Chainalysis says some reports might be overestimating crypto’s role in terrorist financing
In the wake of the recent Hamas attack in Israel, crypto analytics firm Chainalysis said Wednesday that’s its been receiving lots of questions about how terrorist groups might be using cryptocurrency. But it said some reports about the supposed use might be overstating metrics and using “flawed analyses.”
“Although terrorism financing is a very small portion of the already very small portion of cryptocurrency transaction volume that is illicit, some terrorist organizations raise, store, and transfer funds using cryptocurrency,” it wrote in a blog post. “Terrorist organizations have historically used and will likely continue to use traditional, fiat-based methods such as financial institutions, hawalas, and shell companies as their primary financing vehicles.”
In the aftermath of Hamas’ terrorist attack on Israel various media outlets have sought to estimate the level of illicit crypto funds that may have been funneled into the offensive. Sen. Elizabeth Warren, D-Mass., along with more than a hundred other lawmakers, on Wednesday cited a report from the Wall Street Journal about Hamas’ suppose use of crypto and said she wants answers from the administration of President Joe Biden.
“Terrorists, rogue nations, drug traffickers and other criminals are using cryptocurrency to endanger our allies and U.S. national security,” Warren co-wrote in an op-ed in the Wall Street Journal Wednesday evening along with Sen. Roger Marshall, a Republican from Kansas.
Analyzing the volume and flow
Chainalysis argues there are “two key components to analyzing the volume and flow of terrorism-related funds: quantifying the funds directly in the hands of a terrorist organization, and identifying the service providers that facilitate the movement of funds tied to terror financing.”
“We have seen recent estimates related to the attacks on Israel that appear to include all flows to certain service providers that received some funds associated with terrorism financing,” Chainalysis said. “In other words, those totals include funds not explicitly related to terrorism financing,”
“To the untrained eye, it might appear that $82 million worth of cryptocurrency was raised for terror financing,” Chainalysis continued. “But it is much more likely that a small portion of these funds were intended for terrorist activity and a majority of the funds processed through the suspected service provider were unrelated.”
The firm estimates that of the $82 million it zeroes in on, “about $450,000 worth of funds” were transferred from a “terror-affiliated wallet,” adding that “it would be incorrect to assume all of the transaction activity … is related to terrorism.”
Although the firm is skeptical about estimates it said have been used by some media outlets, Chainalysis stated that the role of service providers should not be ignored.
“These service providers are supporting terrorism by acting as facilitators, and cutting off terrorist access to them through sanctions or other offensive operations is an important component to disrupting terrorist finance,” it said in the post.