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The role of virtual currencies in supporting terrorist groups

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    Shortly after the Oct. 7 terrorist attack on Israel, the U.S. Treasury Department sanctioned a virtual currency exchange in Gaza that it said had facilitated transactions for Hamas using decentralized digital currencies. Former federal prosecutor Ari Redbord joins Ali Rogin to discuss how terrorist groups are using cryptocurrency to fund their operations and how law enforcement is responding.

    Notice: Transcripts are machine and human generated and lightly edited for accuracy. They may contain errors.

    • John Yang:

      Shortly after the October 7 terrorist attack on Israel, the U.S. Treasury Department sanctioned a small Gaza based virtual currency exchange called Buy Cash, Treasury said it had facilitated transactions for terrorist groups like the military wing of Hamas, using decentralized digital currencies like the cryptocurrency Bitcoin. Ali Rogin tells us how terrorist groups try to use cryptocurrency to avoid banks and launder money and how law enforcement is responding.

    • Ali Rogin:

      Experts in terrorist financing say the military wing of Hamas was an early adopter of cryptocurrency soliciting Bitcoin donation starting in 2019. Hamas told supporters that the transactions were anonymous, but all cryptocurrency exchanges are recorded on a public ledger called a blockchain, that allowed the Department of Justice to confiscate 150 crypto accounts associated with Hamas al-Qassam brigades in 2020.

      In April 2023, Hamas announced it would stop Bitcoin fundraising efforts, but as the Treasury Department's new sanctions show, terrorist groups, including Hamas, al Qaeda and ISIS are still finding ways to use cryptocurrency exchanges to raise and launder money and evade detection.

      I'm joined now by Ari Redbord. He's the Global Head of policy at TRM Labs, a blockchain analytics company that helps protect organizations against crypto related fraud and financial crime. He's also a former senior Treasury official, and a former federal prosecutor. Ari, thank you so much for joining us.

      Ari Redbord, Global Head of Policy, TRM Labs: Hey, thank you so much for having me.

    • Ali Rogin:

      What makes cryptocurrency so attractive to terrorist organizations?

    • Ari Redbord:

      You know, it's an important question, because no amount of funding should ever go to a terrorist organization when we're talking about terrorist financing and cryptocurrency it's always important to sort of start with crypto is a very small piece of a much larger terror financing puzzle that includes potentially hundreds of millions in nation state support, donations from a diaspora of individual donors, taxes that Hamas and other terrorist organizations levy on their populations.

      And investment portfolios right in traditional currency. Real Estate aren't even. Terrorists financiers, like any other illicit actors are opportunists. And they're using absolutely anything they can to raise funds, including crypto. So Hamas has been added for a while, but it still represents a very, very small part of a larger effort from them to raise funds.

    • Ali Rogin:

      What do we know about Hamas is use of cryptocurrency now as versus back in 2019, when they started raising these funds that?

    • Ari Redbord:

      Yeah, no, absolutely. And what we've seen over the last few years, is U.S. and Israeli authorities really target the financing of terrorism through crypto by Hamas. And you can do that because as you said, crypto lives and moves on an open ledger, where every transaction is traceable, and immutable.

      Today, what we're really seeing is since the start of the war. We've seen mostly supporters of Hamas raising funds. And when I say supporters, you know, those celebrating, you know, death to Israeli civilians or promoting different acts of terror or supporting different acts of terror.

    • Ali Rogin:

      What are the tools available to both U.S. bodies, but also internationally in rooting out bad actors from using cryptocurrency?

    • Ari Redbord:

      Every law enforcement agency in the US and more and more globally, are using Blockchain intelligence tools like TRM, to track and trace the flow of funds. So I was a prosecutor at DOJ for many years. And I used to investigate cases involving networks of shell companies and (inaudible) and high value art and real estate. There's no TRM to trace and track those things on an open ledger.

      And what we've seen now is authorities globally, trace and track the flow of funds from hacks by nation state actors like North Korea, by sanction Russian oligarchs. And now in this terrorist financing context, we've seen some really good outcomes even since the start of the war, where Israel has been able to seize back some of the fundraising done by Hamas and other terror organizations.

    • Ali Rogin:

      Now, certainly Hamas, other organizations are always trying to adapt around the regulations that exist. So what if any vulnerabilities exist that Hamas might exploit in the future?

    • Ari Redbord:

      Yeah, no, look, I think that what it's so important is just cut out any avenue of possible terror financing or ways in which Hamas can move funds. You know, the reality is today, you cannot use crypto very easily in the real world to buy things.

      So what a terrorist organization or any other illicit actor needs to do is convert cryptocurrency to traditional currency in order to use it. We need to cut off their ability to do that. And that means having really robust compliance controls on the on and off ramps, essentially the cryptocurrency exchanges. And that's really where regulation comes in.

      If you're a cryptocurrency business, if you're a large exchange that is in the United States or touches U.S. persons, you are required to have compliance controls for anti-money laundering, and most of them do today sort of the large compliant exchanges that we think of.

    • Ali Rogin:

      But then the ones that don't, what do they look like?

    • Ari Redbord:

      That's the really important piece, right? You're only as strong as your weakest link. And you have these sort of robust compliance controls at the large exchanges. But there is an illicit underbelly of non-compliant exchanges out there in the world. Many are Russia based, Chatex and SUEX, Chatex and Garantex all designated sanctioned by the U.S. Treasury Department, all Russia based that we're allowing ransomware payments, sanctioned activity to go through.

      So it's a combination of ensuring that those off ramps are strong that compliance controls are in place at the compliant exchanges, but also go after the bad actors in the space who are facilitating this type of money laundering.

    • Ali Rogin:

      Ari Redbord with TRM Labs. Thank you so much for your time.

    • Ari Redbord:

      Hey, thank you.


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