Legislation proposed by Sen. Elizabeth Warren (D-MA) might get a boost amid reports that Hamas might have financed its attack against Israel in part by using cryptocurrencies.
Warren’s bill, the Digital Asset Anti-Money Laundering Act, was introduced in July and is backed by senators from both parties, including Sens. Lindsey Graham (R-SC), Roger Marshall (R-KS), and Joe Manchin (D-WV). The legislation would impose stricter anti-money laundering rules on cryptocurrency trading.
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After Hamas’s brutal surprise attack against Israel earlier this month, an incursion that resulted in the deaths of more than 1,200 Israelis, questions arose about how the devastating attack was planned and how such a complex operation was financed.
Soon reports began to emerge that Hamas was involved in cryptocurrency, an example of what Warren’s bill is meant to prevent.
“The danger of crypto-financed terrorism is real and should be an urgent priority for Congress,” Warren told Politico following the attack. “There’s a growing bipartisan coalition of senators who are committed to passing this bill and fighting back against terrorism worldwide by choking off the financing.”
Following the Hamas attack, which largely targeted civilians — including women, children, and infants — Israel declared war on Hamas for the first time since 1973. Since then, the death toll in Israel and the Gaza Strip has risen as it appears more likely that the war will expand even further.
Last week, the Wall Street Journal reported that Hamas, Palestinian Islamic Jihad (another Gaza-based terrorist group), and Hezbollah (an Iran-backed Lebanese-based terrorist group) received large amounts of funding through cryptocurrency in the year leading up to the Oct. 7 attack.
Between August 2021 and this past June, cryptocurrency wallets tied to Palestinian Islamic Jihad received as much as $93 million in crypto, according to crypto researcher Elliptic. Additionally, over a similar time period, Hamas was able to receive over $40 million in crypto assets, research from crypto analytics and software firm BitOK found.
It is not clear whether those funds ended up directly financing the massacres carried out across southern Israel this month or the enormous barrage of rockets that were fired from the Gaza Strip into residential communities in Israel.
It is also unclear how much in crypto funds flowing to the terrorist organizations were frozen and seized by Israeli authorities.
Still, the reports that Hamas and affiliated terrorist groups had ties and attempted to use the crypto space to fund their activities could draw more attention to efforts from lawmakers to put further guardrails in place for digital assets.
But crypto expert and advocate Brandon Zemp told the Washington Examiner that more regulation from Capitol Hill isn’t the correct response. He said that cryptocurrency critics like Warren will use any opportunity to push new regulatory actions against the nascent sector. He called the talk surrounding terrorism and crypto financing “political posturing.”
“There are a lot of politicians in the U.S. government that obviously don’t like crypto and they will — like Elizabeth Warren, for example — take every opportunity to shift blame to that and to try and regulate even further,” Zemp said.
Zemp said that empowering crypto companies themselves to work with law enforcement to crack down on illicit use of digital assets, money laundering, and the use of crypto wallets is a more effective way to prevent crime from being funded through crypto. He also noted that traditional asset classes, like cash, are also being used to finance terrorism and criminal activity.
Zemp pointed out that companies have already taken the initiative to go after accounts that are deemed to be involved in terrorism and warfare financing.
Just on Monday, for instance, stablecoin issuer Tether announced that it froze 32 virtual wallets that it said were linked to terrorism or warfare in Israel and Ukraine. The frozen assets total nearly $900,000 (a mere fraction of the amount that was reportedly funneled through crypto to Hamas and PIJ in the lead-up to the Israel attack).
One argument that crypto evangelists have used to push back on the notion that crypto is inherently amenable to criminal financing is that, unlike cash, cryptocurrency carries with it a digital footprint because of its underlying blockchain technology.
“Crypto is trackable, it’s traceable,” said Zemp. “They are going to get caught at some point, they’re going to get blacklisted, and they’re going to end up getting those funds frozen, or taken away, or clawed back.”
Tether CEO Paolo Ardoino also argued this week that it would be a foolhardy move for terrorist groups or criminals to use cryptocurrencies tied to the blockchain to finance their operations.
“Contrary to popular belief, cryptocurrency transactions are not anonymous; they are the most traceable and trackable assets,” he said in a statement. “Every transaction is recorded on the blockchain, making it feasible for anyone to trace fund movements. Consequently, criminals foolish enough to employ cryptocurrencies for illegal activities will inevitably be identified.”
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Warren’s legislation specifically would enhance the Bank Secrecy Act and expand know-your-customer requirements to include providers of crypto wallets, digital asset miners, and others who engage in the digital asset space.
While crypto advocates have pushed back against Warren’s bill, the legislation has garnered an interesting smattering of supporters, including the Bank Policy Institute, which represents the country’s largest banks — like JPMorgan Chase, Bank of America, and Goldman Sachs — that Warren frequently targets.
