terrorism financing

Coinbase Amplifies Anti-Terrorism Financing Measures Through Blockchain Analytics

In an era where digital currencies are gaining traction, ensuring the prevention of their misuse is paramount. On October 17, 2023, Coinbase, a prestigious cryptocurrency exchange, delineated its strategies to combat illicit financial activities, particularly focusing on thwarting terrorism financing, through an official blog post. The essential takeaway is the unwavering stance that no currency – be it fiat, gold, or cryptocurrency – should be utilized in supporting Hamas or any other terrorist entities. This is anchored on the principle of keeping the crypto realm clean from nefarious activities which could tarnish its burgeoning reputation.

Coinbase articulates a rigid compliance framework aimed at rooting out ill-intentioned actors who seek to leverage cryptocurrencies for unlawful pursuits. This framework encompasses Know Your Customer (KYC) checks, sanctions screening, suspicious activity reporting, coupled with fostering strong partnerships with law enforcement authorities. These measures are pivotal in both detecting and preventing illicit activity on the platform.

Blockchain analytics emerge as a cornerstone in this endeavor. By harnessing the power of blockchain technology, Coinbase, in conjunction with law enforcement agencies, endeavors to trace, report, and impede the financing channels of terrorist organizations. The immutable nature of blockchain ledgers renders transactions more traceable, thereby acting as a deterrent for malicious actors.

With 400 dedicated personnel spanning compliance, legal, and investigative departments, Coinbase exhibits a robust infrastructure to tackle illicit financial flows. The presence of seasoned personnel, some of whom have served in governmental national security and law enforcement agencies, further bolsters the effectiveness of these measures. Among the technological tools deployed is the Sanctions Screening tool which facilitates swift detection and halting of sanction-related transactions, particularly those associated with terrorist groups.

The narrative also sheds light on the comparative analysis between traditional financial systems and cryptocurrencies in the context of terrorism financing. Contrary to common misperceptions, the lion’s share of terrorist funding still channels through traditional financial mediums like cash. Cryptocurrencies, with their traceable transaction frameworks, present a more transparent alternative which could potentially deter illicit financial flows.

The report underscores the urgency for clear regulatory frameworks in the U.S to mitigate the risks associated with offshore cryptocurrency transactions linked to illicit activities. By fostering a regulated cryptocurrency landscape, the U.S can ensure adherence to anti-money laundering and sanctions regulations, thereby minimizing the potential for digital assets’ misuse.

A noteworthy concern raised is the reported linkage of Hamas funding to digital assets managed by offshore entities beyond the purview of U.S laws. This underscores the necessity for stringent regulations to keep cryptocurrency transactions within regulated jurisdictions, diminishing the risks of illicit activities.

Before the discourse by Coinbase on combating terrorism financing, a parallel can be drawn with Binance’s cooperative action with Israeli authorities to halt Hamas’s crypto fundraising. On October 10, Israeli officials, assisted by Binance, froze cryptocurrency accounts linked to Hamas, post their violent escalations.

This initiative, mirroring Coinbase’s anti-terrorism financing ethos, underscores the crypto exchanges’ crucial role and the indispensable need for robust regulatory frameworks to curb illicit financial flows within the crypto sphere.

Debunking Overblown Claims on Crypto and Terrorism Financing

In light of the recent terrorist attack in Israel orchestrated by Hamas, Chainalysis, a blockchain analysis company, addresses the misconceptions surrounding cryptocurrency’s role in terrorism financing in a blog post dated October 18, 2023. The analysis reveals that terrorism financing represents a minuscule portion of the already marginal illicit cryptocurrency transaction volume. While terrorist groups do utilize cryptocurrencies, they predominantly rely on traditional fiat-based financing channels like financial institutions, hawalas, and shell companies.

Blockchain technology, known for its inherent transparency, renders cryptocurrency less suitable for illicit activities, including terrorism financing. This transparency enables government and private sector entities equipped with blockchain analysis tools to collaboratively identify and impede fund flows, a feat challenging to achieve with traditional value transfer methods. Chainalysis particularly discusses the common pitfalls when analyzing terrorist fund flows on the blockchain, especially concerning service provider identification and tracing.

Two essential aspects form the crux of analyzing terrorism-related fund flows: quantifying the funds directly held by terrorist organizations, and identifying the service providers facilitating fund movements. Instances of terrorism financing often involve service providers like money services businesses, with the recently sanctioned Gaza-based business, Buy Cash, cited as an example. These service providers handle fund volumes larger than a typical individual yet smaller than a standard exchange, resembling over-the-counter (OTC) brokers or street-level money businesses like hawalas to varying extents.

The recent sanctions by the US Treasury Department on October 18, 2023, against nine individuals associated with Hamas and a Gaza-based cryptocurrency exchange are part of a broader effort to staunch the revenue flow to the group. These measures specifically target senior Hamas officials and members managing a clandestine Hamas investment portfolio, alongside the implicated virtual currency exchange. Besides the funds Hamas receives from Iran, its global investment portfolio, valued at hundreds of millions of dollars, significantly contributes to its revenue. This portfolio, managed under the guise of legitimate businesses in various countries including Sudan, Algeria, Turkey, and the United Arab Emirates, forms a crucial part of Hamas’s financial network.

Parallel to the US actions, Israeli authorities have been proactive in clamping down on cryptocurrency channels funding Hamas. On October 10, 2023, the cyber branch of the Israel Police’s Lahav 433 unit froze cryptocurrency accounts belonging to Hamas. Additionally, multiple social media posts over the preceding week soliciting cryptocurrency donations for Hamas-related organizations were noted by Israeli law enforcement.

In a noteworthy development, Hamas declared the cessation of its cryptocurrency donation program in April 2023, indicating a potential shift in its fundraising strategies amidst increasing international scrutiny.

The narrative surrounding the role of cryptocurrencies in terrorism financing often leads to overblown claims, mainly when tracing funds on the blockchain. The recent actions by both US and Israeli authorities highlight the challenges posed by cryptocurrencies in curbing terrorism financing while also emphasizing the adaptability of regulatory measures to counter illicit crypto operations.

The collaborative efforts between law enforcement, intelligence agencies, and private sector organizations, exemplified by the recent actions against Hamas’s cryptocurrency operations, showcase the potential in leveraging blockchain technology to understand and disrupt terrorism-supporting financial networks. The developments emphasize the need for a nuanced approach in assessing the role of cryptocurrencies in terrorism financing, reinforcing the assertions by Chainalysis on the limited scope of crypto in fueling terrorist activities.

Elliptic Debunks Claims of Substantial Crypto Funding to Hamas

On October 25, 2023, blockchain analytics firm Elliptic released a statement clarifying misconceptions surrounding the extent of cryptocurrency funding received by Hamas. The firm emphasized the absence of substantial evidence supporting claims that Hamas has garnered significant crypto donations. This follows heightened scrutiny on cryptocurrency’s role in financing terrorism, especially in the wake of the tragic incidents on October 7, orchestrated by Hamas.

Elliptic’s clarification comes amidst a wave of reports suggesting that cryptocurrencies have become a substantial financing tool for Hamas. On October 10, a narrative was fueled by an article in the Wall Street Journal, titled “Hamas Militants Behind Israel Attack Raised Millions in Crypto”. This narrative gained traction when, on October 17, over a hundred US lawmakers referenced the article in a letter to the White House and the U.S. Department of the Treasury, asserting that Hamas and Palestinian Islamic Jihad (PIJ) raised over $130 million in cryptocurrencies between August 2021 and June 2023, a claim Elliptic argues lacks evidentiary backing.

Analysis indicates that public crypto fundraising campaigns by Hamas have not received substantial donations. The disclosure reveals that Gaza Now, a pro-Hamas news outlet, only received $21,000 in cryptocurrency donations since October 7, with $2,000 being sent to an exchange on October 9, and around $9,000 in stablecoin donations being frozen by Tether. This contrasts starkly with the reported $130 million figure cited by lawmakers.

Historically, Hamas sought Bitcoin donations starting in 2019, peaking during the May 2021 regional violence outbreak. However, by April 2023, the group ceased public crypto fundraising, citing donor safety concerns. The halt followed US and Israeli law enforcement actions, including the issuance of seizure orders for Hamas-associated crypto wallets and collaboration with exchanges to freeze related accounts.

Further analysis by both Elliptic and Chainalysis, another blockchain forensics firm, underscores the exaggerated figures in media reports. For instance, one wallet purported to have received $82 million over seven and a half months had only $450,000 associated with terrorism, as per Chainalysis. The analysis reveals a significant misrepresentation of facts concerning the extent of cryptocurrency’s role in funding terrorism.

Notably, the scrutiny on Hamas’s crypto funding coincides with thriving crypto fundraising for humanitarian causes in Israel. As of October 19, Crypto Aid Israel amassed over $185,000 in cryptocurrency donations to aid those affected by the attacks, showcasing the potential positive impact of cryptocurrencies.

Elliptic stressed the importance of nuanced blockchain analysis to avoid misinformation, emphasizing its long-standing commitment to preventing crypto assets’ illicit use. The firm advocates for a balanced understanding and reporting on the multifaceted issues surrounding cryptocurrency and terrorism financing.

Japan Freezes Assets Linked to Hamas Funding

On October 31, the Japanese government announced the freezing of assets belonging to nine individuals and one cryptocurrency trading company accused of financially aiding the Palestinian militant group Hamas, as per Kyodo News. This action comes amidst an ongoing conflict between Israel and Hamas, with other nations like the United States taking similar steps to curb the financial streams that fuel Hamas’s activities.

The Japanese government’s decision targets entities purportedly involved in the financial support of Hamas, which is engaged in rocket attacks against Israel. Hirokazu Matsuno, Japan’s Defence Minister, during a press briefing, emphasized on continued evaluation of potential sanctions from a counterterrorism financing perspective.

The United States had previously enforced sanctions against individuals and entities associated with Hamas on October 18. The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated ten individuals and entities, extending beyond the Gaza Strip to Sudan, Türkiye, Algeria, and Qatar. This action aimed at dismantling Hamas’s financial network, aligns with the broader international initiative to disrupt terrorist financing.

The involvement of a cryptocurrency trading company in this case sheds light on the growing global concern over digital financial platforms facilitating illicit financial flows, a matter that has been underscored by the US sanctions targeting a Gaza-based virtual currency exchange.

These actions by Japan and the US reflect a growing international consensus to tackle terrorism financing. The measures add a financial dimension to the efforts aimed at curbing militant activities in the Middle East, amidst the continuing conflict between Israel and Hamas.

Circle Formally Refutes Allegations of Illicit Financing and Connections to Justin Sun

Circle, a leading issuer of stablecoins, has recently addressed and strongly refuted allegations regarding its involvement in illicit financing and alleged connections with Justin Sun, the founder of Tron. These claims, brought forward by the nonprofit watchdog organization, Campaign for Accountability (CfA), prompted Circle’s Chief Strategy Officer and Head of Public Policy, Dante Disparte, to write a formal response to U.S. Senators Elizabeth Warren and Sherrod Brown.

In the letter, Disparte emphatically denies any involvement of Circle in facilitating or financing activities related to Hamas or any other illicit actors. He highlights Circle’s unwavering commitment to combating illicit financial activities. Circle has been an active partner with regulators and law enforcement in the United States, Israel, and other jurisdictions, ensuring that their stablecoin, USDC, is not used for illicit activities. The company’s dedication to legal compliance was recently acknowledged by the U.S. Secret Service, recognizing Circle’s efforts in identifying fraud and assisting in fund recovery.

Addressing specific allegations, Disparte referred to an incident where the National Bureau for Counter Terror Financing of Israel identified digital wallets linked to the Palestinian Islamic Jihad (PIJ) with assets amounting to $93 million. A report by the blockchain firm Elliptic initially suggested that all assets in these wallets were used to finance PIJ, but this was later corrected. Public blockchain ledgers revealed that of the $93 million, only $160 in USDC was transferred among those wallets, and none of that amount originated from Circle. This example underscores Circle’s stance against the misrepresentation of its role in alleged illicit activities.

Furthermore, Circle clarified its relationship with Justin Sun, stating that it does not provide banking services to him or his associated entities, including the TRON Foundation or Huobi Global. Despite the absence of specific designations by the U.S. government, Circle terminated all accounts associated with Mr. Sun and his affiliated companies in February 2023.

Circle also emphasized its status as a highly regulated financial entity. It operates under the regulatory frameworks of multiple U.S. states and federal bodies, including the Ohio Department of Commerce Division of Financial Institutions and the New York Department of Financial Services. As a Money Services Business registered with FinCEN, Circle adheres to the Bank Secrecy Act, anti-money laundering laws, and other regulatory standards. This regulatory compliance is a cornerstone of Circle’s operations, reflecting its commitment to legal and ethical business practices.

In its advocacy for regulatory reforms, Circle has been a vocal proponent for a comprehensive federal framework governing stablecoins. The firm has actively participated in legislative processes, seeking to establish robust reserving, redemption, disclosure, liquidity, and operational risk management standards for stablecoin issuers. Circle’s CEO, Jeremy Allaire, has testified before Congress, advocating for standards that would elevate the safety and reliability of stablecoin issuers.

Circle’s response to the allegations made by the CfA is a strong affirmation of its dedication to regulatory compliance and ethical practices in the digital assets space. The company remains committed to collaborating with regulatory bodies to enhance the regulation of digital asset markets and to combat money laundering and terrorism financing effectively.

Joint Sanctions by U.S., UK, Australia Target Hamas's Crypto Financing Networks

To combat terrorism financing, the U.S., UK, and Australia have imposed a fifth round of sanctions on Hamas, specifically targeting its virtual currency transfer networks. This action, announced on January 22, 2024, marks a concerted effort by these nations to disrupt the financial mechanisms that support terrorist activities, particularly those facilitated by cryptocurrency.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) spearheaded this initiative, focusing on networks affiliated with Hamas in Gaza, including their owners and associates. These networks have been instrumental in channeling funds, including those from cryptocurrency transfers, from the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) to Hamas and the Palestinian Islamic Jihad (PIJ) in Gaza. This round of sanctions is part of a broader strategy that includes previous joint actions with the UK targeting Hamas leaders and financiers, as well as U.S. actions targeting sources of Hamas support and financing.

The sanctions specifically target the Shamlakh Network, with key individuals such as Gaza-based financial facilitator Zuhair Shamlakh playing a prominent role. Shamlakh has been involved in transferring substantial funds from Iran to Hamas, utilizing his companies for these transactions. These financial activities have been ongoing since at least 2017, with millions of dollars being transferred to support terrorist groups in Gaza.

The UK’s sanctions are aligned with those of the U.S., targeting key figures in Hamas and PIJ’s financial networks. British Foreign Secretary David Cameron emphasized the message that there is no hiding place for those financing terrorist activities. The sanctions include asset freezes and travel bans, aimed at disrupting the flow of funding from Iran to these terrorist groups. The UK is dedicated to working with international partners to tackle Iran’s destabilizing activities in the Middle East, including its support for militant groups.

In addition to the U.S. and UK, Australia has also joined in imposing sanctions on key Hamas officials and facilitators. This coordinated international effort reflects a unified stance against the financing of terrorism and the exploitation of cryptocurrency for such purposes.

These sanctions are significant as they highlight the increasing use of digital currencies by terrorist groups to fund their operations. The underground financial networks created by these groups exploit legitimate businesses to conceal the flow of terrorist funding. By targeting these networks, the U.S., UK, and Australia aim to undermine the financial infrastructure that supports Hamas’s terrorist activities.

The latest sanctions follow earlier ones imposed after the October 7 Hamas attack on Israel. This coordinated effort by the U.S., UK, and Australia demonstrates their commitment to disrupting the financial networks of terrorist groups and preventing them from accessing funding through modern financial mechanisms, including cryptocurrencies.

Binance Faces Lawsuit Over Alleged Support for Hamas in Israel Attack

Three families affected by the Hamas attack on Israel on October 7 have taken legal action against a constellation of actors including the governments of Iran and Syria, the world’s leading cryptocurrency exchange Binance, and its former CEO Changpeng Zhao. The lawsuit, lodged in the Southern District of New York, alleges that these defendants provided “substantial assistance” to the terrorist activities of Hamas, thereby implicating them in the devastation wrought on the victims and their families.

This legal action represents a significant moment in the ongoing struggle against terrorism financing, especially in the context of the digital age where cryptocurrency platforms like Binance can be manipulated for illicit financial transactions. The lawsuit details how Binance allegedly facilitated financial activities for Hamas, including processing transactions that directly supported their terrorist operations between 2017 and mid-2023. This action raises critical questions about the adequacy of existing regulations and the responsibilities of digital financial platforms in monitoring and preventing the misuse of their services for terrorism financing.

The case is particularly notable for highlighting the role of Iran and Syria, both designated by the U.S. as state sponsors of terrorism, in supporting Hamas’ operations. The plaintiffs argue that these governments’ material support was critical in enabling the October 7 attack, further complicating the geopolitical landscape surrounding terrorism financing and the responsibilities of nation-states in curbing such activities.

Binance’s recent settlement with the United States Department of Justice, which included Anti-Money Laundering (AML) violations and a hefty $4.3 billion fine, underscores the lawsuit’s allegations. This settlement, which came after Binance was accused of allowing illicit actors, including terrorist groups like Hamas, to bypass U.S. regulations, serves as a backdrop to the current legal challenge.

The lawsuit, beyond seeking compensatory and punitive damages, shines a spotlight on the urgent need for robust regulatory frameworks that can effectively address the challenges posed by the use of digital currencies in terrorism financing. It also emphasizes the critical responsibility of financial platforms in implementing stringent monitoring mechanisms to prevent their exploitation by terrorist entities.

This case could potentially set a precedent for how similar cases are approached in the future, especially concerning the accountability of digital financial platforms and the role of nation-states in facilitating or combating terrorism financing. As the legal proceedings unfold, they will undoubtedly attract global attention, highlighting the complex interplay between technology, finance, and international security in the fight against terrorism.