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Hamas money laundering worries spark proposed new U.S. crypto rule

Tehran, Iran. Iranian pro-government supporters celebrate the Hamas attack on Israel by waving the Palestinian flag in Palestine Square in Tehran on Oct. 7, 2023. Hundreds of pro-government Iranians demonstrated in Palestine Square in Tehran to show their support for Hamas and the Palestinian resistance. Hamas militants launched a coordinated assault, involving air, land, and sea elements, into Israel from the Gaza Strip. (Photo by HOSSEIN BERIS/Middle East Images/AFP via Getty Images)

The Biden administration on Thursday proposed labeling a cryptocurrency practice that provides customers with anonymity as a money laundering concern, amid a larger effort to crack down on illicit uses of crypto in the wake of Hamas’ surprise attacks on Israel.

The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) said the rule would identify international crypto mixing — a practice that anonymizes crypto funds by mixing them with others — as a primary money laundering concern and would require financial institutions to report transactions involving crypto mixing.

“Today’s action underscores Treasury’s commitment to combating the exploitation of Convertible Virtual Currency mixing by a broad range of illicit actors, including state-affiliated cyber actors, cyber criminals, and terrorist groups,” Deputy Treasury Secretary Wally Adeyemo said in a statement.

The Treasury Department also announced a new slate of sanctions against Hamas on Wednesday, targeting several of the militant group’s members, a top commander, a Qatar-based financial facilitator and a cryptocurrency exchange based in Gaza.

“More broadly, the Treasury Department is aggressively combating illicit use of all aspects of the CVC ecosystem by terrorist groups, including Hamas and Palestinian Islamic Jihad,” Adeyemo added.

After Hamas launched a complex array of attacks from the Gaza Strip earlier this month that took Israeli forces by surprise, the Wall Street Journal reported that the Palestinian militant group had received about $41 million in crypto in the last two years. 

Palestinian Islamic Jihad, another militant group based in Gaza, received as much as $93 million in crypto, according to the Journal.

American regulators have acted swiftly in cracking down on perceived funding sources.

“The U.S. Treasury has a long history of effectively disrupting terror finance and we will not hesitate to use our tools against Hamas,” Treasury Secretary Janet Yellen said in a statement.

More than 100 lawmakers sent a letter to the Biden administration on Tuesday requesting information about the role crypto played in financing the recent Hamas attacks, as well as the administration’s plans to address the issue.

“Congress and this Administration must take strong action to thoroughly address crypto illicit finance risks before it can be used to finance another tragedy,” the lawmakers wrote in Tuesday’s letter.

The new crypto rule will remain open for public comment in the Federal Register for 90 days before being finalized.