U.S. Deputy Treasury Secretary Wally Adeyemo issued a warning on Friday, saying that the country will pursue cryptocurrency companies that do not prevent terrorist organizations from transferring money.
“The United States and our partners will act to prevent illicit financial flows,” Adeyemo declared during a speech at the Royal United Services Institute in London.
Adeyemo’s remarks come in response to a letter sent this month by Sen. Elizabeth Warren, a Democrat from Massachusetts, and numerous other members of Congress urging the Biden administration to take action against terrorists using cryptocurrencies. It quoted a source claiming that in recent years, the terrorist organisations Palestinian Islamic Jihad and Hamas have raised over $130 million in cryptocurrency.
All of this has sparked a heated discussion over how much cryptocurrency is fueling terrorism in Washington and the finance and cryptocurrency industries.
Elliptic, the company that supplied a portion of the report’s data, responded this week in a blog post, stating that there was “no evidence to suggest that crypto fundraising has raised anything close to” the amount mentioned and that part of the total amount may have gone to small cryptocurrency brokers who are occasionally classified as terrorist organizations due to their role in financing them. The analytics company Chainalysis, which did not supply the report’s data, claimed that when estimates of terror funding encompass all payments to these service providers, it leads to the incorrect conclusion that every dollar that enters the service is somehow connected to terrorism.
Because cryptocurrency is anonymous, cross-border, and travels through middlemen who operate in regulatory grey areas, some have long warned that terrorists could use it as a means of funding. However, how real is that threat?
According to some officials, terror groups may be using cryptocurrency to fundraise more frequently as a result of the conflict in the Gaza Strip. As traditional funding sources like banks are cutting off terror groups, there is a “super” growth in cryptocurrency fundraising, according to Tom Alexandrovich, executive director of the Cyber Defense Division of the Israel National Cyber Directorate.
Shlomit Wagman, a Harvard professor and former chair of the Israeli Money Laundering and Terrorism Financing Prohibition Authority, testified at a Senate Banking Committee hearing on terror financing last week. She described cryptocurrency as “a problem,” but she added that it is not the primary source of income for Hamas. The primary sources of funding for Palestinian terrorist organizations are state actors such as Iran and Turkey, corporate portfolios, including real estate and investments, fundraisers, and humanitarian aid, including cryptocurrency.
Terrorists’ use of crypto may be restricted by certain features. It is possible to track out dishonest people by looking through the public digital ledgers that store cryptocurrency transactions. The armed wing of Hamas declared in April that it would cease accepting Bitcoin donations due to tracking and donor exposure. A terrorist crypto crowdfunding campaign, according to Yaya Fanusie, a former CIA counterterrorism analyst who currently leads the anti-money laundering division at the trade association Crypto Council for Innovation, “is like putting your bank account number on the internet and telling people to ‘donate to Hamas here.’” Fanusie made this statement to DealBook.
Congressmen are urging more laws and enforcement. Legislators like Warren have put forth a number of proposals that would, among other things, increase the financial resources available to law enforcement to combat the threat of cryptocurrency terror financing. Although many nations have not completely implemented the Financial Action Task Force’s regulatory framework for cryptocurrencies and regulation is frequently lax, Wagman noted that the organization is an international financial regulatory body with participation from nations all over the world.
Some experts argue that it’s time for the reckoning. DealBook was informed by Alex Zerden, the founder of Capitol Peak Strategies, a risk advice firm, and a former employee of the Treasury’s Office of Terrorism and Financial Intelligence, that discussions surrounding the data did not disprove the growing understanding that digital assets constitute a component of this funding picture. “Terror financing does not have a de minimis exception, regardless of the media,” he declared.
The crypto champion, Sen. Cynthia Lummis, R-Wyo., came to the same conclusion. She declared during the hearing on Thursday that “terrorism is being funded by cryptocurrency.” “Even one dollar is excessive.”