It was not long ago that cryptocurrency was being heralded by many as “the future of finance.” 2021 marked the last great bull run on crypto, and with this period moving further in the rearview and pricing on major coins such as Bitcoin and Ethereum stagnating, many have begun to speculate as to whether cryptocurrencies will ever gain mainstream traction as a true decentralized asset class and if blockchain technologies will reach their potential to truly transform entire industries outside of the financial sector. For now however, cryptocurrencies still represent a decent gamble from an investors perspective, specifically as rumors of the potential impending Bitcoin spot ETF approval continue to make the rounds. Traditional investors are not the only parties with the ability to capitalize on this market however. Over the past several years, it has been well documented that the broader cryptocurrency market has developed into a major hub for money laundering and terror financing efforts on behalf of domestic and foreign entities.
In spite of cryptocurrency exchanges being required to register with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), a gross lack of concrete regulation governing the sector as a whole coupled with the anonymity provided to users by the market with respect to shrouding their individual transactions and personal identification information has made this space an attractive option for criminal and terror organizations seeking to evade sanctions, launder funds and/or fundraise for their destabilizing activities. U.S. Senator Elizabeth Warren, long a skeptic on crypto given its propensity for being used as a vehicle to facilitate financial crime, has gone as far as to label these various outlets as the “payment method of choice” for rogue nations, drug lords, ransomware gangs, and fraudsters to launder billions of dollars in stolen funds, fund illegal weapons programs, and profit off of devastating cyberattacks. Given a string of million and even billion dollars scandals in this space over recent years, Warren’s claims are appearing all the more legitimate. In 2023 alone, the collapse of FTX, the ongoing turmoil at Binance, and several large-scale crypto-backed ransomware attacks have shaken investor confidence, and more importantly that of the U.S. government. Given the inherent national security risks posed, the U.S. government officials recently announced potentially drastic measures aimed at ensuring the integrity of the international financial system, leaving cryptocurrency companies in the crosshairs.
While speaking at an event hosted by the Blockchain Association last week, U.S. Deputy Secretary Wally Adeyemo went on record putting crypto-platforms on notice that they must increase their due diligence with respect to reporting and blocking illicit financial flows or risk being cut off from the greater U.S. economy. Adeyemo also stressed that crypto firms need to raise their standards and become more proactive in order to decrease the risk they have been helping to create across the financial sector. “Our actions over the last year send a clear message: we will not hesitate to bring to bear tools across government to protect our national security,” Adeyemo said in his prepared statement. The representative doubled down, threatening any cryptocurrency company either in the U.S. or abroad that fails to play by the rules, stating they “will not only cut off a firm from the U.S. financial system, but will also expose any firm that continues to do business with the sanctioned entity” to being cut off from the global financial system.3
Adeyemo’s statement comes on the heels of the Biden Administration recent;y requesting new legislation that would grant the Treasury Department the authority to police crypto marketplaces used by actors the U.S. government deems illicit. This comes as the U.S. government has continued to levy sanctions aimed at interrupting funding for the Palestinian militant group Hamas amid the ongoing deadly conflict in Israel.2 Reports from overseas have also hinted at a developing paradigm shift with respect to financing of terror activity. Coindesk recently reported that TRON has now surpassed Bitcoin as the new cryptocurrency of choice for designated Islamic terror groups Hamas and Hezbollah, among other members of Iran’s “Axis of Resistance.” TRON, a blockchain-based protocol and operating system headquartered in San Francisco, was primarily designed as a platform designed to allow its users to create decentralized digital content applications. Since its creation in 2017 however, TRON has developed into a tangible payment method used by many companies using its native token, Tronix (TRX).
The news of this shift has gained increased attention following a sharp rise in cryptocurrency seizures made from TRON wallets over the last two years coupled with a simultaneous drop in seizures from Bitcoin wallets. This indicates that the groups behind a significant portion of the terrorist activity occurring across the Middle East are effectively dumping Bitcoin in favor of TRON. The question is, “Why?” According to Mriganka Pattnaik, CEO of New York-based blockchain analysis company Merkle Science, terrorist organizations are increasingly favoring Tron because of its speed of transactions, low fees and stability, this compared with the increase in scrutiny for Bitcoin transactions seen globally and its higher transaction costs. All told, Israel has made 87 seizures from Tron Wallets in 2023, which makes up roughly two-thirds of the total seizures dating back to July of 2021. 39 of the seized wallets were discovered to be owned by Hezbollah, while 26 of them were owned by Hamas.1
TRON’s founder Justin Sun has emphasized that his company remains committed to fighting terrorist financing initiatives through international partnerships with law enforcement, though they remain focused on maintaining decentralization and the efficiency of their processes, the aspects of the platform that are the most appealing to terror groups.
Citations
- Crawley, Jamie. “Hamas, Hezbollah Now Prefer Tron to Bitcoin: Reuters.” CoinDesk Latest Headlines RSS, CoinDesk, 27 Nov. 2023.
- Lang, Hannah. “US Will Be Forced to Curtail Crypto If Industry Fails to Act on Illicit Finance Threats- Official.” Reuters, Thomson Reuters, 30 Nov. 2023.
- “Remarks by Deputy Secretary of the Treasury Wally Adeyemo at the 2023 Blockchain Association’s Policy Summit.” U.S. Department of the Treasury, 29 Nov. 2023.
