US Treasury reports minimal crypto use in financing Hamas activities

A United States Treasury official has clarified that cryptocurrencies play a minimal role in financing the operations of militant groups such as Hamas and Palestinian Islamic Jihad, counteracting earlier reports of tens of millions of dollars in terrorism funding.

Brian Nelson, the Treasury’s Undersecretary for Terrorism and Financial Intelligence, addressed misconceptions during a testimony before the House Financial Services Committee on Feb. 14. His comments were a response to an October report by The Wall Street Journal, which initially suggested that Palestinian Islamic Jihad and Hamas had received substantial sums in cryptocurrency between August 2021 and June 2023.

The report claimed figures of $93 million and $41 million, respectively, sparking widespread concern and discussions on the need for stricter crypto regulations to prevent illicit use.

However, Nelson highlighted inaccuracies in these claims, noting that the reported amounts were misinterpreted and did not accurately represent funds directed specifically to the groups mentioned. The confusion arose from a misinterpretation of wallet amounts as direct funding to the organizations rather than the actual distribution among numerous wallet holders.

The clarification came after blockchain analytics firm Elliptic, whose data was cited in the original report, contested the figures. Elliptic corrected the figure for Palestinian Islamic Jihad to $12 million, stressing the absence of evidence to support the initially claimed levels of crypto fundraising.

This correction is significant amid ongoing legislative debates. Over 100 U.S. lawmakers, led by Senator Elizabeth Warren, have cited concerns over crypto’s role in national security to advocate for new regulations. The crypto industry has countered, arguing that such measures would ineffectively address the perceived threat and could potentially harm the industry by pushing it offshore.

During the committee hearing, Representative Tom Emmer sought clarification on the actual amount of crypto retrieved by these groups, to which Nelson indicated that the figure was likely not substantial. He further emphasized that terrorist organizations predominantly prefer traditional financial services over cryptocurrencies for their operations.

Furthermore, Nelson advocated for Congress to equip the Treasury with additional tools to combat the misuse of digital assets by terrorists, reaffirming the department’s dedication to disrupting financial networks that support terrorism. Despite acknowledging the minimal use of digital currencies by these groups, he highlighted the continuous efforts to prevent their exploitation for illicit purposes.

“While we continue to assess that terrorists’ use of digital assets remains a small fraction of more established mechanisms to move money, we recognize that terrorist groups have and may continue to turn to digital assets to raise, transfer, and store their illicit proceeds.”

Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence of the US

This clarification from the Treasury offers a more nuanced perspective on the role of cryptocurrencies in terrorism financing. It calls for a balanced approach to regulation, one that recognizes the complexities of digital assets without overstating their impact on national security.