Washington is ramping up its scrutiny of the crypto world after reports that Hamas received funding from digital currencies.
Senators Elizabeth Warren (D-Mass.), Roger Marshall (R-Kan.) and Representative Sean Casten (D-Ill.) applied some new pressure Tuesday with a letter to the White House and Treasury asking for a “plan” to “prevent the use of crypto for the financing of terrorism.”
The letter was a response to reports, including in The Wall Street Journal, that militants behind the attack on Israel received large amounts of crypto as financing.
“We urge you to swiftly and categorically act to meaningfully curtail illicit crypto activity and protect our national security and that of our allies,” the lawmakers wrote in their letter, which included the names of 86 other bipartisan signers.
The fear that crypto could be used to fund terrorist operations was already on the radar of many officials in Washington. The Treasury Department, Department of Justice, the Federal Bureau of Investigation and other national security and law enforcement experts have warned that digital assets are increasingly being used for money laundering, ransomware attacks, trafficking and terrorist financing.
The Treasury Department on Wednesday said it had imposed sanctions on the operator of a Gaza Strip-based crypto exchange along with other senior Hamas individuals who help manage the group’s investment portfolio.
“We’re committed to imposing more sanctions alone and in coordination with our partners against Hamas financial network,” Deputy Treasury Secretary Wally Adeyemo said on a call with reporters.
The reports that crypto had been used to help finance Hamas are focusing new attention on a bill introduced by Warren and Marshall last year that would impose new anti-money laundering rules on the crypto world.
Their Digital Asset Anti-Money Laundering Act would apply know-your-customer requirements that are common in the banking world to crypto, close gaps that allow individuals to bypass anti-money laundering and sanctions checks, and would require banks to verify customer and counterparty identities, keep records, and file reports on certain transactions involving unhosted wallets.
They are not the only lawmakers vowing to take a closer look at the industry in the wake of the strike on Israel. Senate Banking Committee Chair Sherrod Brown (D-Ohio) says his committee will examine the financing behind Hamas’s attacks, including whether cryptocurrency was involved.
Crypto lobbyists are pushing back against this new scrutiny in Washington, saying new anti-money laundering rules aren’t needed and will drive crypto businesses in the US overseas.
The industry is currently fighting several other battles in Washington, sparring with regulators over how digital assets will be regulated and pushing for legislation that will create clarity around the gaps between the rules of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission.
Crypto advocates say the bill from Warren and Marshall is fundamentally incompatible with how blockchain technology works and the requirements would end up being broader than requirements imposed on banks, resulting in a functional ban of crypto in the US.
One big cryptocurrency exchange, Coinbase (COIN), said it already does some work to help Treasury track Hamas-related activity.
Late last Friday, it said the FBI reached out to Coinbase for assistance with a list of US victims in Israel that were thought to be in captivity there. The FBI asked Coinbase to look for accounts tied to those individuals to see if there was any activity to narrow down their locations.
While Coinbase did have accounts of some victims on the list, none had been active in their accounts and locations couldn’t be traced, the company said.
Coinbase also has ongoing engagement with key law enforcement and government agencies to help identify crypto addresses related to sanctioned parties and prevented users from transacting with them.
What’s happened in and to Israel is evil. No funds should EVER be used to support Hamas or any other organization responsible– whether those funds are in the form of fiat currency, gold, crypto or whatever. 1/3
— paulgrewal.eth (@iampaulgrewal) October 11, 2023
The crypto exchange has amassed a list that now covers over 8 million related crypto addresses, including those tied to terrorism financing and other forms of illicit finance.
Coinbase “has been laser-focused on rooting out bad actors seeking to use crypto for illicit purposes,” its chief legal officer Paul Grewal said on X, former known as Twitter, last week.
That’s why @coinbase has been laser-focused on rooting out bad actors seeking to use crypto for illicit purposes. We do all we can- KYC checks, sanctions screening, SAR reporting, strong law enforcement partnerships, you name it- so this doesn’t happen on our platform. 2/3
— paulgrewal.eth (@iampaulgrewal) October 11, 2023
He added: “That’s also why we need to sensible crypto legislation passed here in the United States without further delay. We need this industry flourishing in nations committed to the rule of law, not driven to places where human rights and public safety mean much less.”
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