The attacks launched by Hamas against Israel leveraged modern technology: rockets, drones, and paragliders, not to mention mobile phone cameras and internet connections to broadcast their crimes to the world. Where did the money for all this come from?
In part, cryptocurrency. Decentralized finance has always been pitched as a way to avoid the difficulties of the regulated global financial system, and crypto has long been used to fuel black markets. But its role as a source of finance for terror groups hasn’t always made the Web3 pitch decks.
In August 2020, the US government seized million of dollars from terror groups using cryptocurrency to raise money. But Elliptic, a firm that helps crypto businesses comply with financial regulations, told the Wall Street Journal that Palestinian Islamic Jihad, a militant group that seized hostages in the recent attack on Israel, still collected another $93 million worth of cryptocurrency between June 2021 and August 2023. Hamas itself collected some $41 million in digital payments.
While it’s not clear how that money has been used, in 2022, US authorities sanctioned Hamas’ investment office, which they said had $500 million in assets. That offers some context—the UN estimates that crypto makes up 20% of global terror funding.
How terror groups use cryptocurrency
Hamas affiliates like its military wing, the Al-Qassam Brigades, have publicly solicited donations in bitcoin since at least 2019. But the groups are linked to a variety currencies including dogecoin, the cryptocurrency often promoted by Elon Musk, to stablecoins like Tether and USDC that are pegged to the US dollar. In an August 2023 report, Elliptic even said that wallets it monitored showed behavior consistent with the terror group investing in defi protocols and collecting profits using Solana, a cryptocurrency most famously backed by FTX’s Sam Bankman-Fried.
These organizations would find it difficult to purchase traditional financial assets from public markets, but can take advantage of smart contracts that don’t bother with know-your-customer requirements. According to Elliptic, some of the groups are even engaged in crypto mining, which allows them to profit from the fundamental maintenance of cryptocurrency networks.
Israeli and US officials have sought the cooperation of crypto exchanges like Binance to cut off access for users linked to terror groups. A key venue for this effort is the Financial Action Task Force (FATF), where regulators from around the world develop standards and best practices to stop money laundering. There are still dozens of entries on FATF’s “grey list” of countries that have not met those standards, including Jordan, Syria, and the United Arab Emirates.
Shlomit Wagman, a former head of the Israel Money Laundering and Terror Financing Prohibition Authority, wrote last year that companies developing crypto technology should pay more attention to technologies that can prevent money laundering and terror finance.
“Unless the risks of cryptocurrency abuse are properly mitigated, the industry’s development will suffer,” Wagman warned. “Regulators could even outlaw cryptocurrency, as China has attempted to do.”