Senate Banking Committee Chair Sherrod Brown, D-Ohio, called for a crackdown on the use of cryptocurrency to fund terrorism and evade sanctions in the wake of attacks on Israel. His comments came as the industry has argued that recent figures being used to portray the scale of crypto fundraising by terrorist groups are being taken out of context.
Brown, who holds the purse strings for bills in his committee, said crypto platforms too often times do not use the "same common sense protections," such as know your customer rules, that keep illicit finance away from traditional sectors.
"Some crypto services and tokens even help users keep their transactions anonymous and when law enforcement attempts to trace or block crypto funds, it becomes a game of whack a mole," Brown said during a hearing on Thursday.
Brown's comments come on the heels of some controversy over how crypto has been involved in the fundraising of terrorist group Hamas. The Wall Street Journal reported two weeks ago that Hamas, along with other militant groups, raised millions worth of crypto ahead of attacks in Israel. The WSJ cited crypto researcher Elliptic, which on Wednesday said that figures are being misrepresented.
More than 100 lawmakers, including Sen. Elizabeth Warren, D-Mass and Brown himself, then subsequently wrote a letter to the administration of President Joe Biden raising concerns about how Hamas raised millions through crypto, citing that WSJ report.
Brown also asked questions on Thursday about how crypto is used by terrorist groups. One way or another, crypto is not the major source of funding, Brown said citing witnesses’ testimonies, and asked how those groups are innovating in their use of crypto.
Crypto can be a paradise for bad actors, said Dr. Shlomit Wagman, but said the Finance Action Task Force created a toolbox to trace those transactions. Wagman, who was testifying at the hearing, was the director-general of the Israel Money Laundering and Terrorism Financing Prohibition Authority, a regulator and law enforcement agency.
FATF, an international organization, changed its standards in 2018 to apply crypto to its rules, including anti-money laundering. However, Wagman said in written testimony that just a few have implemented those rules in full.
Sen. Brown welcomes ideas
One of the measures that lawmakers are likely considering is Sen. Warren's bill to crack down on the use of crypto for money laundering and sanctions evasion. The Senate Banking Committee chair has been hesitant about that bill, according to Politico.
Brown mentioned a bipartisan bill from Sen. Jack Reed, D-R.I., and Sen. Mark Warner, D-Va., during Thursday's hearing. He didn't name the bill, but both lawmakers introduced a bill in July that would require DeFi services to meet anti-money laundering requirements.
"I welcome more ideas from anybody on this committee and anybody at the witness table and anybody in the audience," Brown said. "We will work together on this committee in a bipartisan way to make sure terrorists and bad actors can't exploit crypto."
Sen. Warren cited the WSJ's report and during the hearing asked former Treasury official Matthew Levitt, whether government authorities knew the full extent of crypto funds that terrorist groups received over the years, which totaled close to $134 million.
"By definition, they can't know the extent of it, but I do think that number is very likely exaggerated," Levitt said during the hearing. "It's happening, they're getting money through crypto, there's no question, but the experts who follow this closely think that number is inflated."
Warren also asked Wagner about whether Hamas' use of noncustodial wallets "pose a particularly high risk of attracting terrorists."
Wagner said the current sanctions regime needs bolstering, adding that crypto is a problem, but it is not "the major problem" and advised looking as well at other traditional channels.
Updated at 11:45 a.m. ET to include more comments from Brown
Updated at 2:35 p.m. ET to include details from Warren
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