Terrorist Financing: Hamas and Cryptocurrency Fundraising
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Updated December 9, 2024
Terrorist Financing: Hamas and Cryptocurrency Fundraising
Policymakers, including some Members of Congress, are scrutinizing U.S. efforts to counter the role that cryptocurrency fundraising plays in the financing of terrorism. In November 2023, the U.S. Department of the Treasury proposed several legislative changes to existing anti-money laundering (AML) and sanctions laws to shore up U.S. counterterrorist financing authorities. A question facing Congress is whether additional regulation of the virtual asset sector and/or the introduction of additional countermeasures could help further efforts to counter the financing of terrorism (CTF). The issue has attracted congressional attention in the wake of the October 7, 2023, attacks on Israel perpetrated by Hamas—an Iran-supported Palestinian group identified by the United States and some others as a terrorist organization subject to sanctions. U.S. government reports indicate that Hamas has sought cryptocurrency through donation drives since at least 2019.
Role of Cryptocurrency Donations in Hamas Fundraising Campaigns
Although Hamas has reportedly solicited cryptocurrency donations, the scale and effectiveness of these efforts remain unclear. Citing two cryptocurrency analytics firms and Israeli government seizure orders, the Wall Street Journal reported on October 10, 2023, that cryptocurrency wallets connected to Hamas received about $41 million between 2020 and 2023 and that wallets connected to another U.S.-designated terrorist organization, the Palestine Islamic Jihad (PIJ), received as much as $93 million over a similar period. Some observers have questioned whether such figures overestimate the amount Hamas received and note the role of potentially other, larger funding sources. The Wall Street Journal subsequently reported that Treasury is “investigating $165 million in cryptocurrency- linked transactions that may have helped finance Hamas” prior to the October 2023 attacks.
Origins In 2019, Hamas engaged in a cryptocurrency donation campaign that led to the U.S. seizure of several websites and 150 cryptocurrency accounts linked to the armed wing of Hamas, the Izz al Din al Qassam Brigades, in 2020. In connection with these enforcement actions, the U.S. Department of Justice (DOJ) charged two foreign nationals for money laundering crimes related to their involvement in converting cryptocurrency into other forms of value. DOJ also prosecuted an individual for concealing material support to Hamas, including through Bitcoin. U.S. enforcement actions in 2023 revealed that Qassam Brigades used Binance, a cryptocurrency exchange, to facilitate cryptocurrency transactions since as early as 2019.
Following its initial cryptocurrency campaign, Hamas’s efforts to generate cryptocurrency donations continued to
garner attention from prospective donors as well as law enforcement authorities. In 2021, the U.S. cryptocurrency exchange platform Coinbase identified Hamas as one of several terrorist groups involved in cryptocurrency fundraising. Israeli authorities reportedly seized dozens of cryptocurrency addresses linked to Hamas, PIJ, and other terrorist groups between 2021 and 2023. In April 2023, the Qassam Brigades announced it would stop accepting Bitcoin donations, cautioning that donors could be targeted.
U.S. Responses Since the October 2023 attacks, U.S. authorities appear to be on alert for signs that Hamas-linked entities may have resumed soliciting cryptocurrency donations. Treasury has taken several actions, including the following: • Sanctioning additional Hamas operatives and financial
facilitators engaged in cryptocurrency activity, including sanctions imposed in coordination with other countries, such as the United Kingdom and Australia.
• Issuing an “alert” to financial institutions to counter
Hamas-related terrorist financing. In the alert, Treasury’s Financial Crimes Enforcement Network (FinCEN) noted the variety of ways in which Hamas raises funds, including “fundraising campaigns involving virtual currency and fictitious charities raising both fiat and virtual currency.”
• Publishing a notice of proposed rulemaking (NPRM)
that determined that transactions involving convertible virtual currency (CVC) mixing are “of primary money laundering concern,” pursuant to Section 311 of the USA PATRIOT Act (P.L. 107-56; codified at 31 U.S.C. 5318A). (Mixers are applications that obscure the senders and recipients of cryptocurrency transactions, complicating efforts to trace funds.)
• Hosting a FinCEN Exchange to discuss threats posed by
illicit cryptocurrency use in light of Hamas’s attack on Israel and the role of the financial industry in CFT. FinCEN encouraged financial institutions to register under the voluntary information sharing program under Section 314(b) of the USA PATRIOT Act.
• Settling with Binance over money laundering and
sanctions violations (more than $4 billion in penalties), including failure to report transactions associated with the Qassam Brigades, PIJ, and other terrorist groups.
• Issuing a National Terrorist Financing Risk Assessment
in 2024, which reported an increase in global, online fundraising efforts on behalf of Hamas after the October 2023 attacks. The assessment also noted a general trend among terrorist groups toward a preference for stablecoins to move and store funds.
Terrorist Financing: Hamas and Cryptocurrency Fundraising
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U.S. Policy Framework for CFT and Cryptocurrency Regulation
Contemporary U.S. CFT policy is grounded in AML and counterterrorism sanctions policies that predate the advent of virtual assets and virtual asset service providers (VASPs). At issue is whether and how to modify existing AML/CFT policies and regulations to reflect the risks and opportunities posed by virtual assets.
U.S. Regulatory and Sanctions Framework for CFT The cornerstone of U.S. AML policy originated in 1970 with the Bank Secrecy Act (BSA; P.L. 91-508) and its major component, the Currency and Foreign Transactions Reporting Act. Designations and prohibitions against state sponsors of terrorism and foreign terrorist organizations emerged in the late 1970s and evolved through the 1990s. In response to the Al Qaeda attacks on the United States on September 11, 2001 (9/11), Congress took additional CFT actions through the enactment of several public laws, including the USA PATRIOT Act and its major component, the International Money Laundering Abatement and Anti- Terrorist Financing Act of 2001.
In response to 9/11, President George W. Bush also issued Executive Order (E.O.) 13224, which established a new counterterrorism sanctions program targeting specially designated global terrorists (SDGTs). In 2019, President Donald Trump issued E.O. 13886, amending E.O. 13224 to expand the scope of sanctionable activity and authorize secondary sanctions against foreign financial institutions that have knowingly conducted or facilitated a significant financial transaction on behalf of an SDGT. Digital currency addresses, including those related to a Hamas- linked exchange (Buy Cash) and a fundraising entity (Gaza Now), have been sanctioned under the SDGT program.
AML/CFT Regulations for Virtual Assets AML/CFT requirements for money services businesses (MSBs) under the BSA (finalized in a 2011 FinCEN rulemaking) generally apply to VASPs that act as money transmitters (a type of MSB). FinCEN issued guidance in 2013 and 2019 to clarify that such VASPs are required to (1) register with FinCEN as MSBs; (2) maintain an AML program; and (3) follow recordkeeping, monitoring, and transaction reporting requirements, in line with requirements for MSBs. Such reporting requirements include filing suspicious activity reports and currency transaction reports. Applicable AML/CFT requirements also include verifying customer identities and conducting related customer due diligence. It is not clear to what extent all VASPs comply with these MSB requirements.
FinCEN has clarified that these requirements apply to domestic and foreign-located CVC money transmitters that do business “in substantial part within the United States,” even if they are headquartered outside the United States and have no physical U.S. presence. FinCEN considers centralized and decentralized exchanges to be money transmitters subject to AML/CFT requirements. In contrast, CVC users, including those who use cryptocurrency to buy goods and services, are not considered to be money transmitters and are exempt from BSA requirements.
Congressional Outlook
The possibility that Hamas and other terrorist groups may increasingly turn to cryptocurrency for fundraising and moving funds has prompted congressional interest. Since the October 2023 attacks, the Biden Administration has sought additional AML and sanctions authorities from Congress to pursue bad actors in the cryptocurrency-related financial technology services industry.
Congressional attention to the terrorist financing risks posed by cryptocurrencies is ongoing amid broader debates surrounding virtual asset governance and whether the sector requires additional legislation, regulation, and supervision. Stakeholders have sought to balance the opportunities that the virtual asset sector may portend for financial sector innovation and financial inclusion with the risk of virtual asset misuse. Some observers note that certain aspects of the virtual asset ecosystem are not consistently regulated. Others caution against proposals for regulation that may be overly broad and ill-equipped to deal with the unique characteristics of the virtual asset industry, much of which is permissionless and pseudonymous, and stifle innovation.
Proponents of enhanced cryptocurrency regulation may point to perceived gaps in AML/CFT compliance among VASPs, including well-known cryptocurrency exchanges and mixers. In practice, U.S. authorities are challenged to enforce BSA requirements on foreign-headquartered transmitters, even if the exchanges conduct business with U.S. persons. FinCEN’s October 2023 NPRM on CVC mixers noted that no such mixers had registered in the United States as MSBs—underscoring concerns regarding the apparent lack of AML/CFT compliance among such VASPs. Other observers may question whether regulatory changes to the cryptocurrency industry will significantly affect terrorist financing. At congressional hearings held since October 7, witnesses testified that the appeal of cryptocurrency for financing terrorist groups in particular, including Hamas, may be limited due to their susceptibility to detection by authorities (blockchain ledgers that record crypto transactions are publicly visible) and the availability of other funding sources and laundering methods.
Several bills have been introduced in the 118th Congress that address, at least in part, some of Treasury’s proposals. See, for example, S. 2355, S. 2669, and H.R. 5745. The 118th Congress also passed sanctions-related provisions that address Hamas-specific illicit financing, including the Hamas and Other Palestinian Terrorist Groups International Financing Prevention Act and the End Financing for Hamas and State Sponsors of Terrorism Act (Divisions M and Q of P.L. 118-50). Weighing the risks as well as the opportunities related to cryptocurrency innovation may continue to be a focus of both Congress and the incoming Administration.
Liana W. Rosen, Specialist in International Crime and Narcotics Paul Tierno, Analyst in Financial Economics Rena S. Miller, Specialist in Financial Economics
IF12537
Terrorist Financing: Hamas and Cryptocurrency Fundraising
https://crsreports.congress.gov | IF12537 · VERSION 3 · UPDATED
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