On December 7, U.S. Senators Mitt Romney and co. announced the introduction of the Terrorism Financing Prevention Act, which would impose U.S. sanctions on institutions funding terrorist organizations with cryptocurrency or cash. The move is the latest in a long line of government attempts worldwide to regulate crypto for consumer safety‚ except this time, it isn't just funds and savings at stake, but actual lives.

Over the years, crypto's anonymous nature has made it a perfect haven for criminals on the run. From websites being held ransom in exchange for Bitcoin to millions of dollars lost to crypto investment scams, the use of crypto-based money laundering to finance illegal activities has forced governments worldwide to enforce tighter digital asset regulations.

Even top centralized exchange Binance wasn't spared. Its CEO, Changpeng Zhao, recently pled guilty to federal criminal charges and stepped down from his post as part of a $4.3 billion settlement with American courts. 

What ultimately caused Binance to exit the U.S. and pay the largest penalty in the history of the U.S. Treasury?

Violating the Bank Secrecy Act, failing to prevent money laundering, failing to implement legal controls, failing to prevent users from evading national sanctions, and failing to prevent transactions with known terrorist groups. Allegedly, over a hundred thousand transactions on the exchange had been used to finance drugs and global terrorist groups.

This, of course, isn't an isolated case. Reports in the past years have pinpointed crypto as a medium favored by terrorist organizations to purchase weapons from the black market, finance the training of new soldiers, and raise funds for imprisoned members. But just how big is the role crypto plays in terrorism and war?

According to blockchain analysis firm Elliptic, over 30 cryptocurrencies have been actively used to finance terrorist activities. In 2020, the US Justice Department announced it seized over 300 cryptocurrency accounts allegedly used to fund Hamas, Al-Qaeda, and the Islamic State of Iraq and Syria (ISIS).  Blockchain researcher firm TRM Labs shared that accounts linked to Hamas received upwards of $400,000 worth of crypto in 2021, and a single Hamas-related account received a total of $800,000+ before announcing in October this 2023 that they would be suspending crypto fundraising.

A report back in 2019 by RAND analyzed the feasibility of cryptocurrency for terrorist purposes as follows:

This shows that cryptocurrency's anonymity, security, and reliability are what make it very useful for terrorist groups. To explore this further, let's examine two major ongoing conflicts that have the world on the edge of their seats: the Russian invasion of Ukraine and the Israeli-Palestinian conflict.

Ukraine vs. Russia: Crypto sends funds to the frontlines

When Russia invaded Ukraine right after the 2022 Winter Olympics, crypto became a significant tool for sending much-needed funds. NFT sales and crypto donation drives raised millions of dollars to purchase military equipment, medical supplies, food, and other support to help Ukrainians survive. When local banking infrastructure collapsed, crypto was used to ensure everyone had a source of funds. The Russian invasion of Ukraine has been called a turning point in crypto adoption because the effectiveness of crypto as a peer-to-peer banking alternative was finally tested in a national emergency.

On the other side of the warzone, Russia turned to crypto to bypass sanctions. With accounts everywhere, from banking to job sites, frozen in protest of the invasion, many innocent civilians had no choice but to rely on funds channeled via Bitcoin and other cryptocurrencies. However, for all the good it did, Russian sympathizers also used crypto to finance the Russian war effort. Ukrainian officials then called upon major crypto exchanges to freeze Russian accounts, not just those directly linked to the war but also accounts held by every Russian civilian. Several exchanges heeded the request yet insisted that they had no legal or moral grounds to enforce a blanket ban.

It wasn't just centralized exchanges involved; soon after the war started, the U.S. Treasury sanctioned crypto mixers Blender and Tornado Cash for money laundering activities linked to North Korea and Russia. Authorities suspect the funds were used for bypassing sanctions and purchasing illegal arms.

Crypto has also figured in reconstruction efforts. As part of the criteria for Ukraine to gain membership in the European Union and continue receiving military aid from the West, the Ukrainian government has stepped up efforts to weed out graft and corruption. It now has lawmakers receiving advanced training on identifying and investigating crypto fraud.

So far, their heightened efforts are bearing fruit. The National Anti-Corruption Bureau seized 1.2 million USDT and $275,000 worth of Bitcoin from the former head of the State Special Communications Service, who embezzled public funds from 2020 to 2022. Another lawmaker was caught attempting to bribe officials with $50,000 worth of Bitcoin in the country's first documented Bitcoin bribe.

However, before the war between Russia and Ukraine could even show signs of slowing down, another conflict‚ this time in the Middle East‚ brought crypto to the limelight once more.

Israel vs. Hamas: Israeli tightens crackdown on terrorist funding

On October 7, Palestinian militant group Harakat al-Muqawama al-Islamiya, better known as HAMAS, launched a surprise attack on Southern Israel, killing 1,200 Israeli and foreign nationals. Weeks after the attack, Israel froze hundreds of accounts connected to Gaza-based exchange Dubai Co. suspected of having ties to Hamas. Israeli authorities also immediately called for a freeze on Hamas-linked crypto accounts and cooperated with Binance and Tether to seize the accounts.

Even in 2019, Hamas was already using crypto to finance its operations while evading international scrutiny. In response, Israel strengthened its crypto surveillance over the years, freezing social media fundraising campaigns and seizing millions of dollars worth of crypto from Hamas-related accounts. Perhaps because of the effectiveness of Israeli surveillance, Hamas announced last April that it would stop encouraging supporters to donate crypto to the movement.

Fewer Bitcoin wallets have been intercepted ever since. But then, authorities began to notice another problem: stablecoins.

Tether (USDT) sent through the Tron network is becoming the newest favorite cryptocurrency of terrorist groups, from Hamas to Hezbollah and Islamic Jihad, due to its lower fees and faster transaction speeds. Its rival, USDC stablecoin issuer Circle, has also been accused by a Washington-based non-profit watchdog of playing a role in funding Hamas and Hezbollah. Tether cooperated with law enforcement to freeze accounts. Although Circle vehemently denied the allegations, it wasn't long before another big name in the crypto world would get involved in the issue.

The Case Against Binance

On October 10, the Wall Street Journal published an article claiming that $130 million worth of crypto had been funneled to Palestinian groups to finance the attacks against Israel. The newspaper cited data from blockchain analysis firm Elliptic.

In response, around 100 members of US Congress addressed a letter to US President Biden, urging the government to take measures against crypto's role in financing terrorism. Although Elliptic clarified that the data was misinterpreted and blockchain analytics group Chainalysis stated that only a small portion of illegal crypto transactions is being used to fund terrorist activities, in many lawmakers' eyes, crypto had turned into a national security threat.

U.S. lawmakers urged a deeper probe on Binance, which had already been in hot water with authorities since March. In its defense, Binance did help freeze accounts with ties to Hamas as per Israel's request after the October 7 attacks. However, in a classic case of too little, too late, Binance pleaded guilty to multiple infractions. 

According to the U.S. Department of the Treasury, Binance had failed to enforce effective anti-money laundering measures, allowing cybercriminals, child abusers, and terrorists to receive funding through its platform. Binance failed to comply with legal regulations and allegedly failed to report 100,000+ suspicious transactions linked to militant groups such as Hamas, Al Qaeda, ISIS, and criminals and hackers from North Korea and Iran. 

Stirrings in the Philippines

Unfortunately, even our lovely archipelago surrounded by miles and miles of blue ocean is not unaffected by these events. Reports back in 2020 described how crypto was used to fund Jamaah Ansharut Daulah and Mujahideen Eastern Timor, Mindanao, left-wing groups linked to ISIS. Experts say funds were sent to the country through obscure crypto exchanges and converted back to fiat. Even the perpetrators of the Marawi Siege in 2017 are suspected of receiving funding via crypto.

With news of terrorist activity in Mindanao making headlines once more. also with connections to ISIS‚ one can't help but wonder just how big of a role crypto might be playing behind the scenes.

This leads to the next question: How can crypto exchanges and service providers implement effective counterterrorism measures in a way that's fair and user-friendly? And how much regulation would even be healthy for a system originally designed to bypass the need for governments, financial institutions, and centralized third parties? Systems that, you could argue, spurred crypto to existence because they failed us in the first place?

In light of all this, it would be wise to revisit an age-old saying: personal freedom ends when another's rights to life and liberty begin. For all the freedom and features it offers, let's not forget that crypto is an amoral tool that can be wielded as a lifesaver or a weapon‚ as helpful or as deadly as we ever allow it to be.

We can only hope that one day, user benefits and user protection will finally find common ground for the common good in the world of crypto and Web3.