Policymakers are searching for effective ways to combat terrorist organizations such as Hamas after its brutal surprise attack and massacre of Israeli civilians. However, Hamas’ recent attempt to use Bitcoin to fund its operations serves as an important lesson for those who mistakenly believe that cryptocurrency provides a safe-haven for criminals and money launderers.
Last week, Israeli law enforcement located and froze multiple cryptocurrency accounts that Hamas had used to solicit donations. The terrorist network’s crypto scheme backfired and it had to suspend bitcoin donations in April, citing the intensification of prosecution and the redoubling of hostile efforts against anyone who tried to support it via this currency.
Contrary to popular belief, Bitcoin is not ideal for money laundering. It is the open, transparent nature of the blockchain that makes it difficult for criminals to use it for illicit activity, since every transaction is recorded on it. This means that intelligence agencies can track and trace transactions with speed and precision. In fact, illicit activity makes up only a tiny fraction of cryptocurrency transactions, which is much smaller than the amount of fiat currency transactions attributed to money laundering and the like, according to United Nations data.
Unfortunately, certain lawmakers in Washington remain oblivious to the facts. Senator Elizabeth Warren has raised an “anti-crypto army”, talking about cryptocurrency as if it were a source of terrorist funding. Her proposed bill would classify nearly all crypto industry participants as financial institutions, subjecting them to the onerous compliance regime of the Bank Secrecy Act. This would be impossible for the industry to comply with.
Rather than participating in Warren’s farce, Congress should be exploring ways to help federal law enforcement identify and choke off illicit financing. The Financial Technology Protection Act, introduced by Senators Ted Budd and Kirsten Gillibrand, is a critical first step in this direction. It creates a working group to study and report on how terrorists use new financial technologies and how Congress and regulatory agencies can combat them.
In conclusion, terrorists and criminals have learned the hard way that Bitcoin is not ideal for illicit finance. Policymakers should take note and adjust their policymaking accordingly in order to deter criminal activity while still preserving the ethos of personal freedom that has long defined the digital asset industry.
Jason Les is the CEO of Riot Platforms, Inc., the largest publicly traded bitcoin mining enterprise in North America by market cap. Brian Morgenstern is Riot’s head of public policy and was a senior adviser and deputy assistant secretary of the Treasury from 2017 to 2020.
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