It’s no secret that Iran has been funding Hamas, the terrorist group that perpetrated the October 7th attacks against Israel, for quite some time. It previously funneled money through a complex system of remittances, cash, and bartered items called a hawala network.
Israel killed the Hamas member in charge of this network in 2019, forcing the group to find new ways of collecting monetary support. The new financier of Hammas’ cash flow, Zuhair Shamlakh, decided to try a completely new avenue, crypto.
This pivot represents a sophisticated evolution in how terrorist organizations are leveraging modern financial technologies to evade international sanctions and scrutiny. So far it has enabled Hamas and various other terrorists groups like Palestine-based Islamic Jihad to accept much more funding from Iran than before.
The US, which designated Hamas as a terrorist group in 1997, effectively cutting Palestine off from the international banking system, estimates that Iran sends the organization over $100 million annually.
The Mechanics of Digital Currency in Terror Financing
Shamlakh’s strategy involved using digital tokens to settle hawala balances and converting crypto to cash in Gaza (an unofficial money transfer system, popular in Islamic and Indian communities relying on trust between an international network of money brokers).
This method significantly aided Hamas and its affiliate, Palestinian Islamic Jihad, allowing them to receive large sums from Iran – which is also renowned for subverting sanctions via Bitcoin mining activities.
Israel’s National Bureau for Counter-Terror Financing (NBCTF) has since issued multiple orders to seize crypto funds held by Gazan exchanges involved in these transactions, but so far Shamlakh has yet to be hit with international financial sanctions.
Would note the U.S. hasn't yet sanctioned Zuhair Shamlakh. 2/2
— Jason Brodsky (@JasonMBrodsky) November 12, 2023
Research by BitOK, a Tel Aviv-based analytics firm, revealed that digital wallets linked to these exchanges received substantial amounts in cryptocurrency – $41 million linked to the exchanges and an additional $93 million tied to Palestinian Islamic Jihad.
The Sophistication of Digital Currency in Terror Financing
Hamas’s use of digital currencies marks a notable advancement from their previous methods of fundraising, which included small-scale donations through crowdfunding and remittances.
Around 2020, cryptocurrency became a prominent means of large-scale transfers between Iran and Hamas within their hawala networks, highlighting its growing importance in their operational activities.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has responded by imposing sanctions on key Hamas members and financial facilitators.
This includes targeting a Gaza-based virtual currency exchange and its operator, reflecting the US’s commitment to disrupting Hamas’s sources of revenue.
Crypto transactions, while visible on public blockchain ledgers, often occur through foreign platforms with inadequate compliance controls.
This has intensified scrutiny on the crypto industry, with the U.S. designating certain “mixer” crypto platforms like the already sanctioned TornadoCash as primary money-laundering concerns.
Challenges in Combatting Crypto-Based Terrorism Funding
Hamas’s strategic pivot to digital currencies not only underscores the adaptability of terrorist organizations in utilizing emerging financial technologies but also poses significant challenges for international regulatory and law enforcement agencies.
The transparent nature of blockchain technology, while an advantage in tracking transactions, is often countered by the use of privacy-focused systems (such as privacy tokens or coin mixers) and the frequent changing wallet addresses, complicating efforts to trace and disrupt these financial networks.
Furthermore, this highlights growing difficulties in controlling the way in which modern technologies, aimed at bettering individual communication and monetary transmissions, can be deployed for use in the midst of serious conflict.
The Bottom Line: A New Era in Terrorism Financing
The transition of Hamas to digital currency financing represents a critical juncture in the realm of international counter-terrorism efforts.
It highlights the pressing need for enhanced global cooperation and innovative strategies to effectively monitor and counter the misuse of digital currencies by terrorist organizations.
As digital currencies continue to evolve, so too must the approaches to combat their use in financing terrorism, ensuring a balance between technological advancement and global security.