Following the Hamas attacks in Israel, a number of traditional publications published headlines about the alleged crypto-funding of terrorist groups. A detailed analysis of the myths and facts surrounding the issue.
A week ago, a group of U.S. Congressmen, led by Senator Elizabeth Warren, submitted a letter to the Biden administration. It said that since August 2021, Hamas and the Palestinian Islamic Jihad had raised over $130 million in cryptocurrencies. Therefore, she said, it is clearly evident that the government needs to do something about the "clear and present" terrorist financing through crypto assets.
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Widely overestimated crypto transactions linked to Hamas
Blockchain analytics firm Chainalysis investigated these claims and published the results in a blog post. After all, crypto terrorist financing of this magnitude would be extremely concerning. The company works closely with government agencies around the world and is regularly called upon to uncover illicit money flows in the blockchain space. However, the findings of the Chainalysis analysis paint a very different picture.
An analysis of the volume and flow of funds related to terrorism includes two key components: Quantifying assets held by the groups and identifying the service providers that facilitate their money flow. One of the addresses associated with Hamas wallets, for example, had received $82 million in cryptocurrencies over the past seven months. An obvious fallacy now would be to categorize this volume as crypto-terrorist financing, Chainalysis said.
In fact, this address only sent USD 450,000 to the Hamas wallet. Considering the activity of this address, it was most likely a service provider, not a terrorist organization. According to the analysis firm, estimates in the media mostly include all money flows to certain crypto service providers that are connected to wallets of terrorist organizations. It is true that these intermediaries should also be sanctioned. However, it would be wrong to classify all transactions as terrorist financing. Actual figures confirm the already very small share of illegal activities in crypto volume.
More effective methods for terrorist financing
This conclusion also confirms the reality. In 2019, Hamas launched its first fundraising appeal using cryptocurrencies. However, this first attempt quickly failed due to the unprecedented transparency of the blockchain, as NZZ reported. To cover its tracks, Hamas adapted its crypto-funding strategy, but again ran into problems. This April, the project was shut down. Crypto contributions were simply too risky for donors. Hamas continued to receive occasional contributions in cryptocurrencies, but the problem became clear.
Financial contributions usually happen through other routes. For example, Hamas owns shares in legitimate businesses in neighboring countries. Or it raises funds by taxing goods smuggled through a network of tunnels between Egypt and the Gaza Strip. And some $360 million per year reaches Hamas through direct contributions from Iran and other Arab countries. The alleged contributions via cryptocurrencies can therefore be classified as vanishingly small.
