By Tom Wilson and Elizabeth Howcroft
LONDON (Reuters) – A new front has emerged in Israel’s fight against the funding of Iran-backed militant groups from Hamas to Hezbollah. It is a fast-growing cryptocurrency network called Tron.
According to interviews with seven financial crime experts and blockchain investigation experts, Tron is a cryptocurrency transfer platform linked to groups designated as terrorist organizations by Israel, the United States and other countries, and is said to be faster and cheaper than its larger rival Bitcoin. I caught up.
A Reuters analysis of cryptocurrency seizures published by Israel’s security services since 2021 reflects this trend, showing a sharp increase in the targeting of Tron wallets and a decrease in the number of Bitcoin wallet seizures for the first time.
Citing Tron’s faster transaction times, lower fees and stability, Mriganka Pattnaik, CEO of New York-based blockchain analytics firm Merkle Science, said, “Initially it was Bitcoin, and now our data shows that these terrorist organizations are increasingly using Tron. “It shows that there is a preference,” he said.
Merkle Science says its customers include law enforcement agencies in the United States, United Kingdom and Singapore.
Israel’s National Counter-Terrorism Financing Task Force (NBCTF), which is responsible for these seizures, froze 143 Tron wallets from July 2021 to October 2023 that were determined to be linked to “designated terrorist organizations” or used for “serious terrorist crimes.” did. The results of the Reuters analysis are out.
About 1,200 people were killed in Hamas’ attack on Israel on October 7. Since then, Israel’s bombing and ground invasion of Gaza has killed about 14,000 people. In response, Israel has also stepped up its investigation into Hamas’s financing.
Contacted by Reuters with a summary of the article, Hayward Wong, a spokesperson for British Virgin Islands-registered Tron, said that any technology “could theoretically be used for questionable activities” and that the US dollar could be used for money laundering. I mentioned an example.
Wong said Tron has no control over who uses its technology and has no ties to any groups identified by Israel.
Nearly two-thirds (87) of the TRON seized by Israel occurred this year. These include 39 wallets that Israel said in June belonged to Lebanese Hezbollah and 26 wallets that Israel said in July belonged to Palestinian Islamic Jihad, a Hamas ally that has been involved in attacks on Israel. From Gaza.
The seizure also included 56 Tron wallets that the NBCTF said were linked to Hamas, including 46 linked to a single Gaza-based currency exchange company called Dubai Co. For Exchange in March last year.
Weeks after the Hamas attack, Israel announced its largest-ever seizure of cryptocurrency accounts, freezing about 600 accounts linked to Dubai Co. without revealing which cryptocurrency networks or coins were used.
More than a dozen people whose funds were frozen in the seizure told Reuters they had been using Tron. They said they traded cryptocurrencies to help with business or personal finances and denied any links to Hamas or Islamic Jihad.
One of the people, who identified himself only as Neo, said he may have once transferred money to someone linked to Hamas.
Israel calls Dubai Corporation a terrorist organization. “Because it helps transfer tens of millions of dollars each year to the Hamas terrorist organization, especially its military.”
A spokesperson for Dubai Co., whose email is listed in the seizure order, did not respond to a request for comment.
The Hamas militant group, which has been raising cryptocurrency funding since at least 2019, said in April that it would stop raising Bitcoin funding, citing intensified efforts to prevent donations. Hamas did not mention Tron in its statement.
Reuters could not independently confirm whether Hamas used Tron. NBCTF declined to comment for this story, including its understanding of the switch to Tron and how wallets are linked to armed groups. Hamas, Hezbollah and Islamic Jihad did not respond to requests for comment.
Six people listed in Israel’s previous Tron seizure notice responded to questions from Reuters but denied any links to the militant group. These included people living in Venezuela, Dubai and the West Bank city of Jenin.
‘Axis of Resistance’
Israel said in a June statement that it had seized the funds “for use by terrorist organizations funded by Iran.” Iran’s so-called axis of resistance against Israeli and American power in the Middle East includes Hamas, Hezbollah and Islamic Jihad.
In its seizure affidavit, NBCTF did not confirm that Tehran was the source of the funds. Iran’s Foreign Ministry did not respond to a Reuters request about the use of Tron to fund groups it supports.
Iran has previously used Tron to evade US sanctions. Last year, Reuters reported that Iranian companies used it in $8 billion worth of transactions between 2018 and 2022.
Estimates of the amount of money reaching banned groups through cryptocurrencies are unreliable. This is because it is difficult to tell whether the money sent to the seized wallets was actually destined for that group.
The value of cryptocurrency transactions and the digital wallet addresses used for them can be tracked on the blockchain, the public ledger that underpins cryptocurrencies. However, it is difficult for law enforcement or anyone outside the cryptocurrency trading platform to know the actual identities of the people involved in the transactions.
People additionally consulted by Reuters said their research revealed that the Tether cryptocurrency is dominant across the Tron network.
Tether, the so-called world’s largest stablecoin, is backed by reserves and aims to maintain a 1:1 peg with the dollar. The company said in a statement that it regularly tracks and freezes tokens “used for nefarious purposes” and cooperates with law enforcement in these efforts.
Tether is the third-largest cryptocurrency token with a market value of $89 billion, up about a third from last year, according to CoinGecko data.
Despite its lack of recognition outside the cryptocurrency industry, Tron is the dominant blockchain for Tether transactions, currently hosting $48 billion worth of tokens, according to the Tether website. From April to June, Tron’s average daily transactions reached 9.1 million, an increase of more than 70% compared to the same period last year, according to data firm Messari.
Justin Sun, who founded Tron in 2017, was sued by the U.S. Securities and Exchange Commission in March on charges of artificially inflating trading volume and selling Tron tokens as unregistered securities. The Sun said the SEC’s accusations “lacked validity.”
Sun representative Binbin Deng referred Reuters to a statement from Tron spokesperson Wong.
‘blind spot’
Since its birth in 2008, the Bitcoin blockchain, and cryptocurrencies more broadly since then, have become a magnet for criminals drawn by their reputation for liquidity and anonymity. According to blockchain tracking company Chainalytic, the illegal share of total cryptocurrency transaction volume was 0.2% in 2022, down from 2% three years ago.
Bitcoin seizures have been rare in Israel compared to Tron. In 2021, the first year the NBCTF issued seizure notices, it froze 30 Bitcoin wallets. Bitcoin wallets will not appear in the announcement in the following years.
The Financial Action Task Force, a Paris-based G7 body that fights against illicit finance, warned last month that terrorist organizations were seeking to further strengthen the anonymity of donors, citing the growing popularity of Tether transfers on Tron.
Four of those who spoke to Reuters said such groups are flocking to Tron as law enforcement agencies’ ability to track Bitcoin transactions improves.
Shlomit Wagman, a senior fellow at Harvard University who served as director of Israel’s Anti-Money Laundering and Terrorist Financing Authority from 2016 to 2022, said Tron initially attracted less attention from blockchain analytics firms.
“There’s been this blind spot,” she said.
VanEck, an American investment firm, stated that Tron’s transaction fees are much cheaper than Bitcoin. Militant groups are also using stablecoins on Tron instead of the highly volatile Bitcoin token “to ensure that the value of the cryptocurrency is preserved,” Wagman said.
(Reporting by Tom Wilson and Elizabeth Howcroft in London; Additional reporting by Nidal al-Mughrabi in Gaza and Maya Gebeily in Beirut; Editing by Frank Jack Daniel)