LONDON/JERUSALEM (reuters) – The armed wing of Hamas, the use of increasingly complex methods to raise money via bitcoin, researchers say, highlighting the difficulties regulators face in keeping track of cryptocurrency financing of outfits designated by some as terrorist groups.
FILE PHOTO: A collection of Bitcoin (virtual currency) tokens appear in this image figure 8 December 2017. REUTERS/Benoit Tessier/Image/File Photo
The Gaza-based Izz) el-Deen al-Forces Brigades, which is prohibited by the United States and the European Union, has called on its supporters to donate using digital currency in a fund-raising campaign announced online in late January.
It was originally asked donors to send bitcoin, a digital internal address, or wallet.
However, according to research shared with Reuters by leading blockchain analysis firm Elliptical, in the past few weeks has the mechanism, with the website, generating a new digital wallet for each transaction.
This makes it more difficult for companies around the world to keep an eye on the group of cryptocurrency the funding of the researchers said. A single digital wallet can be a red flag to cryptocurrency exchanges, in theory, allowing them to prevent funds moving through their systems to that destination.
But a different wallet for each and every donation makes these so-called tagging much more complicated, Elliptical said.
Between 26 March and 16 April, with 0.6 bitcoin – worth around $3,300 – was sent to the web wallet, Elliptical research found. All in all, the four months of the fundraising campaign has raised around $7,400, the company said.
A spokesman for Hamas, which has ruled the Palestinian territory of Gaza since 2007, declined to comment on Elliptical research.
Such funds are a fraction of the tens of millions of dollars in annual funding that Israel and the United States says Hamas gets from Iran. Nonetheless, the campaign provides insight into how a banned group, has gone about bitcoin fundraising.
“They are still in experimentation phase to try it out, to see how much they can raise, and if it works,” said Elliptic co-founder Tom Robinson.
Iran is not in the public funding of Hamas, but it has not denied its support for the group. Hamas has said Tehran is the largest financier of the al-Forces Brigades.
London-based Elliptic, and the AMERICAN rival Chainalysis are the most prominent blockchain-analysis companies, and have gained traction as a watchdog, cryptocurrency and companies such as hedge funds search tools to track digital coins.
Backed by investors, including Banco Santander and the provision of venture capital, Elliptic’s clients include financial institutions, regulators and law enforcement agencies in Europe and the United States.
Since 2016 it has won contracts with the Federal Bureau of Investigation, the Internal Revenue Service and Drug Enforcement Administration, according to USAspending.gov here, a database of U.S. government contracts.
Examples of cryptocurrency, the financing of campaigns of prohibited groups are rare. But the research underscores headache for companies in the emerging sector in identifying and stamping out exposure to potentially infected digital coins, even as a tool for tracking and tracing of cryptocurrencies grow more sophisticated.
Dealing with illegal use is seen as essential if cryptocurrencies are to grow out of niche, speculative tokens to assets embraced by the mainstream. Most large financial companies have steered clear of bitcoin and the chin, with the purpose of money laundering chief among concerns.
Hamas is designated a terrorist organization by the United States and the European Union. Others, including Britain, have banned only the Forces Brigades.
Such a designation means that, in the United States, for example, it is unlawful to get money or training, with financial companies in checking-related funds are required to report to the authorities.
A two-minute video on the all-Forces Brigades website explains step-by-step instructions in Arabic on how supporters can avoid the traditional financial system and donate cryptocurrency.
“How to support the Palestinian resistance through Bitcoin?”, ask.
With polished graphics and English subtitles, explains how to use bitcoin directly, through a money-exchange office, or through a cryptocurrency exchange. “Use of a public device so that the wallet is not linked to your IP address,” it says.
Elliptic uses a database of information linking digital currency addresses exchange, darkweb marketplaces, and prohibited groups to follow cryptocurrencies.
It has purses made by the website by tracking patterns in their unique addresses. The company monitors these addresses, the identification of multiple transactions that sent funds of the addresses in a large Asia-based cryptocurrency exchange.
Thirteen of the donations were made from a separate exchange, also from Asia, said Elliptical, who declined to give more details about the scholarships. It was not clear whether the bitcoin had since been converted to traditional currencies, the company said.
Hamas’s finances are suffering. Egyptian President Abdel-Fattah Al-Sisi in 2013, closed hundreds of tunnels under the Gaza-Egypt border, prevent the smuggling of weapons and goods of cows and cars, depriving Hamas of the taxable profit.
The funding from Iran decreased following the Hamas condemnation of the killing of Sunni Muslims in Syria’s civil war, analysts say.
Bitcoin could provide relief in that short of money.
“It makes it difficult for such funds to be followed by the financial authorities,” said Lotem Finkelshtein, head of threat intelligence at Check Point Technologies, a cybersecurity company in Tel Aviv.
“It is not so easy to link your wallet for organisations.”
Israel’s Shin Bet intelligence agency, department of defense and the military declined to comment.
Finance Minister Moshe Kahlon, who is also a member of the national security, the cabinet, told the website Ynet TV this month, he was not aware of the fundraising.
Regulators and law enforcement agencies have long worried about the potential of digital money – relatively anonymous and easily available online – for the financing of terrorism.
Cryptocurrency rules vary from country to country. The global watchdog for money-laundering, aware of the gaps in the rules, is due to bring in the first international standards on cryptocurrency supervision by June.
FILE PHOTO: A sign of the virtual currency Bitcoin is seen placed on a monitor to display binary numbers in this illustration picture, December 8, 2017. Photo 8 December. REUTERS/dado Ruvic/Image/File Photo
But with regulation still patchy, the risk of exposure to infected coins has held onto most of the big investors away.
Even indirect exposure to infected cryptocurrencies could pose a problem for financial companies, said Kyle Phillips, a lawyer at Fieldfisher law firm.
“There are real problems with the establishment of the beneficial owner is,” he said.
Reporting by Tom Wilson in London and Dan Williams in Jerusalem; Additional reporting by Nidal al-Mughrabi in Gaza; Editing by Pravin Char