11-10-2023 (JERUSALEM) The recent lightning strike by Hamas in Israel has raised questions about how such an operation was financed. According to Israeli government seizure orders and blockchain analytics reports, Hamas, Palestinian Islamic Jihad (PIJ), and Hezbollah received significant amounts of funds through cryptocurrency in the year leading up to the attacks. Digital wallets connected to PIJ received up to $93 million in crypto between August 2021 and June this year. Wallets linked to Hamas received approximately $41 million over a similar period, as reported by Tel Aviv-based crypto analytics and software firm BitOK.
It remains uncertain whether the crypto funds were directly used to finance the assault. Observers suggested that the seized crypto represents only a small portion of the total amount that flowed through these wallets.
These findings highlight the challenges faced by the United States and Israel in cutting off the groups’ access to foreign funding. PIJ and Hamas, both designated foreign terrorist organizations by the U.S. government, were able to accumulate weapons and equipment despite sanctions, culminating in a significant breach of Israeli borders.
Cryptocurrency transactions enable such groups to evade international sanctions and fund their operations, making it increasingly difficult for authorities to prevent terrorist financing. In response, Israeli police have frozen crypto accounts used by Hamas to solicit donations on social networks, part of an ongoing effort to locate their financial infrastructure in cryptocurrencies.
Cryptocurrency transactions, which allow users to bypass traditional banks, provide terrorist groups with a discreet and efficient way to transfer funds. The U.S. Treasury Department has reported that insufficient controls in crypto exchanges can enable terrorist financing. In addition to cryptocurrency, these groups also employ other means to raise funds, including smuggling cash into Gaza from Egypt. Iran has long been a major benefactor of these groups, providing regular funding of approximately $100 million per year.
While cryptocurrency remains one of the tools these groups use to raise funds, it is considered to be a small part of their overall funding strategy. Although crypto’s role in their financing is significant, the primary source of their funding is still traditional channels.
Hamas has been actively seeking cryptocurrency donations since at least 2019, when the al-Qassam Brigades began soliciting bitcoin contributions. The group is known for its sophisticated use of cryptocurrency and blockchain. In response to investigative efforts, Hamas has stopped publishing its donation addresses and instead relies on payment processors to generate crypto addresses and protect donors’ anonymity.
Elliptic’s analysis indicated that these groups not only raise funds through crypto but also use it to transfer funds within their organizations. Transactions among these groups are primarily conducted using the stablecoin tether, which avoids the volatility associated with other cryptocurrencies.
Despite efforts to restrict the illicit use of cryptocurrency, it remains an effective way for these groups to finance their operations. Cryptocurrency’s ease of use compared to smuggling cash across borders has enabled them to accumulate substantial crypto assets.
The international community and law enforcement agencies continue to grapple with the challenges posed by cryptocurrency in terrorist financing and are working to develop strategies to combat it effectively.
