In 2019, the IDF targeted the Hamas commander Hamid Ahmed Khudari from the air, while he was driving his car down a Gaza street. Khudari was Iran’s main moneyman in Gaza and was close to Yahya Sinwar. The IDF notice after the elimination of Khudari said that “Iran will need to find a new financier in Gaza.” Hamas, of course, found such a person.
This time it was the Palestinian businessman named Zuhair Shamlakh, who managed, at least officially, a legitimate money change business called “Al Mutahadun”. Shamlakh didn’t want his life to end like Khudari’s, and he decided to switch strategy, to make it much harder to detect the Teheran-Gaza money pipeline, and, of course, much harder to find him: he shifted to digital coins just as they were at their peak during the COVID crisis.
At first, Hamas used crypto only as a means for accepting small-sized donations, but by 2020, crypto had already become the nearly exclusive method for large-scale transfers (of money) between Iran and the terrorist organizations in Gaza. Chasing down Hamas’s many forms of funding, which was no simple task as it was, had become even more complicated.
When hordes of terrorists crossed the border fence and transformed October 7th into the most tragic Shabbat (Saturday) in the State of Israel’s history, they did so on the back of an economic footing that was built over no less than three years, among others, taking advantage of a rampant, unregulated virtual coin marketplace, a paradise for world’s darkest people. When the words “eliminate Hamas” are spoken today, we need to understand that physical “elimination” of the armed militants and the organization’s heads won’t suffice – anything less than totally shattering their (Hamas’s) economic network, will allow for the re-establishment of this organization of horrors, once again. And in a world where it’s child’s play to transfer very large sums of money quickly and hidden from the eyes of all, the task of rebuilding becomes even simpler.
“The subject of financing terror has always been a game of cat and mouse,” Jay Fanussey, a former CIA analyst and expert on the world of crypto, “Whoever seeks to stop Hamas must be as nimble and creative as the opponent, and use tools that are already available to us to identify and disrupt their financial network.”
It is already evident that the horrible surprise of October 7 was a result of Israeli complacency on several levels. One of these was simply a lack of appreciation or lack of acknowledgment of the ties Hamas has made in the monetary arena in the West, especially in the U.S. According to terror financing experts, Hamas’s military arm was one of the first to adopt the use of cryptographic currencies. The U.S. officially recognized Hamas as a terror organization in 1997 and limited its access to the international banking system; The restrictions placed by Israel on Gaza over the years, hampered Hamas’s efforts to obtain physical cash, but it smuggled in bills via its tunnels.
Then came cryptocurrencies and solved all the problems – there is no longer a need for physical money, no need for an institutionalized international banking system. “This is the most quiet and convenient way for them to get money into Gaza,” Tom Alexandrovich, director of the cyber defense division at Israel’s National Cyber Directorate, told The Wall Street Journal.
Since 2021, Israel has been tracing payments of tens of millions of dollars made by Iran’s Revolutionary Guards to the Al Mutahadun exchange owned by Shamlakh, which was designated for purchasing weapons and paying salaries. The National Bureau for Counter Terror Financing (NBCTF) of Israel has, over the past three years, issued at least seven injunctions to confiscate crypto funds of three exchanges in Gaza.
Digital wallets identified by the NBCTF as being connected to Hamas and the Islamic Jihad, received, according to a Wall Street Journal investigation, over $130 million. The crypto that was sent to the digital wallets controlled by the Hamas-affiliated currency exchanges – could also be converted to cash in Gaza, and this axis aided Hamas and the Islamic Jihad in receiving large sums of money from Iran in the two years leading up to October 7.
In a debriefing, officials at NBCTF explained that the exchanges operate like other fraudulent enterprises and criminal organizations around the world — legitimate trade payment activity acts as a cover for funding terrorism. To obscure the money’s trail, the exchanges changed the addresses of the wallets they used every day and also received money from Garantex, a large Russian crypto exchange currently subject to U.S. sanctions, and several other Iranian exchanges. And if that isn’t enough, they were also able to transfer money via Binance, the world’s largest crypto exchange. For example, the NBCTF’s first injunction used against Shamlakh’s exchange targeted 47 Binance accounts.
Binance’s witting or unwitting involvement in the transfer of funds to terror organizations was also the last straw for the American administration that has clamped down and increased the pressure on the heads of the crypto industry. Last month, 13 indictments were filed against Binance, including charges that it assisted Hamas, violated sanctions, and facilitated human and drug trafficking.
The global trade platform, which accounts for half of all crypto activity, agreed to pay $4.4 billion to settle the charges against it and entered a process at the end of which it is doubtful whether it will be able to do business in the U.S. Binance CEO, Changpeng Zhao – who played a central role in last year’s collapse of Sam Bankman-Fried’s FTX exchange – admitted to money laundering charges, resigned his position as CEO, agreed to pay a total fine of $200 million, and may also be sentenced to jail.
“With its voracious appetite for profit, Binance ignored its legal obligations. Its intentional failures allowed money to flow to terrorists, web criminals, and child abusers over its platform,” said the United States Secretary of Treasury, Janet Yellen. She added that groups such as Hamas’s Al-Qassam Brigades and ISIS used Binance to execute transactions. “The result of these agreements (punishments) will be an end to company behavior that has posed risks to the U.S. financial system, U.S. citizens, and our country’s national security for too long,” added Yellen, “And let me be clear: We are also sending a message to the virtual currency industry more broadly, today and for the future.”
The penalties imposed on Binance, both as a company and on its leaders, are the largest ever in history, and make it abundantly clear that the 7th of October crossed a red line, for the USA and the entire crypto industry. Over 100 American lawmakers signed a letter last month that voiced concern about “the grave national security threats” stemming from the use of crypto to finance terror.
“Earlier this month, the world watched in horror as Hamas committed brutal acts of terrorism against the people of Israel,” said the Democratic senator from Ohio, Sherrod Brown, who serves as the Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, “On this committee, we’ve raised the alarm about crypto and its role in illicit finance—including the use of crypto to fund terrorists… And when law enforcement attempts to trace or block crypto funds, it becomes a game of whack-a-mole. They stop one transaction, and the criminals have moved on to another platform, with another alias… We must be much more aggressive against them because things can’t keep on like this.”
The U.S. Chamber of Digital Commerce, one of the crypto industry’s lobby firms, claims that virtual currency was not used to fund terror any more than other currencies. “Blockchain technology allows for monitoring and dismantling of blockchain-based terror financing, and it has proven to be very effective for law enforcement,” the Chamber answered in response to a series of anti-crypto bills currently being debated in Congress.
It’s true that in the context of using crypto for illicit purposes, familiar Bitcoin transactions have an Achilles heel: they are recorded on public blockchain ledgers, and it is relatively easy to track them. Hamas, for example, promised donors around the world that sent the organization money, that their transactions are anonymous. However, everything was recorded on the blockchain, a fact that allowed the U.S. Justice Department to seize 150 crypto accounts associated with the Al-Qassam Brigades roughly 3 years ago, in 2020.
This past April, Hamas announced that it would stop Bitcoin fundraising efforts, but this doesn’t mean that it stopped using crypto. It just found, as Senator Brown mentioned, a different platform. It is called Tron, and it is the new hit platform among Iran-backed terror organizations, from Hamas to Hizballah. Tron is a burgeoning crypto network, faster and cheaper than Bitcoin, and harder to trace after. “Our data shows that these terror organizations tend, more and more, to prefer Tron,” Mriganka Pattnaik, CEO of the blockchain analysis firm, Merkle Science, told Reuters.
Haward Young, spokesperson for Virgin Islands registered Tron, said in response that “all technologies could, in theory, be used for questionable activities”, and brought as an example the American dollar, “which is also used for money laundering.” Wong said that Tron “has no control over who uses its technology and that it isn’t tied to any terror group, as was disclosed by Israel.” Be it as it may, between July 2021 and October 2023 the NBCTF froze no less than 143 Tron wallets connected to terror organizations. Iran has also used Tron, in the past, to bypass U.S. sanctions. Reuters, for example, reported that between 2018 and 2022, Iranian companies executed $8 billion in transactions via Tron.
A few weeks after October 7th, Israel announced the largest crypto seizure of all time and froze approximately 600 accounts connected to a currency change exchange in Gaza, but at the end of the day, this is only a drop in the ocean, and Hamas’s economic enterprise is still large and varied. The U.S. estimates that Iran transfers some $100 million a year to the organization. To this sum, we need to add Hamas’s income from its global investment portfolio, fundraising campaigns via charitable organizations, Israel-supported foreign aid in the form of suitcases of dollars from Qatar, and Gazan tax revenues.
“It’s always important to remember that crypto is a very small piece of a much larger terror financing puzzle,” Ari Redbord, an analyst with a firm specializing in anti-crypto fraud protection, told NPR.
“Terrorist financiers, like any other illicit actors, are opportunists and they use absolutely anything they can to raise funds, including crypto. Indeed, Hamas has been collecting funds in this manner, but crypto still represents only a small part of their fundraising efforts, all the more so because over the past few years, Israeli and U.S. authorities have focused on Hamas’s crypto financing and garnered successes.”
