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Hamas and militant groups’ use of cryptocurrency, while significant, pales in comparison to the amount of cryptocurrency used by other illicit actors. Hamas, for instance, raised $41 million in cryptocurrency over the past two years, and Palestinian Islamic Jihad raised $91 million, according to a report last week in the Wall Street Journal that cited analyses by cryptocurrency tracing firms and seizures by the Israeli government.

It’s not clear, however, how much of those funds actually made it to these groups before being seized. In fact, Hamas asked its donors to stop using cryptocurrency in April of 2023, due to the public nature of the transactions on blockchains and the risk of prosecution. Cryptocurrency tracing firm Chainalysis, which frequently works with government and law enforcement customers, went so far as to publish a blog post yesterday cautioning against mistaken analyses that overestimate the role of cryptocurrency in financing entities like Hamas and the Palestinian Islamic Jihad.

North Korean state-sponsored cybercriminals, Russian ransomware gangs, and other criminal groups, by contrast, have pocketed billions of dollars through their theft of cryptocurrency or use of the technology as a means of demanding extortion payments from victims. Thieves stole $3.8 billion in crypto last year—much of which went to the North Korean regime—and ransomware hackers extorted close to $450 million in just the first half of 2023, according to Chainalysis.

Those criminals often use cryptocurrency mixing services, funneling hundreds of millions of dollars into mixing services like ChipMixer and Sinbad.io. In fact, US law enforcement and the Treasury Department have aggressively sanctioned or shut down one mixer service after another in recent years, including Blender, TornadoCash, and Bitzlato, often citing their use in laundering the profits of those North Korean and Russian hackers.

The new FinCEN rules would be less severe than those sanctions, indictments, and busts—a new regulatory process rather than a ban—but also far wider in scope, says Jason Somensatto, Chainalysis’ head of North America public policy. “The impact can be much broader,” says Somensatto. “They can say that this applies to all mixing services that people are interacting with.”

As the Treasury doubles down on its push to cut off crypto-based money laundering—and now points to Hamas as a new impetus for that crackdown—TRM Labs’ Redbord cautions that US regulators shouldn’t go too far in censuring services that do, in some cases, offer financial privacy to legitimate users. After all, without mixers, most cryptocurrency transactions are fully public in nature. “I think the challenge for regulators is, how do we thread the needle between stopping illicit actors from using these platforms but at the same time allow regular users to enable some degree of privacy?” Redbord says. “I think the concern is that this could very much be throwing the baby out with the bathwater.”

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