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

The conflict between Israel and Hamas in Gaza has brought to the fore an issue that has been in the background for almost a decade: terrorist financing networks.

Now the United States and other Western governments have returned their focus to the problem. This especially applies to terrorists' use of digital money (or cryptocurrency) that can spread around the world without the scrutiny of banks or regulators.

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Counterterrorism is a game of cat and mouse. The Hamas attack on October 7 put the spotlight on the use of cryptocurrencies by terrorist groups. Now, the United States is showing signs of cracking down. Will the surveillance last?

And there is a broader strategic issue: Just as Israeli and other intelligence agencies ignored signs of a military buildup in Gaza, financial watchdogs were preoccupied with other matters. They missed the opportunity to squeeze funding from Hamas and other groups before they could act. (Hamas has been designated a terrorist organization by the US State Department since 1997.)

“We've stopped paying attention,” says Louise Shelley, director of the Center on Terrorism, Transnational Crime and Corruption at George Mason University. "I know from the most reputable sources that the government is not collecting the data it needs on either cryptocurrencies or credit card usage, which is an essential form of Hamas financing at the moment."

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

The conflict between Israel and Hamas in Gaza has brought to the fore an issue that has been in the background for almost a decade: terrorist financing networks.

Now, American and Western watchdogs, lawmakers and other governments have refocused on the problem. And especially about terrorists' use of digital money (or cryptocurrency) that can spread around the world without the scrutiny of banks or regulators.

It's easy to overstate the importance of cryptocurrencies. Non-state violent groups receive much more money through other formal and informal financial systems than through the use of bitcoins and other digital currencies, terrorism finance experts say. But it is still a concern and the biggest problem is strategic.

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Just as Israeli and other intelligence agencies ignored signs of a military buildup In Gaza, financial watchdogs were preoccupied with other matters. They missed the opportunity to squeeze funding from Hamas and other groups before they could act. (Hamas has been designated a terrorist organization by the US State Department since 1997.)

“We have stopped paying attention to issues of terrorism,” says Louise Shelley, director of the Center on Terrorism, Transnational Crime and Corruption at George Mason University. "I know from the most reputable sources that the government is not collecting the data it needs on either cryptocurrencies or credit card usage, which is an essential form of Hamas financing at the moment."

There are signs that this may change.

Hamas' brutal attack on Israel on October 7 has brought renewed scrutiny. On November 27, the US Treasury Department revealed the existence of a terrorist financing task force that it joined with a dozen other nations and anti-fraud groups immediately after the attack. Those nations include Israel, Australia, Germany and the tax havens Liechtenstein, Luxembourg and Switzerland.

And cryptocurrencies have become a focus of attention. 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 company to a Hamas fundraising campaign and the United States. The US Treasury says the company has been used by an Al Qaeda affiliate in Turkey and by people 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 finish on the use of cryptocurrencies by terrorists. The action came a week after The Wall Street Journal reported that Hamas and its ally Palestinian Islamic Jihad received up to 134 million dollars in digital funds between August 2021 and June 2023.

• On November 21, the Treasury 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 company 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 oversight to ensure it would not facilitate these types of transactions in the future.

• In a Nov. 28 letter to Congress, the Biden administration called for more power to scrutinize cryptocurrency exchanges that allow transactions by illicit groups. In a speech the next day, Treasury Undersecretary Wally Adeyemo warned that the federal government would curtail cryptocurrencies if the industry did not rein in those money flows.

The deal with Binance "is pretty big," 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 take this seriously.”

But many people familiar with the battle against terrorist financing have seen this pattern before: A high-profile terrorist attack generates intense but temporary interest. Attention increased after 9/11, focusing on the money flowing to Al Qaeda. It resurfaced when a U.S.-led coalition began fighting ISIS in Iraq and Syria in 2014. But interest waned each time other crises diverted Washington's attention.

"It's a space of finite resources and constantly changing priorities," says Alex Zerden, a terrorist financing expert who previously worked at the U.S. Treasury and now runs his own risk advisory firm, Capitol Peak Strategies in Washington. “In recent years, terrorist financing has not been the dominant priority in an era of Russian invasion of Ukraine, potential conflict with China, [and] the use of both sanctions and export controls” against nations rather than non-state groups.

The problem with this stop-start approach is that increased surveillance is more necessary before a terrorist attack, not after it.

"The set-up piece... costs a lot more money than the attack itself," says Celina Realuyo, a professor of practice at the Perry Center for Hemispheric Defense Studies at the National Defense University. Fighters must be transported, housed and fed before any action. "An attack costs thousands" of dollars, she adds. "But the support network is millions."

Will the current scrutiny over Hamas's financing also fade over time?

“There is concern that this [war in Gaza] "It may be a milestone for Hamas to enable greater charitable support as well as greater investment opportunities," says Zerden of Capitol Peak Strategies. “The counterbalance is that there is renewed attention after years of deprioritizing Hamas' terrorist financing activity by like-minded governments. ...So we have these two competing forces. Which one will prevail? Unfortunately, only time will tell.”

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

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