Shortly after the latest Gaza flare-up ended last month, Hamas officials boasted to The Wall Street Journal that they had pulled in record donations in cryptocurrencies.
Global media coverage of the fighting drew attention to how the militant organization had brought hundreds of thousands of viewers to its website, where they were provided instructions on how to contribute under the eyes of the authorities, and offered a QR code to facilitate the transactions.
The QR code is just one example of how Hamas has become something of a technology leader among terrorist groups, which experts say are making more and more use of Bitcoin and other cryptocurrencies to raise money. After being driven off the Coinbase cryptocurrency exchange two years ago by U.S. authorities, for instance, Hamas developed software that creates a new digital-wallet address each time a donor scans the QR code.
“Now, instead of one Hamas wallet, you have many wallets and many donors. That makes it hard to follow the money,” explains Hans-Jakob Schindler, senior director at the Counter Extremism Project, a New York-based nonprofit that builds programs to sever the financial, recruitment and material support networks of extremist groups and their leaders.
Compared to drug dealers and ransomware extortionists – hackers who take over a victim’s computer and/or data, and demand a fee to release it – international terror groups have been relatively slow to adopt cryptocurrencies. How slow is anyone’s guess; by its very nature, the use of cryptocurrency is relatively hard but by no means impossible to detect.
However, the consensus among experts is that its use is growing, spurring a kind of technological arms race, with terrorist organizations employing new technology and Bitcoin alternatives on one side, and the global enforcement authorities bent on cracking them on the other.
Major terrorist groups such as Hamas, Hezbollah, Boko Haram and Syria’s Hay’at Tahrir al-Sham still get most of their funding in dollars and other fiat currencies. But the money that Hezbollah and Hamas get from Iran is believed to have shrunk considerably in recent years, as Tehran struggles with its own economic woes.
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Meanwhile, the United States’ crackdown on terror finance, which began after 9/11, gained a lot of momentum during the Trump years. Over those four years, Washington imposed increasingly draconian sanctions on Syria and Lebanon. Israel began its drive to do the same in 2012, when Meir Dagan was head of the Mossad.
Without easy access to the banking system to move dollars, and with their assets being confiscated, terrorist groups have had to devise more complex methods of raising fiat money. For instance, Hamas operates straw companies in Turkey (with the aid of the Turkish government) that buy goods, such as toys and medicines, to ship to Gaza, says national security researcher Eyal Pinko, CEO of Terra Strategic Solutions.
“All the income goes to Hamas and Iz al-Din al-Qassam [its military wing]. But you’re limited by the amount of money you can launder that way,” he says. “Taking all this into account, terrorists have had a problem moving money.”
Although no one knows how much money terrorist groups are now raising through cryptocurrencies, there are telltale signs of crypto-activity, such as appeals on social media and signs posted in mosques soliciting donations.
It’s not just Islamist terror groups that are getting deeper into the cryptocurrency game. Until relatively recently, far-right groups in the United States and Europe operated openly, selling branded T-shirts and copies of “Mein Kampf” online that followers could purchase with credit cards or PayPal. But as concerns about them have grown, even if the extremist organizations have not been designated as terror groups, these payment service providers have canceled contracts.
“Immediately, these websites said to their customers, ‘Pay us in Bitcoin, Monero or Zcash – and that’s still going on,” says Schindler, referring to two cryptocurrencies that offer users greater anonymity than Bitcoin.
Chainanalysis is a New York company whose tools are used to solve cybercrime by analyzing the blockchain, the publicly available ledger that documents the path each Bitcoin takes as it goes from one user to another. It said in a report that governments around the world uncovered and prosecuted a record 15 terror-financing schemes involving cryptocurrencies last year. The haul included funds seized by the U.S. Justice Department from Al-Qaida and Hamas’ Iz al-Din al-Qassam, or intermediaries helping them.
Although the U.S. action was the largest-ever seizure of cryptocurrency from terrorist groups, the amount was just a little over $1 million, so either the authorities have barely penetrated terrorists’ crypto-networks or the amounts moving through them remain modest.
However, if terrorists remain hesitant to adopt cryptocurrency, the reason is that Bitcoin is not nearly as secure and anonymous as is popularly believed. Last month, the Colonial Pipeline Company, which supplies about half of the U.S. East Coast’s gasoline, was targeted by a massive ransomware attack, costing some $4.4 million. The U.S. government’s successful retrieval of 85 percent of that money was just one high profile example of how the authorities can trace Bitcoin and seize it.
“The Colonial seizure was incredibly high profile and occurred just a few weeks after the ransomware attack. That sent a message that the U.S. government is prioritizing fighting this kind of activity and has the tools to do so,” Tal Croitoru, Chainanalysis’ strategic account executive for Israel, tells Haaretz.
Experts say the Colonial Pipeline case wasn’t a milestone – law enforcement authorities have retrieved illicit Bitcoin before – but it does signal a tougher stance by the United States, the country with the most resources to fight it. Law enforcement officials have been investing in cryptocurrency crackdowns amid growing awareness of the threat, especially in the realm of ransomware.
Still, there are ways for sophisticated Bitcoin users to hide their transactions. One is the multiple-wallet technology that’s used by Hamas, which turns each QR code into a virtual straw company. Another is the use of so-called mixers and tumblers, a service that slices and dices illicit cryptocurrency funds with others to obscure the trail back to their original source. A third way is to hold your virtual wallet in places where there is little or no regulation of crypto-activity, which includes Africa, much of Asia and parts of South America.
Then there’s the option of using so-called privacy coins such as Monero and Zcash, which offer more anonymity. But they have disadvantages, says Croitoru.
“Bitcoin is still the preferred cryptocurrency of choice for illicit activity because of its liquidity,” he explains. “While some illicit actors use privacy coins in an attempt to obfuscate their transactions, they haven’t been adopted to the extent that one may expect. Many exchanges have delisted privacy coins due to regulatory guidance, which makes them increasingly impractical.”
As a whole, cryptocurrency has its drawbacks for these groups. “It’s not the ideal form of value transfer for illicit activity. Cash is still preferred for illicit use,” Croitoru says.
Looking for the off-ramp
Even if a terror group does manage to raise cryptofunds successfully and keep its ownership concealed, it still faces the problem of how to spend that money on arms or to pay militants without being exposed.
“You still need to cash out, and we are not yet in a world where people are transacting in cryptocurrency in a meaningful way. You need an off-ramp to fiat, so you need some kind of exchange,” says Ari Redbord of TRM Labs. TRM is one of a growing number of companies to have created tools for monitoring Bitcoin transactions over the blockchain.
“Compared to fiat, cryptocurrency transactions generally are a very small share of the total. The real concern is what’s coming next – that’s what law enforcement officials and regulators are thinking about,” says Redbord, referring to the new technologies that will enable groups to conceal their cryptocurrency transactions. “Terror financiers will attempt to use this new technology, but it will come with challenges for them.”
The question is how quickly terror financiers and the technology available to them are moving. Schindler, for one, is worried.
“We are losing the visibility in the financing in the international terror space,” he says. “If they’re not using Bitcoin, we don’t have a technical solution for even monitoring movement. There may be much more going on that we don’t see. I assume it isn’t as big as fiat currency at this point, but it’s a wonderful currency with great potential for terror finance. All the big terrorist organizations have shown they have an interest in its use.”