis of cryptocurrency seizures announced by Israeli security services since 2021 reflects the trend, showing for the first time a sharp increase in attacks on Tron wallets and a drop in seizures of Bitcoin wallets.
"Before it was Bitcoin and now our data shows that these terrorist organizations tend to favor Tron more and more," said Mriganka Pattnaik, CEO of New York-based blockchain analysis firm Merkle Science, citing transaction times. fastest, low fees and stability of Tron.
Merkle Science says it counts law enforcement agencies in the United States, Britain and Singapore among its clients.
Israel's National Terrorist Financing Bureau (NBCTF), responsible for such seizures, froze 143 Tron wallets between July 2021 and October 2023 that it believed were connected to a "designated terrorist organization" or used for a "terrorist crime." serious". Reuters analysis found.
Hamas's October 7 attacks on Israel killed about 1,200 people. Israel's subsequent bombing and ground invasion of Gaza have killed some 14,000 people. In its response, Israel has also intensified scrutiny of Hamas's financing.
Contacted by Reuters with a summary of this article, Hayward Wong, a spokesperson for Tron, registered in the British Virgin Islands, said that all the technologies could "in theory be used for questionable activities", citing the use of US dollars for laundering as an example. of money.
Wong said Tron had no control over those who used its technology and was not linked to the groups identified by Israel.
Nearly two-thirds of Israel's Tron seizures (87) were this year, including 39 wallets that Israel said in June were owned by Lebanon's Hezbollah, and 26 that it said in July belonged to Palestinian Islamic Jihad, a Hamas ally who joined the attack on Israel. from Gaza.
The seizures also included 56 Tron wallets that NBCTF said were linked to Hamas, including 46 in March last year that were connected to a single Gaza-based currency exchange company called Dubai Co. For Exchange.
Weeks after the Hamas attack, Israel announced its largest known seizure of crypto accounts yet, freezing around 600 accounts it connected to Dubai Co., without indicating which crypto networks or currencies were used.
More than a dozen people whose funds were frozen in that seizure told Reuters they had been using Tron. They said they traded cryptocurrencies to help their businesses or personal finances and denied any connection to Hamas or Islamic Jihad.
One of the people, who identified himself only as Neo, said it was possible that they had once transferred money to someone associated with Hamas.
Israel calls Dubai Co. a terrorist group "due to the assistance they provide to the terrorist organization Hamas, particularly its military wing, in transferring funds on a scale of tens of millions of dollars a year."
A representative for Dubai Co., whose email was listed in the seizure order, did not respond to a request for comment.
The armed wing of Hamas, which had raised crypto funds since at least 2019, said in April that cease Bitcoin fundraising, citing increased efforts to avoid donations. Hamas did not mention Tron in the statement.
Reuters could not independently determine whether Hamas had used Tron. NBCTF declined to comment for this story, including on its understanding of the move to Tron and how he linked the wallets to militant groups. Hamas, Hezbollah and Islamic Jihad did not respond to requests for comment.
Six people included in Israel's previous Tron seizure notices who responded to questions from Reuters denied connections to militant groups. Among them were people based in Venezuela, Dubai and the West Bank city of Jenin.
'AXIS OF RESISTANCE'
In the June statement, Israel said it had confiscated funds "intended for use by Iranian-funded terrorist organizations." Iran counts Hamas, Hezbollah and Islamic Jihad in call Resistance Axis oppose Israeli and American power in the Middle East.
In seizure statements, NBCTF did not claim that Tehran was the source of financing. Iran's Foreign Ministry did not respond to a Reuters request for comment on the use of Tron to fund groups it supports.
Iran has previously used Tron to circumvent US sanctions. Reuters reported Last year, Iranian companies used it for $8 billion in transactions between 2018 and 2022.
Estimates of the sums of money reaching banned groups through cryptocurrencies are unreliable because it is difficult to say whether money sent to seized wallets was actually destined for those groups.
The value of crypto transactions and the digital wallet addresses used for them can be tracked on the blockchain, a public ledger that underpins cryptocurrencies. However, it is difficult for those outside of law enforcement or crypto trading platforms to know the real identity of those involved in the transactions.
The people consulted by Reuters also said their research showed that the Tether cryptocurrency was dominant across the entire Tron network.
Tether, the world's largest so-called stablecoin, is backed by reserves and aims to maintain a 1:1 peg to the dollar. The company said in a statement that it regularly tracked and frozen tokens "used for nefarious purposes" and coordinated these efforts with authorities.
Tether is the third-largest crypto token, with a market value of $89 billion, up about a third from last year, according to data from CoinGecko.
Despite its lack of name recognition outside of crypto circles, Tron is the dominant blockchain for Tether transactions, currently hosting $48 billion in tokens, according to Tether's website. Average daily transactions on Tron reached 9.1 million between April and June, according to data firm Messari, up more than 70% from the same period last year.
Justin Sun, who founded Tron in 2017, was defendant by the US Securities and Exchange Commission in March for allegedly artificially inflating trading volumes and selling Tron tokens as unregistered securities. Sun said the SEC's charges are "meritless."
Sun representative Binbin Deng referred Reuters to Tron spokesman Wong's statement.
'BLIND POINT'
Since its birth in 2008, the Bitcoin blockchain, and since then cryptocurrencies in general, have been magnets for criminals attracted by liquidity and a reputation for anonymity. Of all crypto transaction volumes, the illicit share was 0.2% in 2022, up from 2% three years earlier, according to blockchain tracker Chainalysis.
In Israel, Bitcoin seizures have been low compared to Tron. In 2021, the first year NBCTF issued seizure notices, it froze 30 Bitcoin wallets. Bitcoin wallets do not appear in ads for subsequent years.
The Financial Action Task Force, a Paris-based G7 body that fights illicit finance, warned last month that terrorist organizations were seeking to further increase donor anonymity, citing the growing popularity of Tether transfers on Tron .
Four of the people consulted by Reuters said law enforcement's increased ability to track Bitcoin transactions was driving such groups to Tron.
Tron initially attracted less attention from blockchain analytics firms, said Shlomit Wagman, a senior researcher at Harvard University who was director general of Israel's Anti-Money Laundering and Terrorist Financing Authority from 2016 to 2022. .
"Until now there was this blind spot," he said.
Transaction fees on Tron cost much less than on Bitcoin, says US investment firm VanEck. Militant groups were also using stablecoins on Tron instead of more volatile bitcoin tokens to ensure โthe value of their crypto is preserved,โ Wagman said.
Reporting by Tom Wilson and Elizabeth Howcroft in London, additional reporting by Nidal al-Mughrabi in Gaza and Maya Gebeily in Beirut; Edition by Frank Jack Daniel.
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