Palestinian militants didn’t need to smuggle cash – they used crypto

Tens of millions of dollars in crypto have been moved to Palestinian militants, with financial transactions linking them to Hezbollah and a sanctioned Russian crypto exchange. Israel has taken action to freeze known Hamas accounts seeking donations, but seizing a crypto wallet is not always that simple.

Over the weekend, Hamas broke out of the Gaza Strip and launched its most brutal attack in years into Southern Israel, leaving many questioning how such an escalation could be funded.

Militant groups in Palestine controlled crypto wallets with assets worth tens of millions of dollars. Their financial transactions link to Hezbollah, a Lebanon-based political and armed organization whose crypto schemes have allegedly grown by a factor of 1000 to ten billion dollars in turnover.

Terrorist organizations are known to use various fundraising methods, including money laundering and drug trafficking. They exploit the partial anonymity of cryptocurrency to evade detection by law enforcement, mixing and distributing funds across various blockchains and services to ensure a low-risk profile.

The seizures of Hamas wallets continue to this day, with Israeli police recently announcing the freezing of accounts used for fundraising Hamas activities.

Tracking funds on blockchain reveals millions, even billions

A total of 26 Tron wallets and 67 client accounts at virtual asset exchanges belonging to Palestine Islamic Jihad (PIJ) were seized on the 4th of July by the National Bureau for Counter-Terror Financing of Israel (NBCTF). Those contained $94 million worth of crypto, as reported by Elliptic.

The Sunni Islamist militant group PIJ is the second-largest Palestinian militant group, sometimes operating in coordination with Hamas. PIJ seeks to establish an Islamist Palestinian state that is committed to the destruction of Israel, according to the description provided by the US Office of the Director of National Intelligence.

And Hamas (the acronym for Harakat al-Muqawama al-Islamiya (Islamic Resistance Movement) is the largest and most capable militant group in the Palestinian territories, committed to armed resistance against Israel and the creation of an Islamic Palestinian state in Israel’s place.

Transactions within the seized accounts linked PIJ, Hamas, and Hezbollah, and flows went both ways through illicit money services such as the sanctioned Russian exchange Garantex, as well as the decentralized exchange Sunswap.

Crypto transactions
Image by Elliptic.

And those crypto wallets are far from the largest ones.

When the NBCTF announced orders to seize crypto wallets belonging to the Hezbollah group and the Quds Force in May and June 2023, the operations aimed to seize millions of dollars.

However, an analysis of crypto wallets performed by the Israeli crypto tax and portfolio tracking company BitOK, revealed a turnover of $7.7 billion since June 10th, 2021, within the first scheme and $3.13 billion since October 26th, 2020, within the second scheme.

The success of the seizures remains unclear. As of today, some crypto wallets remain active, and one of the larger ones contains more than half a million dollars.

“As for the other addresses, they remain active. Moreover, despite the issuance of the Seizure Order, they have not been subjected to any form of blocking,” researchers from BitOK noticed.

Many addresses actively engaged in sending and receiving cryptocurrencies through prominent exchanges and platforms such as Binance, KuCoin, BTCTurk, Bybit and others.

Binance helped to freeze accounts

On October 10th, the Israeli government, with the help of Binance, announced that it was freezing more cryptocurrency accounts linked to Hamas and other terrorist groups.

Reuters reported in May that Israel had seized around 190 crypto accounts on Binance since 2021. Two of the seized accounts were linked to Islamic State, and dozens more were owned by Palestinian groups connected to Hamas.

"The Police Cyber Unit and the Ministry of Defense immediately took action to locate and freeze these accounts, with the assistance of the Binance crypto exchange, in order to divert the funds to the state treasury," the police statement said. It gave no further details on how many accounts were frozen or the value of the crypto seized.

The Israeli authorities leverage the transparency and traceability of crypto assets to detect, freeze, and confiscate related funds.

“The ability to detect and disrupt terrorist financing activity on the blockchain will be a critical element of any response, should Hamas resume the use of crypto for fundraising,” Elliptic writes.

Crypto fundraising may resume, but it will be harder

With the US, UK, EU, and other governments condemning Hamas’s attack on Israel, broader efforts to curtail the use of crypto for terrorist financing are likely.

Hamas has been trying to raise funds from donors since at least January 2019, instructing supporters to send funds to Bitcoin addresses that the group supported.

The first campaigns were small, with just several thousand dollars over a few months. However, that all changed in the summer of 2021 when conflict broke out between Israel and Hamas. The Hamas military wing Al-Qassam Brigades quickly raised more than $7.3 million worth of crypto by July 2021.

Following a series of Israeli freezing orders, in April 2023, researchers noticed a decrease in crypto donations. Hamas announced to its supporters that it no longer accepted crypto donations, acknowledging that it leaves funds vulnerable to tracking and seizing, while citing an increase in "hostile" activity against donors.

But in light of the current conflict, Elliptical sees a real possibility that crypto fundraising may resume.

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