Chainalysis, a leading authority on blockchain analysis, acknowledges that some terrorist groups, including Hamas, Hezbollah, and Palestinian Islamic Jihad, use cryptocurrencies to raise, store, and transfer funds.
A recent report from Chainalysis has cast doubt on sensational claims about terrorist organizations using cryptocurrencies for funding.
In the wake of a recent Hamas terrorist attack in Israel, the report aims to correct misconceptions about the role of digital currencies in terrorist financing.
The report emphasizes that this constitutes only a small fraction of the total cryptocurrency transaction volume, a small proportion of illicit activities involving digital currencies.
Likewise, the document contradicts exaggerated metrics and erroneous analyzes on the use of cryptocurrencies by terrorist organizations, underscoring that traditional fiat-based methods, such as financial institutions, hawalas and shell companies, remain the main financing channels. for these groups.
Role of Service Providers
One of the key takeaways from the report is the inherent transparency of blockchain technology, which makes cryptocurrency transactions traceable from start to finish.
Such transparency allows government agencies and private sector organizations equipped with blockchain analysis tools to collaborate effectively to identify and disrupt the flow of funds, which is a major challenge with traditional value transfer methods. The report also delved into the role of service providers in facilitating the movement of terrorism-related funds.
According to the report, investigative efforts should often focus on service providers, such as money services companies, that can process significant volumes of funds. Chainalysis discovered that these shady service providers may resemble over-the-counter (OTC) brokers or street money businesses like hawala.
Statistics
To illustrate the complexity, the report cited an example where a terrorist financing-affiliated wallet had at least 20 suspicious service providers as counterparties. These providers received various amounts of cryptocurrency from all their counterparties, ranging between $8.4 million and $1.1 billion.
Further investigation of one of these counterparties revealed a significant amount of activity, with over 1,300 deposits and 1,200 withdrawals in 7.5 months. Approximately $450,000 in funds were transferred through this address from the known terrorist-affiliated wallet. The report suggests that this address likely represents a service provider that knowingly or unknowingly facilitates terrorist financing activity.
Fund Mix
However, the report also warns against jumping to conclusions. While it may appear that large sums of cryptocurrency are being raised to finance terrorism, a substantial portion of these funds may not be related to terrorism.
Chainalysis cautioned against including all transaction activities performed by these service providers in estimates related to terrorist financing, as they may not be directly related to such activities. It also recognized the challenges of providing accurate estimates of funds going directly to terrorist organizations, especially in the absence of validated information from law enforcement.
Coinbase Echoes the Sentiment
Coinbase has similarly argued that the majority of terrorist financing still relies on traditional cash rather than cryptocurrencies.
The exchange issued a statement in response to concerns that cryptocurrencies are being used for illicit purposes, particularly following reports of Hamas using cryptocurrencies for financing. Coinbase emphasized that the transparency of blockchain technology makes it easier to track crypto transactions compared to cash payments.
The exchange also called for clear regulations to ensure compliance for the crypto industry in the US and other regulated jurisdictions, noting that reports of terrorist financing through digital assets often involve offshore entities that are not subject to US laws.
By Audy Castaneda
