Today: 21-04-2024

Crypto Counteraction: Israel's Struggle Against Militant Financing Takes a New Turn

"Crypto Networks in the Crosshairs: Tron Surfaces as a Key Player in Israel's Battle Against Militant Funding

In the ongoing struggle to counter the financing of Iran-backed militant groups, a new battleground has emerged—Tron, a rapidly expanding cryptocurrency network. Outpacing its larger counterpart Bitcoin in terms of speed and cost-effectiveness, Tron has become the preferred platform for crypto transfers linked to organizations designated as terror groups by Israel, the United States, and other nations. Interviews with financial crime experts and blockchain investigations specialists reveal this significant shift.

A Reuters analysis of crypto seizures by Israeli security services since 2021 highlights a notable trend. There has been a sharp increase in the targeting of Tron wallets, accompanied by a decline in Bitcoin wallet seizures. Merkle Science, a New York-based blockchain analysis firm, notes that terrorist organizations are increasingly favoring Tron due to its faster transaction times, lower fees, and overall stability.

Merkle Science, whose clients include law enforcement agencies in the United States, Britain, and Singapore, reports that Tron has become the crypto platform of choice for designated terrorist organizations. Israel's National Bureau for Counter Terror Financing (NBCTF) froze 143 Tron wallets between July 2021 and October 2023, believed to be associated with a 'designated terrorist organization' or used for 'severe terror crimes.'

The scrutiny of Tron intensified as a response to the October 7 attacks by Hamas, resulting in around 1,200 casualties in Israel. Israel's subsequent actions in Gaza, including a ground invasion, led to additional scrutiny of Hamas' financing. Notably, almost two-thirds of Israel's Tron seizures—87 in total—occurred this year. In June, Israel identified 39 wallets linked to Lebanon's Hezbollah, and in July, 26 wallets associated with Palestinian Islamic Jihad, a Hamas ally involved in the assault on Israel from Gaza.

In response to inquiries, Hayward Wong, a spokesperson for Tron, stated that while all techno

"The intensifying battle against terror financing has brought Tron into focus, with the National Bureau for Counter Terror Financing (NBCTF) freezing 56 Tron wallets linked to Hamas. Notably, 46 of these were connected to a Gaza-based money exchange company named Dubai Co. For Exchange. Following the Hamas assault, Israel made its largest crypto seizure, freezing around 600 accounts associated with Dubai Co. While Israel has labeled Dubai Co. as a terrorist group due to its alleged support for Hamas, individuals whose funds were frozen claim they were using Tron for legitimate business or personal reasons.

One individual, identified as Neo, acknowledged a potential one-time money transfer to someone associated with Hamas. However, several individuals listed in Israel's previous Tron seizure notices, based in locations such as Venezuela, Dubai, and the West Bank city of Jenin, denied any ties to militant groups. The June statement from Israel mentioned seized funds intended for use by terrorist organizations financed by Iran, with Iran considering Hamas, Hezbollah, and Islamic Jihad part of an 'Axis of Resistance' against Israeli and American power in the Middle East.

Notably, Iran has a history of using Tron to circumvent U.S. sanctions, conducting $8 billion in transactions between 2018 and 2022. While the NBCTF has not explicitly confirmed Tehran as the funding source in its seizure statements, Iran's foreign ministry did not respond to Reuters' request for comment on the use of Tron for funding groups it supports. Hamas, Hezbollah, and Islamic Jihad have also remained silent on the matter, leaving the exact nature of their involvement with Tron unclear."

"The murky world of cryptocurrency transactions poses significant challenges when estimating the flow of funds to proscribed groups. The inherent transparency of blockchain, the public ledger supporting cryptocurrencies, allows tracking of transaction values and associated digital wallet addresses. However, discerning the real identities behind these transactions remains elusive to those outside law enforcement and crypto trading platforms.

In the realm of Tron, individuals consulted by Reuters have highlighted the prevalence of Tether, the world's largest stablecoin, within the network. Tether, with a market value of $89 billion, has seen a notable surge in the past year and is the third-largest crypto token. Despite its lower profile beyond crypto circles, Tron serves as the primary blockchain for Tether transactions, currently hosting a staggering $48 billion worth of the stablecoin, according to Tether's website.

While Tron's average daily transactions spiked to 9.1 million from April to June, up over 70% from the same period last year, the platform has faced legal scrutiny. Justin Sun, the founder of Tron, was sued by the U.S. Securities and Exchange Commission (SEC) in March, accused of inflating trading volumes and selling Tron tokens as an unregistered security. Sun has vehemently denied the charges.

Comparatively, Bitcoin seizures in Israel have been scarce, with the National Bureau for Counter Terror Financing (NBCTF) freezing only 30 Bitcoin wallets in its first year of publishing seizure notices in 2021. Notably, no Bitcoin wallets have appeared in notices in subsequent years.

As the cryptocurrency landscape continues to evolve, the Financial Action Task Force (FATF), a Paris-based G7 body combating illicit finance, issued a warning about terrorist organizations seeking increased donor anonymity. The report cited the growing popularity of Tether transfers on Tron as a potential avenue for achieving this anonymity. Amidst these complexities, the battle against illicit finance in the crypto sphere remains a dynamic and challenging endeavor."

"The shift of illicit actors from Bitcoin to Tron for cryptocurrency transactions is attributed to law enforcement's growing effectiveness in tracing Bitcoin transactions, according to insights from four individuals consulted by Reuters. Tron initially operated in a relative blind spot, drawing less attention from blockchain analysis firms. Shlomit Wagman, a senior fellow at Harvard University and former director-general of the Israel Money Laundering and Terrorism Financing Prohibition Authority, highlighted the emergence of this blind spot. Notably, transaction fees on Tron are significantly lower than those on Bitcoin, contributing to its appeal for illicit activities, as reported by U.S. investment firm VanEck.

Militant groups are also opting for stablecoins on the Tron network instead of the more volatile Bitcoin tokens. This strategic choice aims to preserve the value of their crypto holdings, offering a safer and more stable financial instrument. Wagman emphasized that the use of Tron allows these groups to maintain a lower profile while ensuring the longevity and value preservation of their crypto assets.

As the crypto landscape undergoes dynamic changes, the appeal of alternative networks like Tron underscores the evolving tactics of illicit actors seeking to navigate the regulatory landscape and maintain financial anonymity. This development presents new challenges for law enforcement and regulatory bodies striving to stay ahead of emerging trends in cryptocurrency-based illicit finance."

"In conclusion, the dynamic interplay between cryptocurrency networks and law enforcement strategies is reshaping the landscape of illicit financial activities. The shift of militant groups from Bitcoin to Tron reflects the evolving challenges faced by authorities in tracing transactions. Tron's initially overlooked status and lower transaction fees have made it an appealing alternative for illicit actors seeking financial anonymity.

As law enforcement capabilities advance, so do the tactics of those engaging in illicit finance. The strategic move to Tron, driven by its perceived advantages in cost-effectiveness and stability, underscores the adaptability of such groups in navigating the crypto space.

The use of stablecoins on the Tron network adds an additional layer to this dynamic, as militant groups aim to safeguard the value of their crypto assets amid market volatility. This development emphasizes the ongoing cat-and-mouse game between regulators and illicit actors in the cryptocurrency realm.

As the crypto landscape continues to evolve, authorities face the challenge of staying ahead of emerging trends and adapting their strategies to address new platforms and technologies exploited by those engaging in illicit financial activities."