While a group of U.S. lawmakers have called for a crackdown on cryptocurrencies amid the ongoing conflict between Hamas and Israel, a new report cautions that some of the alleged links between cryptocurrencies and terror cells are misleading or overstated.
On Tuesday, a group of 105 bipartisan lawmakers, including crypto skeptic Sen. Elizabeth Warren (D-Mass.), sent a letter to officials at the White House and Treasury Department asking for estimates of the crypto assets held by Hamas, Palestinian Islamic Jihad, and Hezbollah, along with a plan to stop these U.S.-designated terrorist groups from using them.
“Congress and this administration must take strong action to thoroughly address crypto illicit finance risks before it can be used to finance another tragedy,” the letter read.
The letter comes after the Wall Street Journal reported, based on data from crypto researcher Elliptic, that digital wallets Israeli officials have linked to the PIJ received as much as $93 million in cryptocurrencies between August 2021 and June 2023. Another $41 million went to Hamas-linked crypto wallets over a similar period, the Journal reported, citing Tel Aviv–based crypto analytics and software firm BitOK.
Still, a report published Wednesday by the blockchain data platform Chainalysis said that some estimates of crypto-related terrorism financing were misleading. Mistakes can arise when analysts include all flows to certain service providers that received some funds associated with terrorism financing, the report said. While service providers, which provide money services and facilitate the flow of crypto to fiat, may have received some terrorism financing, that doesn’t mean all funds sent to a particular service provider have financed terrorist organizations.
“Of course, these service providers are supporting terrorism by acting as facilitators, and cutting off terrorist access to them through sanctions or other offensive operations is an important component to disrupting terrorist finance,” the report read. “But it would be incorrect to assume all of the transaction activity conducted by those service providers is related to terrorism.”
The report added that tracing funds through these service providers can be problematic because once funds are deposited, they’re often mixed with other customer funds and no longer controlled by the original depositor.
“Only the service provider knows which deposits and withdrawals are associated with specific customers, and that information is kept in their order books, which aren’t visible on blockchains or in investigative solutions like Reactor,” the report read.
Without calling out any one source, the report warned that estimating crypto terrorism financing is more complicated than it seems.
“Given terrorist organizations’ use of service providers across both traditional finance and the blockchain,” the report states, “it is very difficult to provide precise estimates for funds going directly to terrorist organizations, absent information validated by law enforcement through seizures or other enforcement actions.”