New crypto front emerges in Israel's militant financing fight

BTCS

27/11/2023 07:00

By Tom Wilson, Elizabeth Howcroft
       LONDON, Nov 27 (Reuters) - A new front has emerged in
Israel's fight against the funding of Iran-backed militant
groups from Hamas to Hezbollah: A fast-growing crypto network
called Tron that until recently attracted less scrutiny than
Bitcoin.
    Quicker and cheaper than Bitcoin, the Tron network has
overtaken its rival as a platform for crypto transfers
associated with groups designated as terror organizations by
Israel, the United States and other countries, according to
interviews with seven financial crime experts and blockchain
investigations specialists.
    A Reuters' analysis of crypto seizures announced by Israeli
security services since 2021 reflects the trend, showing for the
first time a sharp rise in the targeting of Tron wallets and a
fall in Bitcoin wallet seizures.
    "Earlier it was Bitcoin and now our data shows that these
terrorist organizations tend to increasingly favor Tron," said
Mriganka Pattnaik, CEO of New York-based blockchain analysis
firm Merkle Science, citing Tron's faster transaction times, low
fees, and stability.
    Merkle Science says it counts law enforcement agencies in
the United States, Britain and Singapore as clients.
    Israel's National Bureau for Counter Terror Financing
(NBCTF), which is responsible for such seizures, froze 143 Tron
wallets between July 2021 and October 2023 that it believed were
connected to a "designated terrorist organization" or used for a
"severe terror crime," the Reuters analysis found.
The Oct. 7 attacks by Hamas on Israel killed around 1,200
people. Israel's subsequent bombardment and ground invasion of
Gaza has killed some 14,000 people. In its response, Israel has
also stepped up scrutiny of Hamas' financing.
    Contacted by Reuters with a summary of this article, Hayward
Wong, a spokesperson for British Virgin Islands-registered Tron
said all technologies could "in theory be used for questionable
activities," citing as an example U.S. dollars being used for
money laundering.
    Wong said Tron did not have control over those using its
technology and that it was not linked to the groups identified
by Israel.
    Almost two-thirds of Israel's Tron seizures – 87 - were this
year, including 39 wallets that Israel said in June were owned
by Lebanon's Hezbollah, and 26 it said in July belonged to
Palestinian Islamic Jihad, a Hamas ally that joined the assault
on Israel from Gaza.
    The seizures have also included 56 Tron wallets NBCTF said
were linked to Hamas, including 46 in March last year it
connected to a single Gaza-based money exchange company called
Dubai Co. For Exchange.
    Weeks after the Hamas assault, Israel announced its biggest
known seizure of crypto accounts yet, freezing around 600
accounts it connected to Dubai Co., without stating which crypto
networks or coins were used.
    More than a dozen people whose funds were frozen in that
seizure told Reuters they had been using Tron. They said they
traded crypto to help their business or personal finances and
denied any connection with Hamas or Islamic Jihad.
    One of the people, who identified themselves only as Neo,
said it was possible they had transferred money on one occasion
to somebody associated with Hamas.
    Israel calls Dubai Co. a terrorist group "due to the aid
that they provide to the Hamas terrorist organization,
particularly its military arm, in transferring funds on a scale
of tens of millions of dollars a year."
    A representative for Dubai Co., whose email was listed on
the seizure order, did not respond to a request for comment.
The armed wing of Hamas, which had raised crypto funds since at
least 2019, said in April it would cease Bitcoin fundraising,
citing increased efforts to prevent donations. Hamas did not
mention Tron in the statement.
    Reuters could not independently determine whether Hamas had
used Tron. NBCTF declined to comment for this story, including
about its understanding of the shift to Tron and how it linked
the wallets to the militant groups. Hamas, Hezbollah and Islamic
Jihad did not respond to requests for comment.
    Six people listed on Israel's previous Tron seizure notices
who responded to Reuters questions denied connections to
militant groups. They included people based in Venezuela, Dubai
and the West Bank city of Jenin.
     
    'AXIS OF RESISTANCE'
In the June statement, Israel said it seized funds "intended for
use by the terrorist organizations financed by Iran." Iran
counts Hamas, Hezbollah and Islamic Jihad in a so-called Axis of
Resistance opposing Israeli and American power in the Middle
East.
    In the seizure statements, NBCTF did not affirm Tehran was
the source of the funding. Iran's foreign ministry did not
respond to a Reuters request for comment about using Tron to
fund groups it supports.
Iran has previously used Tron to skirt U.S. sanctions. Reuters
reported last year that Iranian firms used it for $8 billion in
transactions between 2018 and 2022.
    Estimates of the sums of money that reach proscribed groups
through crypto are unreliable because it is hard to say whether
money sent to seized wallets was really destined for those
groups.
    The value of crypto transactions and the digital wallet
addresses used for them can be traced on the blockchain - a
public ledger that underpins crypto. However, it is hard for
those outside law enforcement or crypto trading platforms to
know the real identity of those involved in the transactions.
    The people Reuters consulted additionally said their
research showed the cryptocurrency Tether was dominant across
the Tron network.
Tether, the world's biggest so-called stablecoin, is backed by
reserves and aims to keep a 1:1 peg with the dollar. The company
said in a statement that it regularly traced and froze tokens
"used for nefarious purposes," and coordinated these efforts
with law enforcement.
    Tether is the third-largest crypto token, with a market
value of $89 billion, up by around a third in the past year,
according to CoinGecko data.
    Despite its lack of name recognition outside crypto circles,
Tron is the dominant blockchain for Tether transactions,
currently hosting $48 billion of the tokens, according to
Tether's website. Average daily transactions on Tron hit 9.1
million from April-June, according to data firm Messari, up over
70% from the same period last year.
Justin Sun, who founded Tron in 2017, was sued by the U.S.
Securities and Exchange Commission in March for allegedly
artificially inflating trading volumes and selling Tron tokens
as an unregistered security. Sun said the SEC charges "lack
merit."
    Binbin Deng, a representative of Sun, referred Reuters to
Tron spokesperson Wong's statement.
            
    'BLINDSPOT'
    Since its 2008 birth, the Bitcoin blockchain, and since then
crypto more widely, have been magnets for criminals drawn by
liquidity and a reputation for anonymity. Of all crypto
transaction volumes, the illicit share was 0.2% in 2022, down
from 2% three years earlier, according to blockchain tracker
Chainalysis.
    In Israel, Bitcoin seizures have been scarce by comparison
with Tron. In 2021, the first year NBCTF published seizure
notices, it froze 30 Bitcoin wallets. No Bitcoin wallets appear
in notices in the subsequent years.
    The Financial Action Task Force, a Paris-based G7 body that
fights illicit finance, warned last month that terrorist
organisations were seeking to further boost donor anonymity,
citing the growing popularity of Tether transfers on Tron.
    Four of the people consulted by Reuters said law
enforcement's increased capability to trace transactions on
Bitcoin was driving such groups to Tron.
    Tron initially drew less attention from blockchain analysis
firms, said Shlomit Wagman, a senior fellow at Harvard
University who was director-general of the Israel Money
Laundering and Terrorism Financing Prohibition Authority from
2016 to 2022.
    "There was until now this blindspot," she said.
    Transaction fees on Tron cost far less than on Bitcoin, U.S.
investment firm VanEck says. Militant groups were also using
stablecoins on Tron instead of more volatile bitcoin tokens to
ensure the "value of their crypto is being preserved," Wagman
said.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Crypto's role in terrorist financing    https://www.reuters.com/technology/cryptos-role-terrorist-financing-2023-10-23/
Who funds Hamas? A global network of crypto, cash and charities 
  https://www.reuters.com/world/middle-east/hamas-cash-to-crypto-global-finance-maze-israels-sights-2023-10-16/
Crypto exchange Binance helped Iranian firms trade $8 billion
despite sanctions    https://www.reuters.com/business/finance/exclusive-crypto-exchange-binance-helped-iranian-firms-trade-8-billion-despite-2022-11-04/
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Tom Wilson and Elizabeth Howcroft in London,
additional reporting by Nidal al-Mughrabi in Gaza and Maya
Gebeily in Beirut ; Editing by Frank Jack Daniel)
((T.Wilson@thomsonreuters.com; Twitter: @tomwilson1983; Reuters
Messaging: rm://t.wilson.thomsonreuters.com@reuters.net/))