The October 7, 2023 attacks on Israel by Hamas have re-focused U.S. government efforts to identify and counter funding streams for Hamas and terrorist activity in general – including, in particular, through the use of cryptocurrency.  This heightened focus is exemplified by a recent report (“Report”) published by the Congressional Research Service (“CRS”), which examines the role of cryptocurrency donations in Hamas fundraising campaigns, which long predate the October 7 attacks.  The Report references recent, related efforts by the Financial Crimes Enforcement Network (“FinCEN”), which we also discuss.

The Report

The Report indicates that the origins of Hamas’s cryptocurrency fundraising date back to at least 2019, when “Hamas engaged in a cryptocurrency donation campaign that led to the U.S. seizure of several websites and 150 cryptocurrency accounts linked to the armed wing of Hamas, the Izz al Din al Qassam Brigades, in 2020.”  Hamas reportedly has continued its cryptocurrency fundraising efforts through 2023.  For instance, CRS references reports that Israeli authorities “seized dozens of cryptocurrency addresses linked to Hamas, PIJ, and other terrorist groups between 2021 and 2023.”  The armed wing of Hamas announced it would stop accepting Bitcoin donations in April 2023, warning that donors could be targeted by authorities.

Following the October 7 attacks, Israel and the United States have been looking for signs to determine whether Hamas-affiliated entities have resumed soliciting cryptocurrency donations.  The Report states that Israeli authorities reportedly moved to freeze additional Hamas-linked cryptocurrency accounts on October 10.  The Report also identified a number of steps taken by the U.S. Department of the Treasury to deter terrorist fundraising through cryptocurrency.  By way of example, the Report indicates that Treasury has:

• Sanctioned additional Hamas operatives and financial facilitators;
• Issued an “alert” through FinCEN to financial institutions to counter Hamas-related terrorist financing, which we discuss below;
• Published a notice of proposed rulemaking that determined that transactions involving convertible virtual currency mixing are “of primary money laundering concern” and proposed the application of enhanced recordkeeping and reporting obligations on covered financial institutions (see our blog post here); and
• Hosted a FinCEN Exchange to discuss threats posed by illicit cryptocurrency use in light of Hamas’s attack on Israel and the role of the financial industry in countering the financing of terrorism.

Related FinCEN Activity

After CRS issued the Report, FinCEN announced on November 27 the creation of a counter-terrorism financing task force consisting of the Financial Intelligence Units of the U.S., Israel, Australia, Canada, Estonia, France, Germany, Liechtenstein, Luxembourg, the Netherlands, New Zealand, Switzerland, and the United Kingdom.  The task force seeks to “combine and strengthen the efforts to disrupt the international money flows related to Hamas and support global anti-terrorism efforts through the coordination of financial intelligence and information sharing.”

Further, the Report serves as a well-timed follow up to FinCEN’s Alert to Financial Institutions to Counter Financing to Hamas and its Terrorist Activities, published on October 20, 2023 and referenced in the Report.  The Alert identifies Hamas’s sources of fundraising to support its operations, including support from Iran; private donations; a global portfolio of investments; diverting aid and support from legitimate charities; the control of border crossings and avenues of commerce; racketeering business frameworks; and extortionary practices around local populations.  Further, and consistent with the Report, the Alert focuses on fundraising campaigns involving virtual currency and fictitious charities raising both fiat and virtual currency.  According to the Alert, “Hamas moves funds through the smuggling of physical currency as well as a regional network of complicit money transmitters, exchange houses, and Hizballah-affiliated banks.”

The Alert identifies seven red flag indicators “to help detect, prevent, and report potential suspicious activity related to Hamas’s terrorist financing activity.”  Those red flags include:

• A customer conducts transactions that originate with, are directed to, or otherwise involve entities that are shell corporations, general “trading companies,” or other companies that have a nexus with Iran or other Iran-supported terrorist groups, such as Hizballah and Palestinian Islamic Jihad.
• A customer that is a charitable organization or nonprofit organization (NPO) solicits donations but does not appear to provide any charitable services or openly supports Hamas’s terrorist activity or operations.  In some cases, these organizations may post on social media platforms or encrypted messaging apps to solicit donations, including in virtual currency.
• A customer conducts transactions with known or suspected virtual currency addresses tied to terrorism or terrorist financing donation campaigns.

Here, of course, the Alert’s intended audience of financial institutions is not limited to banks, but also includes virtual currency exchanges operating as money services businesses under the BSA.  As we have observed before in other contexts, at least some of these red flags – however helpful – assume a high degree of knowledge by a financial institution regarding the transaction activity of its customers, or its customers’ customers.

FinCEN requests that financial institutions reference the Alert in related Suspicious Activity Report (“SAR”) filings by including the key term “FIN-2023-TFHAMAS” in SAR field 2 as well as in the narrative to indicate a connection between the SAR and the Alert.

Congress

As the Report observes, several members of Congress have raised questions regarding the role of terrorist fundraising through cryptocurrencies since October 7, and discussions regarding additional legislation, regulation, and supervision are ongoing.  Specific legislation to address this issue, such as the National Defense Authorization Act for Fiscal Year 2024 would require bank supervisors and federal regulators to establish AML/CFT examination standards for financial institutions relating to crypto assets, is pending.  Additional bills to address Hamas-specific illicit financing more directly such as the Hamas International Financing Prevention Act (H.R. 340), End Financing for Hamas and State Sponsors of Terrorism Act (H.R. 6322), and Hamas and Palestinian Islamic Jihad International Terrorism Support Prevention Act of 2023 (S. 1647) continue to be introduced.

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