Three years ago, the digital wallet of a west Delhi, India, cryptocurrency investor was hacked, and more than a half million dollars in bitcoin, ether and Bitcoin Cash was taken. Delhi police revealed Monday (Jan. 24) that the stolen funds made their way to Hamas.
See also: $196M BitMart Hack Puts Crypto’s Weakness on Display
An investigation by a special unit of Delhi’s police found that the stolen cryptocurrencies “were routed through various private wallets before finally landing up with those being used and operated in Gaza by al-Qassam Brigades, the military wing of Hamas that is globally known for using stolen and donated cryptocurrency for terror financing,” The Times of India reported Monday.
The funds were part of a larger cache of crypto seized by Israeli intelligence last year from the al-Qassam Brigades, which the U.S. has sanctioned as a terrorist organization, it added.
“The revelations left Indian security agencies alarmed as it meant that siphoned off money was being used in global terror financing,” the publication said in a separate report.
Terrorists Jump In
In August 2020, the U.S. Department of Justice (DOJ) was able to track down and seize more than $1 million in crypto from a website collecting funds for Hamas’ al-Qassam Brigades.
That investigation was led by the IRS’s criminal investigations, along with the FBI and Department of Homeland Security, then-Treasury Secretary Steven Mnuchin revealed in a press release.
“Terrorist networks have adapted to technology, conducting complex financial transactions in the digital world, including through cryptocurrencies,” Mnuchin said in the release. “IRS-CI special agents in the DC cybercrimes unit work diligently to unravel these financial networks.”
Read also: IRS Seeks Ways to Access Digital Currency Wallets Under Criminal Investigation
That was one of several cases in which the IRS-CI had been involved with FBI, Drug Enforcement Administration (DEA), and Homeland Security investigations. The tax agency’s involvement in these cases revealed that it is becoming increasingly sophisticated in its use of bitcoin blockchain tracking tools.
Several federal law enforcement and intelligence agencies have been working with blockchain intelligence firms like Chainalysis to train agents in the techniques used to track transactions along blockchains and reveal owners’ identities.
That’s behind the growing push to enforce know your customer (KYC) regulations on crypto exchanges.
“The al-Qassam Brigades boasted that bitcoin donations were untraceable and would be used for violent causes,” the DOJ said in the release. “Their websites offered video instruction on how to anonymously make donations, in part by using unique bitcoin addresses generated for each individual donor. However, such donations were not anonymous.”
Not Anonymous
This is noteworthy as it highlights something that many blockchain developers and industry insiders have been saying for years: The widely held belief that blockchain and other cryptocurrency transactions are anonymous is wrong.
See also: With Proper Regs, Crypto Could Be Crime-Fighter Rather Than Criminal Favorite
They are pseudonymous, meaning that while the identity of the sender and receiver of these payments are hidden behind the private key codes used in transferring cryptocurrencies, the actual transaction chain is easy to track. With most major blockchains, including bitcoin and Ethereum, the history of all transactions of every BTC or ETH coin can be viewed by anyone. That’s why blockchain is useful for supply chain management; tracking it is very simple.
Breaking through the encryption wall connecting those digital assets to their owners is far more difficult, but doable.
“Blockchain analysis enables further investigation into the donation campaigns that terrorist groups conduct on social media, as well as the larger underlying financial networks that facilitate their operations,” Chainalysis stated in an in-depth blog post about its involvement in the Hamas case.
This is largely because the use of bitcoin as a real currency is still an idea rather than a reality — the transfer of value from bitcoin to cash is a hole that investigators can use.
That’s what’s behind a shift in the terminology used in calls for cryptocurrency exchanges to be able to identify customers to law enforcement that happened in the past couple of years.
Read also: FinCEN Releases Advisory on FATF’s List of AML/CFT Deficiencies
Anti-money laundering (AML) remained unchanged, but at least in the public debate, KYC seemed to gently fade from use, replaced by a new, more strident initialism: CFT, or countering the financing of terrorism.
Mind you, terrorism isn’t actually the biggest fear of the dangers posed by crypto. The crown belongs to North Korea’s extensive and long-standing use of hacking to fund its nuclear weapons program.
See more: North Korean Hackers Swiped $400M in Crypto Last Year
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