Crypto connections under scrutiny due to Hamas involvement, according to FinCEN warning
In the wake of Hamas' attack on Israel earlier this month, which resulted in over 1,000 civilians being wounded, killed, or taken hostage, the international community is taking action to curb the use of cryptocurrencies in funding for proscribed groups.
Last week, Israel closed over 100 accounts on Binance and requested information on nearly 200 additional accounts, most of which were on Binance's platform. Binance confirmed blocking a "small number" of accounts since the summer and adheres to international sanction rules, but declined to comment further. More than 150 crypto donation activities linked to Hamas and its affiliated groups have been identified by Israeli authorities since the attack.
The U.S. government is also taking steps to address this issue. A letter sent to the Treasury Department and the White House on Tuesday was led by Sens. Elizabeth Warren, D-MA; Roger Marshall, R-KS, and Rep. Sean Casten, D-IL, urging the Biden administration to crack down on the use of cryptocurrencies by Hamas and its affiliates.
In response, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued an alert on Friday, urging financial institutions to be vigilant in spotting suspicious Hamas-related activity. FinCEN noted that Hamas moves funds through the smuggling of physical currency as well as a regional network of complicit money transmitters, exchange houses, and Hizballah-affiliated banks.
Hamas often relies on small-dollar donations, including through the use of virtual currency, according to the Treasury. To help detect and report potential suspicious activity, several red flags have been identified. These include transactions with entities designated by the Office of Foreign Assets Control, transaction information linked to designated groups or individuals, and customers operating in higher-risk jurisdictions linked to Hamas activity with weak customer due diligence, opaque ownership, or non-compliance with anti-money laundering best practices.
Financial institutions must also watch out for customers conducting transactions involving entities that are shell corporations, general "trading companies," or maintain connections to Iran or other Iran-backed terror groups like Hizballah and Palestinian Islamic Jihad.
Elliptic, a blockchain analytics company, reported that Hamas received over $73,000 in bitcoin within a few days after clashes between Israel and the militant group in May 2021, and Hamas-affiliated accounts received more than $7 million in crypto by July that year. The U.S. Securities and Exchange Commission (SEC) lifted Hamas-related cryptocurrency accounts in July 2021, and Hamas had received Bitcoin transactions amounting to approximately several hundred thousand dollars.
Yair Samban, director at software firm Pegasystems, stated that the international community should find a way to police the growing threat of cryptocurrencies being used by proscribed groups more effectively. The Biden administration issued sanctions on Thursday that could disrupt funding for Hamas, targeting people involved in its investment portfolio and a Gaza-based cryptocurrency exchange.
Regulators and politicians have warned about the use of crypto coins and exchanges to raise and transfer funds for proscribed groups' activities. The recent attack on Israel has highlighted the importance of prompt action to cut off these channels. Hamas funds its operations and members through various means, including support from Iran, private donations, global investments, diversion of charitable aid, control of crossings and commerce, criminal racketeering, extortion of local people, fundraising campaigns involving virtual currencies, and fake charities.
Financial institutions are urged to closely monitor situations when a charitable nonprofit customer solicits donations without apparent charitable services or openly supports Hamas operations, if a nonprofit customer receives large donations from an unknown source and then transfers it to other charities, or if a customer conducts transactions with known or suspected virtual currency addresses associated with terror financing campaigns - all should be closely monitored for Hamas-related activities.
