Unmasking the Dark Side of Digital Coins: Crypto’s Role in Terror Financing

Terrorists have sought sophisticated methods to finance their agendas in this digital age. The recent multi-pronged attack on Israel by Hamas on October 7 brings the solicitation of cryptocurrency donations into the limelight again while stressing the significance of solid regulatory measures to monitor and curb illicit transactions. 

A cryptocurrency is a digital currency that uses cryptography to secure transactions. These transactions are only digital entries and do not rely on banks to verify them, making instant borderless payments smooth. The global regulatory body often leaves decentralised finance untrammelled, allowing terrorist outfits to utilise this loop. The Financial Action Task Force (FATF) has even warned about the perpetual risk of crypto assets becoming a haven for criminals and terrorists. Crypto-financed terrorist attacks may increase from 5% to 20% in the coming years, as disclosed by the UN official.

To seek new revenue streams to exploit, ISIS and its affiliated terrorist groups have used cryptocurrency for fundraising. In 2015, Abu Mustafa, a prominent fundraiser for ISIS, urged raising funds through darknet bitcoins to escape US authorities. Crypto fundraising campaigns have been integral to supporters of ISIS whose families have been detained and held in internment camps. While Bitcoin remained the most utilised cryptocurrency, other blockchains included Ethereum, Monero, and Tron. Al-Qaeda, a terrorist group based in Syria, operated a Bitcoin money laundering network through its Telegram and Facebook accounts. The US Department of Justice seized $ 2 million worth of cryptocurrency between 2019 and 2020. Shreds of evidence also indicate an increased demand for virtual assets to raise funds by terrorist outfits in South and Central Asia. TRM Labs uncovered multiple fundraising campaigns associated with ISIS and its affiliate ISKP in Tajikistan, Afghanistan, Pakistan, and Indonesia.

The US and Israeli law enforcement agencies have intensified their efforts to limit cryptocurrency transfers to Hamas, a worrying trend highlighted in 2019. The military wing of Hamas, the al-Qassam Brigades, notified on its social media page for bitcoin donations in 2019 for the first time. It later moved this request to its official websites, coupled with video demonstrations instructing to make donations anonymously. However, the US agencies tracked and seized all 150 cryptocurrency accounts linked to al-Qassam Brigades.

As recent as October 2023, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed a new regulation to enhance transparency in Convertible Virtual Currency Mixing (CVC mixing) to combat its malicious use by Hamas, PIJ, and the Democratic People’s Republic of Korea (DPRK). CVC Mixers obfuscate the origin of transactions, offering greater anonymity and increasing the risk of money laundering.

The Israeli authorities, including the Shin Bet, the Police, the Ministry of Defence and other agencies, managed to freeze the crypto wallets linked to Hamas and other terror outfits with the help of Binance, a cryptocurrency exchange platform. These wallets had received $41 million between 2019 and 2023. In another instance, the Israeli cyber team further collaborated with British law enforcement to seize an account at the British bank Barclays, found to be raising funds for Hamas. Previously, in July 2023, the National Bureau for Counter-Terror Financing of Israel (NBCTF) disclosed 26 Tron wallets and 67 Binance accounts funding the Palestinian Islamic Jihad (PIJ). These wallets received $93.7 million in Tether, USD Coin, and Tron, making the seizure of the wallets significant. Hezbollah, a Lebanon-based and Iran-backed terrorist organisation, also came under the Israeli government’s radar. The Israeli agencies seized $1.7 million worth of crypto from wallets linked to Hezbollah, which were moved first to hawala services and then to Hezbollah-controlled wallets.

With this crackdown, cryptocurrency has come under renewed scrutiny. Although these cases may seem anecdotal, they underlay the threat posed to counter-terrorism efforts because it makes illicit funding networks harder to disrupt. The international community has significantly progressed in their struggle against terror financing. However, the surge in cyber terror financing underscores urgent global cooperation, enabling rapid and anonymous borderless money transfers. The joint efforts by Indian and Israeli agencies exposed a cryptocurrency theft of INR 4 million from India, which ultimately found its way into wallets operated by al-Qassam Brigades of Hamas. Concerted actions by the US, the UK, and Israeli law enforcement agencies have unearthed multiple cryptocurrency terror finance networks, but more is needed to curb this nefarious act. Policy sets precedence, and broader institutional-level policy cooperation among various state and non-state actors will stringent regulatory mechanisms and prevent the illicit transfer of digital currency.

Terrorist groups like Hamas that control a territory pose strategic challenges to the counter-terrorism community. They can easily derive financial support from the controlled territory without disruption by propagating fundraising campaigns and attracting sympathisers outside their jurisdiction’s attention. In such a scenario, the onus entirely lies on external bodies to terminate the network, much like what transpired with Buy Cash Money and Money Transfer Company, the Gaza-based exchange platform with a history of financing Hamas, according to the US Department of Treasury.

The abuse of social media platforms has become rampant for financing cyber-enabled campaigns. Researchers have spotted more than 500 “fundraising” emails and several posts on X, Telegram, YouTube, and Instagram enticing people to donate and support the victims of the humanitarian crisis in Gaza. These accounts listed dubious crypto wallet addresses, likely to be owned by scammers. While coordination among law enforcement and the private sector is imperative to map out threat networks and plots, it is equally crucial to sensitise the public on fraudulent schemes disguising themselves as charitable trusts.