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Are Terrorists Funded Via Crypto?
As the war in Israel and Gaza continues to escalate, some of the attention has turned towards investigating how Hamas’ surprise attacks were funded in the first place. In theory, understanding the funding structure helps reduce the threat of these terrorist groups — by either predicting future attacks or by avoiding further escalation through capital seizure. The investigations have been swift, with one particular headline from the Telegraph on Wednesday summing up a troubling reality: “Hamas Militants were Sent Millions in Crypto in Months before Israel Attack.”
Sadly, we can trace the connections between cryptocurrencies and terrorist financing all the way back to 2014 (and possibly even before then). In the aftermath of the 2015 Paris attacks, authorities discovered an earlier ISIS blog entitled “Bitcoin and the Charity of Violent Physical Struggle” that described how to use BTC to fund jihadist activities in a way that would evade detection. I wrote about all this nearly eight years ago for Rappler, unpacking the allegation that a Bitcoin address with $3M equivalent in it had directly funded those Paris attacks. It was not a very conclusive investigation, largely because the blockchain analysis was carried out by a hacktivist organization called Ghost Security Group, and there was no consensus on the findings. Regardless of whether the GSG report was correct, it seemed like a foregone conclusion that crypto was now part of the terrorist financing toolkit.
Eight years later, the analysis on Hamas wallet addresses is far more credible, with reports provided by crypto tracers Chainalysis, Elliptic, and BitOK. The current estimate is that a total of $134M worth of crypto was received by Hamas ($41M) and its allied organization Palestinian Islamic Jihad ($93M) over the last two years. If that sounds like a massive amount of money, consider that investigators estimate that al Qaeda only needed $500,000 to carry out the 9/11 attacks. (Of course, the al Qaeda of 2001 supposedly only had a hundred members, while Hamas currently has about 30,000.) Like many other terrorist organizations, Hamas finances itself through the donations of its global network of supporters, promoted via social media posts in much the same way that you would raise money for a disaster relief operation or an outreach program. These wallet addresses have been tracked by both watchdog organizations and the authorities for the last few years. The US Treasury even has a publicly-viewable blacklist of Bitcoin and Ethereum addresses linked with terrorists, hackers, and all sorts of unsavory people.
To give those numbers more context, Hamas has a military budget of $100M annually, implying that about 20% was delivered via crypto since 2021. Within the region, that military budget is positively tiny. Hezbollah, the Lebanon-based terror group supported by Iran, reportedly has $700M at their disposal annually. This is relevant because there is some concern that Hezbollah involvement may open up a second front to the war at Israel’s northern border. Currently that border is being patrolled by a 10,000-person peacekeeping Interim Force that is costing the United Nations $474M a year. And, of course, Israel itself has a defense budget of $23B, dwarfing nearly everyone else in the area. All of those budgets are going to be strained this month, as warfare in urban settings is 400% more expensive in terms of munitions than in any other environment.
But back to the crypto. Embroiled in all this is Binance, which I suppose was inevitable given its size and reach. In 2021, Israeli authorities seized 190 Hamas-controlled accounts on Binance. On October 10th, just a day after the first Hamas attacks, Binance co-founder Yi He announced that another batch of accounts had been frozen that were related with the terrorist faction. It was not reported exactly how much crypto had been coursed through those accounts.
Ironically, it appears that Hamas has also come to realize that fundraising via crypto, although convenient during the early phases, is notoriously difficult to sustain. The transparency of the blockchain not only allows authorities to monitor precisely how much has been raised, but the tight regulatory controls on centralized exchanges and their banking partners means that actually converting that crypto to usable fiat would be next to impossible. Indeed, Elliptic noted that Hamas had started discouraging crypto-based fundraising activities earlier in 2023 for these exact reasons.
Depending on your perspective, this state of affairs could be either a good thing or a bad thing. On one hand, having tight regulatory controls is advantageous when you’re trying to prevent further atrocities being committed by a terrorist organization. On the other, the exact same controls could conceivably be used to freeze the funds of any entity thought to be an “enemy of the state,” including for instance, whistleblowers or freedom fighters. Back in 2015, Binance didn’t exist yet and there was no single exchange that had such a commanding market share. Nowadays, 60% of all crypto trading — everyone including terrorists, whistleblowers, and average law-abiding citizens — flows through Binance. Given how much regulatory hot water CZ’s exchange has found itself in recently, it’s easier than ever for the authorities of various countries to pressure them to do their bidding.
The Israel-Gaza war has been dominating the headlines, but there are at least 10 other armed conflicts going on in the world right now. To the average person, the world appears to be aflame. But perhaps the most interesting truth about all this is that we are currently living in the most peaceful 50 years of human history. The leading cause of death in modern times is heart disease and cancer, with “violent” deaths rounding out the bottom of the top 20. Amongst those violent deaths, suicides account for the biggest slice. This is a crass way to put it, but in 2023, you are about 5x more likely to kill yourself than to be killed by a combatant in an armed conflict. Just a reminder that even with everything going on in the world, self-care is still very important.
Stay safe out there, cryptofam!