The U.S. Treasury Department recently released a letter from Deputy Secretary Wally Adeyemo addressing concerns over the use of cryptocurrency by terrorist organizations, specifically Hamas.
The two-page letter, dated March 13, urges lawmakers to help the Treasury safeguard national security by strengthening the government’s ability to regulate virtual assets.
The letter follows an investigation into $165 million in cryptocurrency transactions allegedly directed toward Hamas, the Palestinian militant organization designated as a terrorist group by the U.S., Bloomberg reported.
Deputy Secretary’s Letter Addressing Crypto’s Role In Hamas Funding
While Hamas and similar organisations continue to primarily rely on established financial systems, Adeyemo pointed out that the Treasury is becoming increasingly concerned that this may change.
Adeyemo worries these organisations would increasingly rely on virtual assets to support their operations as banking limitations and international sanctions tighten around them.
The results of the Treasury’s inquiry were presented in a report to Congress that was withheld from the public. It stated that the agency was closely examining transactions totalling $165 million in cryptocurrencies that were sent to Hamas before the attack on Israel on October 7, 2023.
However, because the Financial Crimes Enforcement Network (FinCEN) has delayed the report, it is unclear to what degree the findings are complete. FinCEN withheld the report due to the Bank Secrecy Act, which prohibits the disclosure of certain financial information.
Adeyemo’s letter emphasized that while financial institutions play a critical role in identifying and flagging suspicious activities, they cannot always be relied upon to detect cryptocurrency transactions linked to terrorist groups like Hamas. Much of the crypto landscape, Adeyemo argued, remains a “black box,” making it difficult for authorities to track and trace the flow of funds.
The Call for Legislative Action
Adeyemo urged Congress to accept a plan that the Treasury offered in November 2023 to solve these issues. To counter the threats that virtual assets represent to national security, this plan aims to establish new authorities.
It would specifically provide the Treasury’s Office of Foreign Assets Control (OFAC) the authority to impose secondary sanctions on cryptocurrency companies that trade with organisations that are subject to sanctions.
Modernising the Treasury’s enforcement powers to address cryptocurrency exchanges operating in countries with “weak or non-existent” regulations on sanctions, money laundering, and terrorism funding is one of the proposal’s main goals.
Adeyemo stated that these improved instruments are required to stay up with the crypto ecosystem’s increasing complexity, particularly as more terrorist organisations investigate the possibilities of virtual currencies.
“A final proposal would explicitly provide Treasury’s Office of Foreign Assets Control the authority to deploy secondary sanctions, an impactful and flexible tool, against virtual asset firms doing business with sanctioned entities,” Adeyemo wrote.
Challenges and Pushback in Congress
Though the Treasury has called for more authority in regulation, some legislators are not buying it. The Biden administration has been criticised for inflating the significance of cryptocurrencies in financing terrorism, especially by Republicans.
Representative Tom Emmer, a member of the House Financial Services Committee, expressed his disapproval of giving the Treasury further powers, arguing that there is little evidence to support accusations that Hamas is utilising cryptocurrencies.
The committee has had two public hearings and a classified briefing on the subject of illicit financing, including the role of cryptocurrencies in funding terrorists, since the Treasury’s initial report was given to Congress.
Emmer and other opponents argue that the focus on cryptocurrency may be misplaced and that traditional financial systems still represent the primary channels for terrorist funding. Nonetheless, Adeyemo and other Treasury officials remain convinced that virtual assets pose a growing threat, particularly as terrorist groups are increasingly cut off from traditional finance.
Broader Concerns and the Future of Crypto Regulation
The Treasury’s concerns are not new. The department has been battling the problem of cryptocurrencies being used to finance illegal activity, including terrorism, for more than ten years.
Internal Treasury Department documents from a whistleblower in 2018 raised questions about the department’s financial crimes unit’s ability to identify and stop the flow of crypto being used by terrorist organisations.
With the increasing adoption of cryptocurrency and its integration into the global financial system, the Treasury is increasing the intensity of its demands for new regulatory instruments. The growing challenge of detecting money movements across decentralised, frequently opaque crypto networks is highlighted in Adeyemo’s letter.