1 year ago
Washington’s cryptocurrency lobby is scrambling to contain a Hamas problem that’s about to become an Elizabeth Warren problem.
Last week’s massacre in Israel has painted a big target on crypto, thanks to reports that militant groups including Hamas recently received financing via digital currencies. It comes as the industry is already trying to bat down daily headlines from the fraud trial of former crypto magnate Sam Bankman-Fried.
Capitol Hill scrutiny is about to ramp up.
Senate Banking Chair Sherrod Brown (D-Ohio) — one of the industry’s fiercest critics — is vowing to use his committee to examine the role crypto played in the Israel attacks. The Hamas connection is also giving fresh momentum to a push by Warren to pass a bill that would impose new anti-money laundering rules on crypto — an increasingly bipartisan effort that digital asset firms have tried to quash.
“The danger of crypto-financed terrorism is real and should be an urgent priority for Congress,” Warren said in an interview. “There’s a growing bipartisan coalition of senators who are committed to passing this bill and fighting back against terrorism worldwide by choking off the financing.”
While crypto’s use by Israel’s attackers is still being understood, the linkage is shaping up to be the latest in a series of political liabilities incurred since last year’s market meltdown and arrest of Bankman-Fried. The crypto lobby has made some recent strides in its quest for legitimacy — the House is on the cusp of passing industry-blessed legislation — but is facing growing resistance from lawmakers energized by digital currency’s role in financial crimes.
“From a crypto skeptic’s perspective, right now, it’s the most potent argument that they have,” said Lee Reiners, a fellow at Duke University. “This is sort of another black eye for crypto.”
Hamas was an early adopter of using cryptocurrencies for financing, according to TRM Labs, a blockchain intelligence company. Though most of the group’s funding comes from other sources, groups linked to Hamas have continued to solicit donations through crypto since its weekend attacks, per TRM.
Crypto is seen as a potential tool in financial crimes because it allows individuals to move money outside the traditional banking system with pseudo-anonymity and the use of decentralized platforms. Crypto advocates counter that it offers enhanced transparency because transactions are often recorded in public ledgers. Law enforcement has found ways to follow the money.
Digital wallets linked to Hamas and Palestinian Islamic Jihad received up to $134 million since 2021, according to crypto analyses cited by the Wall Street Journal. (Warren this week shared the WSJ’s reporting with other senators and encouraged them to back her bill.)
Crypto firms including the U.S. exchange Coinbase have rushed to get ahead of the controversy. Sheila Warren, CEO of the Crypto Council for Innovation, wrote on X Thursday that she has “moved from disgust to anger that crypto’s detractors in Washington are using this horrifying moment to push their (overblown) political [points].”
Brown’s decision to dig into crypto financing could be a boon to Senator Warren, after he previously downplayed the need for her legislation. Her bill would extend financial crime rules for traditional lenders to players in the digital asset space.
“The abuse of crypto by terrorist organizations should serve as a wake-up call to Congress to crack down on digital assets and money laundering that we now know is helping bankroll the horrific massacres in Israel,” said Sen. Roger Marshall of Kansas, the lead Republican on Warren’s bill.
Industry groups have been gearing up to fight Warren’s plan. Blockchain Association CEO Kristin Smith said the industry has a history of working with law enforcement.
“Unfortunately, Sen. Warren's bill would do nothing to stop bad actors from abusing this technology,” Smith said. “Instead, it would create an unfeasible new regime that law-abiding American companies simply can't satisfy, forcing crypto activity into unreachable, unregulated venues and jurisdictions.”
Rep. Jim Himes (D-Conn.), who sits on the House Financial Services and Intelligence committees, said the latest controversy underscores why crypto advocates need to better “articulate what their use case is.”
“As long as the use case is some weird combination of libertarian fantasies and drug dealers and terrorists, members of Congress are not going to be excited to give the industry the benefit of the doubt,” he said.
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