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On October 10, the Israeli government issued the order freeze crypto wallets allegedly associated with the designated terrorist organization Hamas. The move was part of an effort by the Israeli government to cut financial support networks for the group after a large-scale terrorist attack it carried out in Israel on October 7, which prompted Israeli reprisals in the Palestinian Gaza Strip.
The Israeli action caused a debate both in the media and among politicians Capitol Hill in the USA on whether cryptocurrencies can serve as a significant source of funding for Hamas in light of the current conflict.
As we pointed outalthough there is evidence that Hamas – like other terrorist organizations in the region – receives crypto-assets in times of conflict with Israel, there are a number of factors that are likely to limit the role of cryptocurrencies as a source of funding for the group.
First, to the extent that Hamas has used cryptocurrencies in the past, it is a relatively small and alternative source of financing to other methods of financing, such as using the banking system, relying on money transactions to enable the transfer of fiat currency, and using informal “hawala” money transfer system.
Second, Hamas’ past cryptocurrency activity has proven vulnerable to detection and disruption. The cryptocurrency freeze action is not the first that Israel has taken to disrupt Hamas’ cryptocurrency hoarding activity.
The country has taken a number of previous actions ordering the freezing of funds held by Hamas in crypto wallets, while the US has also previously taken steps to disrupt Hamas’ efforts to raise crypto funds. These actions to undermine an organization’s cryptocurrency activities are made possible in large part by the ability to track cryptoassets on the blockchain.
Using the capabilities of blockchain analytics, law enforcement agencies have had success in identifying, tracking and confiscating assets linked to Hamas. In fact, in April of this year, Hamas announced that it had suspended its cryptocurrency activities because the transparency of the blockchain made it vulnerable to disruption.
While it is certainly possible that Hamas could seek to continue its crypto-funding efforts, the historical picture provides important context, as it suggests that crypto may not be a reliable source of funding for the group.
This point is important to consider as policymakers in Washington capitalize on the recent attacks in Israel build support for legislation it would strengthen anti-money laundering and countering the financing of terrorism (AML/CFT) requirements for cryptocurrencies, but with a potentially chilling impact on innovation in the sector. Such drastic measures are unlikely to prove necessary given that the public and private sectors already have the tools at their disposal to disrupt Hamas’ use of cryptocurrencies.
You can read our full analysis of the risks associated with Hamas-related crypto activities here.
FCA warns public against unauthorized crypto ads
The UK’s Financial Conduct Authority (FCA) makes it clear that it is very serious about protecting consumers from the perceived risks of cryptocurrencies. On October 9, the regulator released a statement on its crypto asset promotion regime, noting that on the first day of administration of the new crypto advertising regulation regime, the FCA issued 146 warnings consumers about unauthorized crypto firms.
Under UK financial promotion regime for cryptocurrencies, which came into force on 8 October, a firm can only advertise cryptocurrency-related products and services to UK consumers if the firm is registered with the FCA for anti-money laundering (AML) purposes or if the promotion has been approved and notified by another approved firm . September 21, FCA issued a warning overseas firms marketing their services in the UK that they may face criminal prosecution for unauthorized promotions to UK consumers.
The FCA’s willingness to issue immediate public warnings about authorized crypto firms advertising in the UK market shows that the regulator intends to be vigilant in overseeing the offering of promotions to UK consumers. You can read our previous analysis of the UK crypto promotion regime here.
G20 adopts document calling for global harmonization of crypto rules
On October 13, the Group of 20 (G20) nations gave their stamp of approval to the long-awaited policy document produced by the International Monetary Fund (IMF) and the Financial Stability Board (FSB), the global organizations responsible for ensuring the stability of the international financial system.
IMF/FSB paper was originally announced in September, forming part of a growing international effort to globally harmonize standards on crypto market regulation – a priority for global policymakers in the wake of the FTX collapse and subsequent market turmoil.
The document calls on countries to take comprehensive policy steps to address macroeconomic and financial stability risks that cryptoassets may pose, such as the risks of increased market volatility and capital outflows. It also lays out a policy roadmap and indicates that the FSB will conduct a review by the end of 2025 to assess whether countries are taking steps to address the financial stability risks of cryptocurrencies.
Cyprus will align crypto rules with FATF standards
The Government of Cyprus plans to align its anti-money laundering and countering the financing of terrorism (AML/CFT) regulations with the standards developed by the Financial Action Task Force (FATF), a global anti-money laundering and countering the financing of terrorism organization.
On October 10, the Ministry of Finance of Cyprus suggested amendments to the Law on Prevention and Suppression of Money Laundering and Terrorist Financing which will increase penalties for Virtual Asset Service Providers (VASPs) for non-compliance with AML/CFT regulations and implement key elements of FATF standards such as Travel rule data exchange request.
The effort to update Cyprus’ AML/CFT framework for cryptocurrencies comes roughly a year after a review by Europe’s AML/CFT monitor, MONEYVAL, found that Cyprus has still not established a framework to address key financial crime risks from cryptocurrencies.
Crypto Regulation Regulators and Government EMEA
