Terrorism and the Israel-Gaza War Are Armed to Destroy Crypto – Cointelegraph Magazine.
1 year ago Benito Santiago
The Israel-Gaza war has put a renewed spotlight on crypto, with anti-crypto politicians seizing on exaggerated reports that it is being used to fund terrorism to introduce new legislation that has the potential to crush the industry.
Hamas Three days after the horrific attack on October 7, the Wall Street Journal reported that US-designated terrorist organizations such as Hamas, Palestinian Islamic Jihad and Hezbollah raised $134 million in crypto.
The article – which was later edited following an online backlash – became ammunition for the anti-crypto army in Washington, who cited it as pushing for more restrictions on crypto.
That became a major lead in last week's bipartisan legislation, the Terrorist Financing Prevention Act, introduced on December 8. The Treasury is obligated to identify foreign financial institutions and crypto platforms that have engaged in transactions with US-designated terrorist outfits. It allows for the imposition of sanctions to restrict US bank accounts and block transactions.
Senator Mitt Romney linked the bill specifically to the Israel-Gaza war.
“The October 7 attack on Israel by Hamas makes it even more urgent and important for the United States to defend cryptocurrency's role in financing terrorism.”
The battle gave new impetus to Senator Elizabeth Warren's bipartisan Digital Asset AML Act (DAAMLA), which would extend the Bank Secrecy Act to cryptocurrencies. On December 11, five more senators signed up to support the bill, and now there are 19 senators in total supporting the bill – or one in five senators – which means it's got a tough job ahead of it. Alex Thorne, head of firm research at Galaxy, argued that “the Warren bill would effectively ban crypto in the US.”
Thorne believes that despite Warren's poor record of passing bills, this one has a chance, saying that “the strong terrorism narrative in 10/7” and “the razor-thin R in the House will make it difficult to disrupt the majority.”
Another early bill is in play, the Crypto Asset National Security Enhancement (CANSEE) Act, which would greatly increase oversight of crypto transactions.
Warren appeared on CNBC's Squawk Box last week to say that all major bank CEOs agreed that urgent action was needed.
“We have a serious problem in this country,” she said. “This is part of the financial system that is being used by terrorists, drug traffickers, rogue states, to launder money, to move money through the system and to support their illegal activities.”
She said Congress needs to update the Bank Secrecy Act to cover crypto “because there's a new threat out there — it is, and it's being used to finance terrorists.” It is used for drug trafficking. North Korea is using it to pay for about half of its nuclear weapons program. We cannot allow this to continue.
Indeed, cutting off terrorist financing and preventing money laundering are laudable goals. But unintended consequences (some would argue intentional) pose a serious threat to the industry.
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The Blockchain Association's Christine Smith believes that applying the Bank Secrecy Act to crypto would defeat the “entire purpose of blockchain” and that the legislative clampdown would push much of the industry out.
Referring to the CANSEE and DAAMLA bills, Smith said, “With any crisis — or sensational media report — Washington feels the urge to do something, which is understandable,” but she cautioned:
“If these bills pass, they will effectively destroy America's digital asset industry.”
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ToggleCrypto-terrorism relationships are sexualized.
The link between terrorism and crypto has always been supported by opponents. For example, Warren's claim that “half” of North Korea's nuclear power is financed by crypto hacks comes from a recent Record Futures report. However, the report makes it clear that the number is an estimate, and the authors admit that it is “not clear exactly how much of the stolen cryptocurrency directly finances ballistic missile launches.”
The original WSJ article was wrong, according to a more careful analysis of WSJ sources from Castle Island Ventures' Nick Carter method as well as Chinalysis. Most terrorist financing goes through crypto service providers, and the analysis confuses the largest amount of money on the platform with the amount received by terrorist-related addresses.
In one instance, the WSJ appears to have mistakenly confused money sent to a terror-linked wallet ($450,000) with the total amount in a crypto service provider's address ($82 million). According to Chinalysis, the analysis was carried out by an amateur:
“To the untrained eye, the example above may look like $82 million in cryptocurrency was raised for terrorist financing. But it's highly likely that a portion of these funds are intended for terrorist activity, and most of the funds processed through the suspected service provider are unrelated.”
In total, the actual amount of crypto money collected and received by the terrorists was far less than the stated “amount” of $134 million. The WSJ reluctantly edited the article but insisted its main points were true.
One reason the story is such a hit is that US regulators and Israel's National Counter-Terrorist Financing Bureau (NBCTF) in 2021 seized most of the crypto wallets used to fund Hamas donations.
They have successfully identified donors, blocked accounts, and shut down fundraising websites, prompting Hamas to view cryptocurrency as “unsuitable” for its cause and limit itself to traditional fundraising methods.
“Of course, no one understands the challenges of using cryptocurrency for fundraising better than Hamas,” Chainalysis explained. In April this year, the al-Qassam Brigades, the military wing of Hamas, announced the closure of its long-running cryptocurrency donation program, citing the possibility that donors would be arrested and prosecuted.
Matty Greenspan, co-founder and CEO of Tel Aviv-based Quantum Economics, explains that “it was the nature of blockchain that allowed the Mossad to monitor Hamas' cryptocurrency activities in the first place.”
Andrew Fairman, head of sanctions strategy at Chinalysis, agrees, saying that Hamas will happily raise money by any means, but crypto has not proven to be a good choice.
“Hamas has historically used and will continue to traditionally facilitate financing through money services businesses (MSBs), hawala and shell companies. Cryptocurrency is another tried and tested method of finance. However, it has been repeatedly shown that it is not an effective approach,” he said.
Crypto is involved in some terrorist funds
Nevertheless, despite the media and anti-crypto activists overstating it, there is a crypto-terrorist financing problem. All countries are involved, not just terrorist organizations. “Iran has a large crypto economy, including several regional exchanges, and has historically used all kinds of financial means to support groups like Hamas and Hezbollah,” Fierman said.
Iran is a major geopolitical player in the region, having been engaged in a proxy war with Israel for nearly 40 years in an effort to eliminate the Jewish state. In June 2023, Israel's National Counter-Terrorist Financing Bureau (NBCTF) seized $1.7 million worth of cryptocurrency from the Lebanese terrorist group Hezbollah and their armed brethren, the Iranian Quds Force.
Rather than using major currencies like Bitcoin and Ether, terrorists prefer smaller chains, and according to a Reuters analysis, the NBCTF blocked 143 wallets on Justin Sun's Tron blockchain between July 2021 and October 2023 that it believed had ties to terrorists.
The battle is underway with donations to Hamas-affiliated charities up an estimated 70% from before the 7/10 attacks (though it is unclear how much of that increase is in the crypt). “Blockchain analytics should be an ongoing effort to gain insight into the entire ecosystem of risk actors,” Fierman said.
Regulators fear of crypto/terrorism
Meanwhile, a raft of anti-crypto politicians in Washington – where crypto is quickly becoming another front in the culture war – see blockchain itself as dangerous.
Senator Elizabeth Warren has proudly touted her “anti-crypto army,” and the WSJ's inaccurate report has given the military the ammunition it needs to push for sweeping regulations to curb the use of cryptocurrencies for money laundering and terrorist financing.
Senator Warren, along with his colleague Roger Marshall, immediately wrote a letter to the president calling for stricter regulation of the crypto market: “The Wall Street Journal reports that researchers studying Hamas' finances say that crypto remains one of the group's many tools. It is used to collect money […] We urge you to act quickly and transparently to meaningfully curb illicit crypto activity and protect our national security and the security of our allies.
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The article's inaccuracy didn't do much for these lawmakers, and the Justice Department's $4.3 billion money laundering case against Binance added fuel to the fire.
The attacks on the crypto market by Senators Warren, Chris Van Hollen and Lindsey Graham have been relentless, using any excuse to blame the crypto industry for “bad countries” to evade sanctions, fund weapons programs, support espionage and enable cyber attacks. in that sense. It is the latest excuse for the Israel-Gaza war, if not anything else.
And it seems that the controllers are going to install more. In a late November letter to Congress, Deputy Treasury Secretary Wally Adeyemo said:
“As terrorists, transnational criminals and rogue states turn to digital assets to support their activities, we must build an enforcement system to prevent this activity.”
He called for more powers to curb illegal activities in crypto, such as a mandate on USD stablecoins, a new category of crypto financial institution under the BSA, and new secondary sanctions.
I had the pleasure of speaking at the Blockchain Association's Policy Summit, where I focused on the steps we should take to prevent bad actors from exploiting the digital asset ecosystem for illicit activities. pic.twitter.com/HQpwDyFBla
— Deputy Secretary Wally Adeyemo (@TreasuryDepSec) November 30, 2023
For some market players, this means an unprecedented level of transparency. For example, the Binance exchange must submit to the “crazy” rule in order to protect its business. “What was once a hub for anarchic crypto trading is about to turn into the opposite: perhaps the most fed-up business in the cryptocurrency industry, providing US regulators and law enforcement with user transaction records for more than half a decade. ” writes Andy Greenspan at Wired.
Proponents say that the example of Hamas, which was forced to dump crypto donations due to the risk of prosecution, shows that the transparency of blockchain itself is a tool to prevent terrorist financing. Government agencies and private sector organizations should use blockchain analytics to monitor terrorist financing and focus on the security and compliance of all market participants.
Quantum Economics' Greenspan says there's a certain irony in crypto's embrace of freedom-hating terrorists, created by libertarians.
“Ultimately, Hamas hates freedom. There are no religious or women's rights in Hamas-controlled Gaza. Since the gays took control of the corpse after defeating Fatah in 2007, no elections or even elections have been held.
“The idea that they're using Bitcoin, a monetary system based on freedom, is a bit ridiculous. When Milton Friedman predicted Bitcoin in 1999, he said, ‘Of course it has a downside, the gangsters, the people involved in illegal transactions will have an easier way to do their business,' but in the end good always wins over evil.” .”
Community building and cyber security
Despite the negative impact of the terrorist attack and the fear of regulators on the industry, there is also a positive side for crypto, which has made it easier for the victims of the brutal act of October 7 to get help.
Immediately after the Hamas attack, the crypto and Web3 communities formed a humanitarian decentralized initiative, Crypto Aid Israel. Itay Elizur, Chief Operating Officer and Partner at MarketAcross/InboundJunction and a Crypto Aid contributor, explains, “It's not just about raising money, it's increased awareness and it makes the local system happy to work together.”
While there are several other Jewish funds raising money in crypto, they were established before the conflict, such as Crypto Aid Israel. The platform is organized as a multi-signature wallet and collects donations in Bitcoin, Ether and stablecoins.
The money will be used to rebuild settlements in southern Israel and to help the families of those killed and dispossessed, soldiers and families defending against terrorist attacks at the beginning of the conflict. Over $240,000 has been raised in less than a month.
Informal cryptocurrency fundraising first came to prominence to raise donations for Ukraine. Since July, $227 million in cryptocurrency has been raised for Ukraine, including $134 million for humanitarian needs and $91 million for military-oriented campaigns.
“The first issue for us was building trust because there are bad actors doing the same thing, but now there are a lot of ways people can try to stop them,” Elizur said. Banks and regulators in Israel act as intermediaries between the platform and the bank accounts of the recipients, Elizur said, so getting permission to transfer the money to Israeli banks is not easy.
The frenzy over Hamas raising money in crypto has limited any possibility of a similar fund being set up to help civilians in Gaza affected by the war. Very few charities (Islamic Aid, medical aid for Palestinians, etc.) suggest donating in the crypt to help people in Gaza, except for Save the Children, which not only collects for Gaza, but also for Somalia and other vulnerable countries.
Other reasons for the war… on crypto
In the year Just as the global cybersecurity market grew 11.6 percent in the second quarter of 2023 following the Russia-Ukraine invasion in 2022, the latest conflict between Israel and Hamas could boost the cybersecurity industry. Intelligence agencies are closely monitoring blockchain for suspicious transactions, bad actors and illegal funds.
The rising global tensions over the conflict have the potential to boost demand for Bitcoin as a safe-haven asset, a hedge against economic collapse. The price has certainly risen 55 percent since the start of the conflict, but many observers believe that the main reason is the acceptance of Bitcoin ETFs in the United States.
But as Greenspan points out, it's not necessarily a bad thing: “The longer the war goes on and the more it spreads, the more likely this dynamic will come into play.” With covid and the 2021 bull run, I can say that the correlation between Bitcoin and the stock market is now completely broken.
As for Israel, the conflict has yet to extend beyond governments to use BTC as a decentralized payment instrument, although Iran has previously used BTC as a tool to evade sanctions while conducting oil transactions during the US-Iran conflict. In 2021
The country survived a rate of inflation that encouraged people to convert to BTC from the national currency, like Turkey, whose national currency crashed in 2021 and has not recovered since. And the conflict in the Middle East so far has not seen an influx of refugees in need of substitute banking instruments as we have seen in the conflicts in Russia and Ukraine. However, if the conflict becomes more intense, with more parties involved, it will have a major impact on BTC demand.
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