[Senate Hearing 118-510]
[From the U.S. Government Publishing Office]
S. Hrg. 118-510
COMBATING THE NETWORKS OF ILLICIT FINANCE
AND TERRORISM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING HOW TO COMBAT THE NETWORKS OF ILLICIT FINANCE
AND TERRORISM
__________
OCTOBER 26, 2023
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island TIM SCOTT, South Carolina
ROBERT MENENDEZ, New Jersey MIKE CRAPO, Idaho
JON TESTER, Montana MIKE ROUNDS, South Dakota
MARK R. WARNER, Virginia THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada CYNTHIA M. LUMMIS, Wyoming
TINA SMITH, Minnesota J.D. VANCE, Ohio
RAPHAEL G. WARNOCK, Georgia KATIE BOYD BRITT, Alabama
JOHN FETTERMAN, Pennsylvania KEVIN CRAMER, North Dakota
LAPHONZA R. BUTLER, California STEVE DAINES, Montana
Laura Swanson, Staff Director
Lila Nieves-Lee, Republican Staff Director
Elisha Tuku, Chief Counsel
Amber Beck, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
(ii)
C O N T E N T S
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THURSDAY, OCTOBER 26, 2023
Page
Opening statement of Chair Brown................................. 1
Prepared statement....................................... 40
Opening statements, comments, or prepared statements of:
Senator Britt................................................ 3
WITNESSES
Matthew Levitt, Director, Reinhard Program on Counterterrorism
and Intelligence, Fromer-Wexler Senior Fellow, The Washington
Institute for Near East Policy................................. 6
Prepared statement........................................... 42
Responses to written questions of:
Senator Warren........................................... 69
Senator Cortez Masto..................................... 70
Senator Rounds........................................... 71
Danielle Pletka, Distinguished Senior Fellow in Foreign and
Defense Policy Studies, AEI.................................... 7
Prepared statement........................................... 59
Responses to written questions of:
Senator Cortez Masto..................................... 71
Senator Rounds........................................... 72
Shlomit Wagman, Affiliated Scholar and Former Chair, Harvard
Kennedy School, Israel Money Laundering and Terror Financing
Prohibition
Authority...................................................... 9
Prepared statement........................................... 61
Responses to written questions of:
Senator Cortez Masto..................................... 73
Senator Rounds........................................... 75
Additional Material Supplied for the Record
Letter submitted by Senator Cynthia M. Lummis and Representative
French Hill.................................................... 76
Statement submitted by Justice for 9/11.......................... 79
Letter submitted by Blockchain Innovation Project................ 80
(iii)
COMBATING THE NETWORKS OF ILLICIT FINANCE AND TERRORISM
----------
THURSDAY, OCTOBER 26, 2023
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee met at 10 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Sherrod Brown, Chair of the
Committee, presiding.
OPENING STATEMENT OF CHAIR SHERROD BROWN
Chair Brown. The Senate Committee on Banking, Housing, and
Urban Affairs will come to order. Welcome our new, perhaps
permanent now, Ranking Member, but at least in her first year
on the Committee she is Ranking Member today. Nice to see you,
Senator Britt.
Senator Britt. Thank you. Nice to see you.
Chair Brown. Earlier this month, the world watched in
horror as Hamas committed brutal acts of terrorism against the
people of Israel. Hamas murdered innocent women and men and
children. They attacked teenagers at a music festival. They
took hostages--families, kids. All of us are horrified. In the
days and weeks that follow, the United States has taken strong,
swift actions to support Israel as they defend their country
against terrorism and to aid civilians in Gaza. Now it is vital
to our national security that we provide critical assistance to
Israel, including robust military, economic, and humanitarian
aid desperately needed for those harmed by Hamas' terrorism.
We must stand with both Ukraine and Israel as they fight
back against two of the world's biggest threats: Putin and
Iranian-backed terrorists like Hamas. This is not a time to
play politics. We must stand united with our allies, and we
must defend American interests. We need to confirm key national
security nominees who play a critical role in working with
their Israeli partners. We have had too many delays already.
Right now, politics holds up several key positions: the
Ambassador to Israel and at least 12--12--key military
personnel that directly impact that part of the world,
preventing important work in the Middle East. It is why people
think Washington does not work. Political grandstanding,
especially as we have seen in the House, but way more than
that, is hurting America's ability to effectively protect our
interests at home and abroad, keeping talented Ambassadors and
career military personnel on the sidelines.
On this Committee, as the Ranking Member knows, Senator
Kennedy knows, Senator Tester knows, we have a long history of
keeping politics out and working together to address threats
from Russia, North Korea, and China and Iran. In the aftermath
of October 7th, we are again confronting a challenge to the
civilized world. Our humanity compels us to combat terrorism
and to hold State sponsors of terrorism, like Iran,
accountable. We must be clear. We must speak with one voice.
There is no justification for terrorism, none, ever.
On this Committee, we have a unique role to play, working
to understand the financing behind Hamas' attacks so we can
work to cutoff funding for terrorism at its source and work to
prevent future attacks. Iran has an alarming history of
supporting terrorist proxies engaged in unspeakable atrocities.
It is clear they provide significant funding for the military
wing of Hamas. They provide training. They provide
capabilities. We will assess what additional economic tools we
need to stop State sponsors of terrorism, including Iran, from
supporting Hamas, Hezbollah, Palestinian Islamic Jihad, and
other terrorist proxies. We will examine multiple terrorist
funding streams, including cryptocurrency. We will consider
additional measures to stop the flow of these funds.
In response to the brutal and horrific attacks, last week,
the Treasury Department's Office of Foreign Assets Control
imposed additional sanctions on key Hamas terrorist group
members, operatives, and financial facilitators located in Gaza
and elsewhere, including Sudan and Turkey and Qatar and
Algeria. This action specifically targeted those managing
assets within a secret Hamas investment portfolio, a Qatar-
based financial facilitator with close ties to the Iranian
regime, a key Hamas commander, and a Gaza-based virtual
currency exchange and its operator.
That is not enough. The Administration must take additional
steps to impose sanctions, and dedicate resources toward a
multilateral effort to coordinate with allies to track and to
freeze and to seize any Hamas-related assets, and take steps
necessary to deny Hamas terrorists the ability to raise funds.
We need to not only identify the bad actors, but identify their
money pipelines so we can shut off their funding. We must
undertake a more robust approach to identifying and preventing
transactions that take place not only through financial
institutions, but also through trade-based money laundering,
cryptocurrency transactions, and other channels designed to
avoid detection.
On this Committee, we have raised the alarm about crypto
and its role in illicit finance, including the use of crypto to
fund terrorists and enable rogue Nations financing them. Crypto
platforms too often do not use the same commonsense protections
that keep illicit money out of the traditional banking system,
safeguards like knowing their customers or suspicious
transaction reporting. 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. They stop one transaction, and
criminals move on to another platform with another alias again
and again and again. Terrorists know they can use crypto in
ways they could never use dollars. It is why President Trump's
Justice Department warned back in 2020 that terrorists groups,
including ISIS, al Qaeda, and the military arm of Hamas, were
raising funds using cryptocurrency. Not surprisingly, after the
attack it was reported that Hamas had raised millions of
dollars in crypto to fund their operations. We need to crack
down on the use of crypto to fund terrorism and evade
sanctions.
Last week, Senator Warren and I, along with more than a
hundred of our colleagues of both parties, wrote to the
Administration to voice concern about these issues. I am glad
that Members of this Committee, including Senator Reed and
Senator Warner, have put forth bipartisan plans for closing
gaps around digital assets in our illicit finance rules. These
are important steps forward. I welcome more ideas from anybody
on this Committee and anybody at the witness table and anybody
in the audience. We will work together on this Committee in a
bipartisan way to make sure terrorists and bad actors cannot
exploit crypto. This Committee and the Senate have a bipartisan
history of combating the ways in which Iran threatens the
region, not just nuclear weapons development, but also its
support for terrorism.
There has been a steady drumbeat recognizing the need for
the United States and our allies to maintain and ramp up
sanctions on Iran's harmful and destabilizing activities. The
Senate voted overwhelmingly to support the Countering America's
Adversaries Through Sanctions Act to impose sanctions on Iran
and North Korea and Russia. We passed the Hezbollah
International Financing Prevention Amendments Act, which
imposed sanctions on Russia, Iran, or any other foreign
Government supporting Hezbollah. And do not forget, this
Committee acted together to tighten the rules around anonymous
shell companies, which too often operate here in the U.S. and
which fund criminal syndicates and terrorists alike. We
strengthened our money laundering rules and our sanctions tools
in a bipartisan way. We will do it again. We need a
comprehensive approach to shutting off Iran's funding sources,
not just the $6 billion, but the many more billions of dollars
Iran uses to continue its destabilizing activities around the
world.
Now is the time to act. I look forward to working with
colleagues on this Committee to stem terrorist financing, to
address the problems posed by crypto, and to further strengthen
sanctions. Ranking Member Britt.
OPENING STATEMENT OF SENATOR KATIE BOYD BRITT
Senator Britt. Thank you, Mr. Chairman. On behalf of
Ranking Member Scott and my fellow Republican colleagues, we
would like to welcome Senator Butler as the newest Member of
this Committee.
On October 7th--it is a date that will forever live in
infamy--it has been nearly 3 weeks since Hamas terrorists
crossed into Israel to attack our great ally and our friend.
Make no mistake, this was an act of pure evil. I just returned
from a trip from Saudi Arabia, Israel, and Egypt just this past
weekend. I traveled with a bipartisan group of colleagues to
send a message loud and clear to the world that the United
States of America stands with Israel.
We saw firsthand what was truly unimaginable. These
barbaric terrorists wore GoPro cameras as they committed these
atrocities, so you can watch as babies were decapitated,
children shot to death in front of their parents, parents
slaughtered in front of their children, young women raped,
entire families burned to death, daughters and sons, sisters
and brothers kidnapped and taken into Gaza as hostages and
human shields. Over 1,400 innocent people were murdered in
Israel that day, and more than 200 were taken hostage. The
State Department reports that at least 10 Americans remain as
hostages and that at least 33 U.S. citizens were killed on
October 7th. As we sit here, we know who committed these acts
of evil, these acts of terror--Hamas--and we know who funds
them and trains them. That is the Iranian regime.
That brings me to why we are here today. This Committee has
jurisdiction over our Nation's economic national security
tools, including sanctions. We must use every tool at our
disposal to ensure that those who carried out these attacks and
those who financially supported them will never be able to do
that again. This Committee is also responsible for providing
oversight to ensure that every Administration enforces the laws
that safeguard our national security and the security of our
allies. That includes holding the Administration accountable
when it chooses to waive or neglect those tools. That is why I
would like to echo Ranking Member Scott's request that Treasury
Secretary Yellen testify before this Committee as soon as
possible.
There is no question that Iran is complicit in supporting
Hamas. Remember, evil cannot exist if the good are unafraid.
Iran is the world's leading State sponsor of terrorism,
providing hundreds of millions of dollars to support
organizations like Hamas and Hezbollah, as well as military
training, weapons, and munitions. Despite decades of Iranian
support for similar atrocities, including those that have
killed Americans, the Biden administration has opted to
continue the failed policies of appeasement that began during
the Obama administration.
We all know that money is fungible. Despite the
Administration's claim that when you release $6 billion to
Iran, that frees up an equivalent of $6 billion in other funds
to be dedicated somewhere else, such as supporting proxy
terrorists in Gaza. The Administration should permanently
restrict these funds, but since they were recklessly willing to
release them in the first place, I urge all of my colleagues
here today to support Ranking Member Scott's Revoke Iranian
Funding Act, of which I am an original cosponsor, and this
would take care of it.
The Administration took actions last week to sanction a
number of Hamas operatives and financial facilitators, but it
was too little, too late for what happened on October 7th. How
long has the Administration known about these financers of
terror and yet failed to act? These are answers that we need
from Secretary Yellen. The Executive branch largely has the
tools it needs to sanction State sponsors of terrorism. This
Administration needs to actually use those tools that are in
their toolbox and enforce them. We need to return to a Maximum
Pressure posture toward Iran, imposing bone-crushing,
comprehensive sanctions that squeeze Iran financially dry.
I also want to address one more important topic about this
issue here at home, in a literal sense. On college campuses and
in cities across the country, including this week in our
Nation's Capital City and even in the halls of Congress, we
have seen anti-Semitic protests justifying and even glorifying
the actions of Hamas. This is spreading propaganda, and it is
absolutely unacceptable. I never thought that in the United
States of America, in this time, we would struggle to just call
evil, evil. The actions of Hamas should not be applauded,
celebrated, or praised by any American. They are not only
contrary to the core values of our Nation, but to every fiber
in our being.
Remember, the State of Israel was created following the
Holocaust so that Jewish people would never have to hide again,
but yet that is what we are seeing happen today. And as
Americans, we have pledged since World War II, never again.
Since October 7th, that promise has been under attack, both in
Israel and here at home. We have a moral obligation to fulfill
our promise and that under our watch, never again means never
again.
And I will wrap up by saying I have sat in rooms with
families whose loved ones are being held hostage twice, both
here in the United States and when I was in Israel just a few
days ago. You see pictures like this of precious Abigail, 3
years old, that Hamas is using as a human shield, who, when you
learn her story and the story of the remaining hostages, it
will tear your heart out. We must do more. This Committee has
the power to help ensure this never happens again. This
Committee has the power to prove that America still knows good
from evil.
I look forward to hearing from today's witnesses about
solutions, ways that we can work together that will allow the
United States to stand shoulder to shoulder with Israel,
projecting unwavering American strength to deter more hostile
aggression, and hold accountable both those who carried out
these terrorist attacks and those who supported them. Thank
you, Mr. Chairman.
Chair Brown. Thank you, Senator Britt. In spite of
challenges, we will continue to do bipartisan work in this
Committee.
I will introduce today's witnesses. Dr. Matthew Levitt is
the Director of the Reinhard Program on Counterterrorism and
Intelligence. He is a Fromer-Wexler Senior Fellow at the
Washington Institute for Near East Policy. He has authored
numerous publications on terrorism and illicit finance.
Welcome, Dr. Levitt.
Ms. Danielle Pletka is a Distinguished Senior Fellow in
Foreign and Defense Policy Studies at AEI, previously a staff
member for Middle East and Southeast Asia for the
Senate Committee on Foreign Relations. Welcome back to the
Senate, Ms. Pletka.
And Dr. Shlomit Wagman is an Affiliated Scholar at the
Harvard Kennedy School, a former Chair at the Israel Money
Laundering and Terror Financing Prohibition Authority. She has
extensive experience and expertise in financial regulation,
digital assets, money laundering, and terrorism financing.
Thank you for making the trip to testify here.
Dr. Levitt, you can begin.
STATEMENT OF MATTHEW LEVITT, DIRECTOR, REINHARD PROGRAM ON
COUNTERTERRORISM AND INTELLIGENCE, FROMER-WEXLER SENIOR FELLOW,
THE WASHINGTON INSTITUTE FOR NEAR EAST POLICY
Mr. Levitt. Chairman Brown, Ranking Member Britt,
distinguished Members of the Committee, thank you for the honor
and opportunity to testify before you today. The bipartisanship
I see on this issue is a welcome breath of fresh air.
I think we need to recognize that the attack on October 7th
was one of the worst acts of international terrorism by any
measure, including if only by measuring the number of American
victims that were targeted. As we think about how Hamas is
financed, we need to understand a few things. There will be a
tendency to try and figure out right now how this attack was
financed. There will be time for that, but I think we need to
take a step back. This attack was financed over decades. Hamas
has been able to raise funds through multiple means over a long
period of time. That is the underlying issue here, not just the
money that came in for this particular attack.
There have been constants and there have been developments
in Hamas' financing over the decades. The constant is Iran,
full stop. Iran has funded Hamas since it was founded in late
1987, generally a continual uptick in funding. Even when Hamas
and Iran broke over Hamas' refusal to back the Assad regime in
Syria, the funding from Iran did not completely stop. They cut
back some of their funding for the political activities, but
the funding for the military activities did not stop at all,
and pretty soon after, it picked up in full measure.
One of the things that is a development, however, is that
in 2007, Hamas took over the Gaza Strip by force of arms, force
of arms, it should be noted, not against the Israelis, who had
already withdrawn, but against fellow Palestinians. When they
did that, they created a problem that we just saw and
experienced with the Islamic State. What happens when a
terrorist group controls territory? You are able to tax. You
are able to extort. You are able to racketeer. You are able to
control borders. You are able to control customs, and you raise
a tremendous amount of money.
So recently, Hamas' single largest source of income has
been controlled territory, probably at least 2 or 3 times as
much money as they get from the Iran, and the U.S. Government
says that that is at least $70 to $100 million a year from
Iran. It is probably somewhere between $300 million and $450
million that they have been able to raise through control of
territory. If the Israelis succeed in dislodging Hamas from
their governance and military infrastructure project in Gaza,
that will be the single most significant way to deny them
funds, but it will also remove from Hamas their largest
expenses. They will not have to pay teachers' salaries and
collect garbage, so they will need less money to continue
terrorism, as we saw with the Islamic State. We are not going
to destroy Hamas, we did not destroy Islamic State, but we can
inflict territorial defeat on them, Hamas, as we did with the
Islamic State.
There are two other primary ways that Hamas has raised
money over time. One is abuse of charity. At one point, the
largest Muslim charity in the United States was a charity
created by Hamas, The Holy Land Foundation for Relief and
Development, in Richardson, Texas, outside Dallas, designated
by Treasury. Later, several of its leaders were convicted on
all counts for material support to Hamas.
There was a period of time when this became less of an
issue. It never stopped, but it was less of an issue. Now it is
a bigger issue again, and just in the past few weeks, we see
the Union of Good, an umbrella organization created by Hamas to
oversee Hamas charities, designated by the U.S. Treasury years
ago, active again soliciting funds. We see the revival of the
Islamic Heritage Society, again, designated charity tied also
to al Qaeda, based in Kuwait, raising money, millions of
dollars for Hamas in the wake of the October 7th attack.
We should expect to see more. In fact, after every conflict
that Hamas has started, we have been an uptick in funding,
including not only through crypto, and we should anticipate
that that will be the case here, too. Crypto is an important
way of raising funds through crowdfunding, but I think it is an
even more important thing in terms of how they move money,
which I will get to in a second. And finally, the Hamas Finance
Committee and its investment committees. There have been three
Treasury designations about that, as the Committee just noted a
moment ago. There is a lot to talk about there, in particular,
the role of Hamas ``politicians'' overseeing these funds.
Finally, I will just say, we need to pay as much attention
to how terrorist groups like Hamas transfer funds as we do to
how they raise funds, and I am happy to talk about that, if
there is interest, in the questions and answers. And we need to
pay attention also not only to the funding, but the resourcing.
Seventy to $100 million a year from Iran, that is cash, but
there are also weapons. Look at all the weapons the Israelis
confiscated--Kalashnikovs, RPGs, anti-tank guided missiles. How
did those move? How did they get there? I am interested not
only in the cash but in the resources. At the end of the day,
we can do even better than we have done on this target, and I
think one thing we are going to have to do is better balance
great power competition and counterterrorism. They are not
mutually exclusive. Thank you so much for your time today.
Chair Brown. Thank you, Dr. Levitt. Ms. Pletka, welcome.
STATEMENT OF DANIELLE PLETKA, DISTINGUISHED SENIOR FELLOW IN
FOREIGN AND DEFENSE POLICY STUDIES, AEI
Ms. Pletka. Thank you very much. Mr. Chairman, Senator
Britt, Members of the Committee, I am honored to be here, and I
am honored to be with these two witnesses.
Let me underscore at the outset that the big money, the
big, big money in this terror financing story comes from Iran,
and specifically from its oil sales. But let's talk for a
moment about the $6 billion in cash that the Biden
administration transferred to Qatar from accounts in South
Korea for Iran's use in September. That $6 billion was
advertised as payment for the release of five hostages, but it
was also widely understood to be the consideration paid for an
understanding between the Biden administration and the Iranian
regime about its conduct over the coming months, an
understanding constructed, of course, to evade congressional
review under the terms of the Iran Nuclear Agreement Review Act
of 2015.
The Biden administration has said that it will not allow
the money to be used right now. Qatar has sent mixed signals
about whether that is correct or not. Should Qatar defy the
wishes of the U.S. Government and proceed with the disbursal to
Iran, there are steps that you can take. First, it is important
for Congress to ascertain whether the Government of Qatar has
agreed to make Iran whole while it withholds that particular $6
billion from South Korea. In that scenario, Qatar could simply
hand over its own cash to Iran and then pay itself back later.
Second, if Qatar is actually disbursing the cash from South
Korea, focus on the banks. If it chooses to become a financier
of the Islamic Republic of Iran, the U.S. Government has
options under law, as do you.
But let's talk about the really big money. Iran's total
revenue from oil exports since 2021 is between $81 and $91
billion. Iranian foreign exchange reserves have doubled,
growing from $12.4 billion in 2020 to $21 billion in 2023.
Since 2021, the estimated value of Tehran's additional oil
sales, the difference between its realized revenue and what it
would have earned had its exports remained at the Maximum
Pressure level, was $26 to $29 billion. How did that happen? It
is simple. The U.S. Government allowed it to happen. Iranian
oil sales have skyrocketed in the last 2\1/2\ years. Why? It is
one thing: enforcement.
It is no secret that President Biden hoped to reenter the
JCPOA. Simply, the White House or, more accurately, the
Treasury Department, stopped imposing serious sanctions on
Iranian oil exports. Who was buying it? Mostly the Chinese,
although there are plenty of others that I have listed in my
testimony.
Now the cost to Iran of supporting its terror proxies is
not cheap. In 2018, the Treasury Department pegged Iranian aid
to Hezbollah at more than $700 million per annum. Hamas
reportedly costs Iran about $100 million, but there are other
estimates that suggest that it is up to $350 million a year. As
Matt suggested, some of that is the cost of weaponry.
Palestinian Islamic Jihad gets tens of millions.
To give you a sense of what happens when Iran has less
money at its disposal, during the height of the so-called
Maximum Pressure campaign, transfers to Iran's terrorist
proxies dropped dramatically with Hezbollah is complaining to,
of all places, the Washington Post about furloughs, cut
salaries, and necessary withdrawal from Syria, where they were
fighting to support the Assad regime. Hezbollah was so strapped
for money, it doubled down on the organ trafficking, which also
helps it earn.
Terrorist groups do have other sources of income. Hamas, as
Matt said, earns substantial amounts from corruption, from
taxes, from holding that territory of Gaza. But senior Hamas
officials, who are located in both Gaza and Qatar, are worth
billions. The head of Hamas is worth an estimated $4 billion.
His predecessor is worth an estimated $2\1/2\. That is a lot of
money.
So I want to turn back for a second to Qatar because we do
not talk enough about it. What role does it play in the Middle
East? It enjoys positioning itself as an entrepot, just a
middleman with no real favorites. That is, if I may use a term
of art, garbage. Qatar's favorites are the Islamist extremists
it promotes with its pet TV channel, Al Jazeera. Who lived in
Qatar? The Taliban, al Qaeda, Hamas, ISIS leaders, all of them
cheek by jowl with one of the U.S.' most important bases in the
region, Al Udeid. Now is the moment Congress should be asking
questions of Qatar.
What else should you do? Expose how U.S. assistance to both
the West Bank and Gaza is enabling the perpetuation of Hamas'
rule. Expose how UNRWA, the recipient of almost $6 billion in
U.S. assistance since 1950, has aided, nurtured, and fronted
for Hamas. Ask why it is that Lebanon, a country ruled by
Hezbollah, a beachhead of anti-Israel attacks at its northern
border, has been able to skate without a State-sponsored
designation. And if I may have about 20 more seconds to finish
up. And most importantly, shut down the loopholes in sanctions
enforcement that since 2021 have been permitted to facilitate
Iran's accumulation of cash that funds and arms and trains
Hamas, Palestinian Islamic Jihad, Hezbollah, and so many
others. Specifically, use the language in existing legislation,
like INKSNA--the Iran, North Korea Sanctions Act--to require
that the Executive branch notify you of every instance in which
it has credible information that there has been a sanctions
violation, and justify to you its inaction in the case that it
does not impose sanctions.
Second, use the language of CAATSA, which the Chairman
mentioned, to require every waiver of sanctions to be notified
to Congress with 30 days' notice, and put in place expedited
procedures for an up-or-down vote in both chambers on whether
to approve or disapprove that waiver. Go after the big money
funneled to the terrorists by Iran. Go after the oil sales. Go
after the terrorist enablers. That is what fuels the savagery
of October 7th. Thank you.
Chair Brown. Thank you. Dr. Wagman, welcome.
STATEMENT OF SHLOMIT WAGMAN, AFFILIATED SCHOLAR AND FORMER
CHAIR, HARVARD KENNEDY SCHOOL, ISRAEL MONEY LAUNDERING AND
TERROR FINANCING PROHIBITION AUTHORITY
Mr. Wagman. Thank you very much, Mr. Chairman Brown,
Senator Britt, and distinguished Committee Members. I am
honored to be here today and discuss with you terrorism
financing. But before getting into the professional aspects, I
would like to share with you a personal story, the story of two
kids from my children's school in Israel, the Green Village.
Iftak and Yonathan, 8th and 11th graders from our school,
spent the weekend of October 7th in the south of Israel getting
ready for a peace festival organized by their father, Aviv in
which they were supposed to send up to the sky dozens of kites
to send a message to their neighbor, Palestinian, about peace
and coexistence. On Saturday morning, instead of eating their
pancakes, a group of terrorists broke into their house, placed
all of them in their parents' bedroom, and slaughtered all of
them together in their parents' bed. A family of five, three
innocent children--two of them went to school with my
children--were buried together last week.
At the same time, another person, Romi Gonin, a 23-year-old
student, a nephew of one of my colleagues at the Israeli
fintech, Rapyd, was dancing in a music festival. That morning,
the terrorists started to attack them. She got shot while
escaping from the terrorists' bullets and kidnapped. There is a
voice recording of hearing her saying that she was captured and
that they are taking her. She is now being kept hostage in
Gaza.
The Katz family is one of 1,400 people who were brutally
slaughtered, burned alive, beheaded, and raped while at their
home or at the music festival. Romi is part of 2,200 people
from 37 nationalities, including women, children, and elderly,
that are held hostage by Hamas in Gaza. Those horrifying
stories against civilians seems to be taken directly from
ISIL's playbook, and those creeds actually appeared in booklets
of guidance found on ground after the attack.
And by talking about these attacks, I just want to take
this opportunity to make it clear, especially in light of the
conversations that are now being held over campuses in the
U.S., including Harvard University, where I am located right
now, that those people are not freedom fighters, full stop.
Freedom fighters do not murder, brutally and in purpose,
slaughter and rape, and all the other things, women, children,
and elderly. Those are crucial terrorists who conducted
horrible actions toward innocent civilians, and they are also
taking very bad actions against their own people as well.
So as Hamas adopted obviously ISIS' practices, we, the
global community, should also treat them in a similar manner
and impose the full package of financial sanctions over Hamas,
as was done with respect to al Qaeda and ISIS. As we all know,
terror organizations cannot exist without funding. Those
activities cost a lot of money, and there are many counterparts
that fund that. In order to efficiently combat terrorism, we
need to cut their oxygen, their funding, exactly like the U.S.
did after September 11 and with respect to ISIS.
I was asked to focus in the discussion of my testimony
today about the field that I am researching and writing about
at Harvard and after leaving the Israeli Government and the
FATF, about cryptocurrencies, and I will answer all your
question on that respect and propose an action plan. But at the
same time, I do want to highlight, let's do not lose sight and
focus from the big picture.
Crypto is currently a very small part of the puzzle. The
major funding channels are, were, and remain State funding.
Iran and others, those are the major players. Most of the funds
are still being transferred by the traditional channels that we
all know from the past--banks, money transmitter, payment
system, Hawala money exchange, trade-based terrorism financing,
charity, cash, shell companies, and crypto.
The effort should be global and focus on imposing global
sanctions on Hamas and their sponsors, as was the case with
ISIS. We should ensure that we are doing the right designations
and enforcing them, not only designation by certain countries
like the U.S., the EU and others, but actually to create a
global environment to make sure that all currency and all
States are covered. We need to make sure that we have full
transparency regarding the involvement of neighboring economies
and additional measures.
As I see that my time is about to end, I will save my
additional comments to the Q&A session. But I do want to
highlight that the fight against terrorism financing indeed is
a complex and challenging one, but it is a fight that we must
win. We must protect our citizens from the threat of terrorism,
and we must do it by cutting off the flow of money in terrorism
organizations. Let us find a way to ensure that those actions
will not happen again, not in Israel, and also not in other
countries in the world. Thank you so much.
Chair Brown. Thank you, Dr. Wagman. Before I begin
questions, I would like to introduce the Senator from
California, Senator Butler, for her first hearing on Housing,
Banking, and Urban Affairs. Welcome. Glad you are here.
Dr. Levitt, I will start with you. Given Iran's role in
funding terrorist groups and the array of financing
possibilities available to Hamas, two questions about that.
What is the most effective terrorist financing measure to
restrict funding for Hamas, and does the same apply to
Hezbollah?
Mr. Levitt. So we are going to need to take a basket of
actions regarding Hamas. If there was one thing I could do
right now, it would be to take the Hezbollah International
Finance Prevention Act model and expand it. Somebody explain to
me, please, why we only apply secondary sanctions to some
foreign terrorist organizations. One of the things I think we
are already seeing, Treasury officials are going to the Gulf,
Treasury officials are going to Europe, and this issue, Hamas
financing, is top of the agenda. Anticipate that one of the
things they are doing is very firm sanctions diplomacy.
I will give you an example. The most recent Treasury
designation of Hamas targets, the finance committee and the
investment committee, the third round of targets on these
issues came this week. It is great. They targeted some
important people. It has made a difference. At least one of
those people, according to the designation, was still working
for a Hamas front company in Turkey that was designated last
time. If sanctions diplomacy alone will not convince, in this
case, the Turks to do the right thing, secondary sanctions
offer some pretty significant leverage to be able to get that
done. The investment committees alone are raising hundreds of
millions of dollars for Hamas. It is not illiquid, but it is
there, and this is a very important issue, especially as Hamas
loses control of territory, and we have to look at charity,
investments, and Iran.
Second, I am kind of tired of people debating what role did
Iran play in this attack. It will all come out eventually.
There was a joint operations committee--their term, not mine--
that Iran, Hezbollah, and Hamas have been running in Beirut for
at least the last 2 years. Just yesterday, leaders of these
terrorist groups were back meeting with Iranian leaders. Iran
has funded, armed, trained, wound up, and pointed at Israel,
Hamas, and other terrorist groups for decades, and we are
pretending that we are surprised that Hamas is doing something
like this.
Iran is ultimately responsible, and, therefore, there have
to be consequences. Whether it is the $6 billion, whether it is
other things, Iran's ability to finance terrorism has to be
dealt with today. And the idea of putting these Iran issues in
silos, prioritizing only the nuclear program--which is
important, do not get me wrong--at the expense of its
sponsorship of terrorism and malign activities in the region,
well, we saw the consequences. The runt of the Iran threat
network, the smallest and least capable of Iran's proxies, just
brought the region hopefully just to the brink of regional war.
Imagine what Lebanese Hezbollah, the Iraqi Shia militias, the
Houthis could do, so the time to act is now.
Chair Brown. Thank you. Dr. Wagman, a few years ago, the
way terrorist groups exploited crypto was pretty simple. They
raised money with Bitcoin. Walk through, if you would, how bad
actors innovated, understanding that, as all of you said, one
way or another, crypto is not the major source of funding. But
talk, as it is growing and we learn more and more about crypto
activities, whether it is drug running or child trafficking or
financing terrorism, how are they innovating in how they use
crypto? How do our legal and technological tools need to evolve
so that we can keep up?
Mr. Wagman. Thank you very much for the question. So indeed
crypto currencies can be a paradise for illicit actors because
they preserve some sort of anonymity and coverage. In order to
combat that, the international community via the Financial
Action Task Force--the FATF--established a toolbox in order to
be able to trace that. So now we have those standards, we are
actually enforcing a set of rules in order to follow those
activities and those actions.
We see that there is a major impact for that rules, and I
could deliberate on that a little bit later, but at the same
time we do see that bad actors are trying to avoid that. And
with respect to people speak about Hamas, we see that there are
two channels in which they are using that, first for
fundraising from, you know, the public, doing crowdsourcing and
so forth, and another way is to transfer fund between the
organizations. However, as I mentioned, this is not a large
part of their budget, but there is a tendency they may grow in
the future.
The overall package of potential regulation--or not
potential--actual regulation that is already enforced in many
countries have proven to be very effective. Law enforcement
community developed tools to investigate that, trace that, and
follow that. And for example, the Israeli authorities were able
to seize and freeze about $7 million from Hamas in fundraising
campaign that they ran, so this is one of the examples on how
we could actually trace that. We see many organizations around
the world that are still trying to work on that. They are early
adopters, to some extent, but like any other field of terrorism
financing and money laundering, this is a game, you know,
between the good guys and bad guys.
Chair Brown. Thank you. Senator Britt.
Senator Britt. Thank you, Mr. Chairman, and on behalf of
the Ranking Member and my Republican Colleagues, Senator
Butler, we want to welcome you to your first Banking Committee
hearing today.
As I mentioned, having just returned from Israel and seeing
the evil that Hamas firsthand, I, along with my colleagues that
went, a bipartisan delegation, are more committed now than ever
to making sure that we look at every single opportunity to
cutoff funding to Iran and to end all of this once and for all.
Mr. Levitt, you said, and you have served in various roles,
obviously, when it comes to, you know, counterterrorism and
financial intelligence, in both at the State Department and
there at Treasury. I would like to know, given your experience
in this space, you talked about both the raising of money by
Hamas and the transfer of money. I want to focus on the
transfer. Tell me, practically speaking, how that works from
money going from Iran to Hamas or Hezbollah.
Mr. Levitt. Thank you for the question. There are multiple
ways that Iran transfers money. First of all, it is able to fly
money and goods to Syria, transfer them physically to
Hezbollah, and then be able to transfer them on by trade-based
money laundering, by Hawaladars, by money exchange houses,
trade-based money laundering, into the West Bank or the Gaza
Strip. We have even seen Iran and Hezbollah do things like
deposit money into a third person's account who is not actually
a Hamas member, maybe their wife's hairdresser, but, you know,
when Hamas says do that, you are not really in a position to
say no. We have seen them send people with credit cards, and so
there are multiple ways to move the money.
Senator Britt. So when you look at these multiple ways, if
you were to just give an estimate of the percentage of Hamas
and Hezbollah, their total revenue that comes from Iran, what
would that number be? What would that percentage be?
Mr. Levitt. The number that the U.S. Government has been
using--and this is money, not other things, so it is total
more--is about $100 million for Hamas, fluctuating between $70
and maybe $120 probably at the higher end recently, and $700
million to $1 billion for Hezbollah, much, much larger budget.
Senator Britt. So on the percentage-wise, though, if you
were to kind of sort of take the total picture there, what
number would you give that?
Mr. Levitt. For Hezbollah, nobody knows is the simple
answer. For Hezbollah----
Senator Britt. But your guess.
Mr. Levitt. ----it is the overwhelming majority.
Senator Britt. OK. Ninety percent?
Dr. Levitt. They have their own----
Senator Britt. I have heard on the ground, maybe 90 percent
of their funding comes from Iran.
Mr. Levitt. It is possible. Hezbollah has its own
independent illicit financial streams, which are significant,
probably less than 90, but it is a lot----
Senator Britt. A lot.
Mr. Levitt. ----and it is constant.
Senator Britt. So I want to shift gears just a little bit.
Obviously, this Administration with regards to not enforcing
Iran sanctions on the oil trade with countries like China,
Russia, Venezuela, allowing Iran to profit over about $80
billion since President Biden took office, I think without
question the Iranian regime has used this $80 billion in
profits for a number of illicit activities, a lot of which we
are talking about here today. So with adversaries like China,
when they are unwilling and they just disregard U.S. sanctions
and the Iranian regime directly benefits, I believe it is
totally and completely unacceptable. My question to you is,
what can we do better as a Nation, looking back, to stop this?
What has the U.S. not done, and also, Mrs. Pletka, I would like
for you to answer this. What are we not doing from a U.S.
perspective that we should be doing right now to stop this? Go
ahead, Mr. Levitt.
Mr. Levitt. So first of all, as I said earlier, we need to
spend more time paying attention to how they transfer the funds
because there are things we can do to frustrate their efforts.
That is important because at the end of the day, for all these
billions----
Senator Britt. Mm-hmm.
Mr. Levitt. ----Iran is able to prioritize a billion, a
billion bit. Even under Maximum Pressure, they were financing
Hamas and Hezbollah. Second, we need to do more to target this
income that Iran has because it uses so much of its income to
finance not only Hamas and Hezbollah, but Houthis and Shia
militias, too.
Senator Britt. Absolutely, and I am so sorry. I am running
out of time. Mrs. Pletka, do you mind speaking directly to that
and what more the U.S. can do to crack down on these sanction
violations?
Ms. Pletka. We can crack down on the sanctions violations.
Senator Britt. That is what I am talking about.
Ms. Pletka. That is what is not happening. What we have
done in the last 2\1/2\ years, there have been absolutely
sanctions imposed, a lot of sanctions imposed on Iran, but in
the oil sector, they have mostly been small ball.
Senator Britt. OK.
Dr. Pletka. We have gone after small traders. We need to go
after the big purchasers, especially the Chinese, but India,
Russia, and others. We do actually have leverage in the form of
secondary sanctions, trade, and other tools at our disposal.
Senator Britt. And last, I am running out of time, but you
spoke specifically about loopholes that are being used. Can you
speak into that so that we can know what we need to be doing
differently?
Ms. Pletka. As the Chairman noted, I used to be a
congressional staffer, so I pay a lot of attention to
legislation. The problem in a lot of legislation is that it
does not force action. In other words, it does not force the
Executive branch--Republican, Democrat, Martians, whatever they
are--into doing something once they know. There are no good
triggers in a whole series of important pieces of legislation,
but that model exists in the Iran, North Korea Sanctions Act,
which is when you see it, you must notify--you. And then you
must tell us what you have done, and if you have done nothing,
you must tell us why. That is a loophole big enough to drive
billions of dollars of earnings for Iran through that then goes
to our friends, the terrorists.
Senator Britt. Thank you. Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Britt. Senator Reed of
Rhode Island is recognized.
Senator Reed. Thank you very much, Mr. Chairman, and like
Senator Britt, I had the opportunity to travel to Israel and
the region last weekend, and the horrific events of the last
several days have really, I think, focused the whole world on
how we can disrupt and degrade these terrorist organizations.
Mr. Levitt, one point I think you made, though, is even under
the Maximum Pressure Campaign of President Trump, Iran was
still funding these organizations at a robust level. Is that
accurate?
Mr. Levitt. It is. It is not pointing a finger at any one
Administration.
Senator Reed. Right.
Mr. Levitt. But the fact is the numbers of $100 million to
Hamas and $700 million to a billion to Hezbollah, were numbers
that came out in the Trump administration. Because Iran does
not care about its citizenry and does not prioritize it, it
does not matter if people are freezing in a cold winter and do
not have gas for their homes. They are going to prioritize, and
because Iran is a big economy, even under sanction, it can do
this.
Senator Reed. Right, but that has to be considered when we
think about imposing sanctions on Iran because, in fact, what
they do is deprive, as you said, their own people of basic
necessities in order to keep funding these revolutionary
movements, in their view. Is that fair?
Mr. Levitt. At the end of the day, Iran has to be held
responsible for its significant role in these heinous attacks.
Some of that is going to have to be sanctions.
Senator Reed. Yeah. No, I agree. One of the issues, I
think, is because of the proximity and also the controls that
the State of Israel has on Gaza, particularly, and Hamas, is
what role can we play with Israel to effectively interrupt the
flow of resources, weapons materiel to Hamas?
Mr. Levitt. I really appreciate that question because I
think this is something that needs to get a lot more attention.
How did all those weapons that Hamas just used get in? There is
going to have to be a more robust maritime effort. There is
going to have to be more robust surveillance of what goes into
Syria. It cannot be all on the Israelis to do airstrikes
targeting Iranian weapons supplies to Hezbollah in particular.
We failed here. All of us failed here when you look at the
weapons that got in, and we are going to have to do better.
U.S. has unique capabilities here, and I think the
Administration has been very, very clear that it intends to use
them to help Israel.
Senator Reed. And this would be a collaborative effort.
Both the world community and Israel has to focus on these
networks by both covert and overt means, such as tracking bank
accounts, et cetera. But I think, frankly, this was an area
that we all missed, you know, or we tolerated in that we knew
this money was going into Hamas, but there was no preemptive
action by any of the major powers. Is that fair?
Mr. Levitt. There was a lot that was missed, but there was
also a major policy error, by everybody involved, on the
calculation that Hamas was deterred, and that so long as money
went in for salaries, and it is not just that we knew it. We
encouraged it. The Israelis encouraged it so that there would
be calm in Gaza. That calculation failed miserably----
Senator Reed. Yes. Yes.
Mr. Levitt. ----and is going to have to be revisited.
Senator Reed. No, I think you are absolutely right. I think
there was a perception that Hamas had become just another sort
of organized crime operation with no serious plans to attack
Israel, and as long as we paid them off, we would be OK. That
is a little bit vernacular, but I think that since has some
relevance.
Mr. Levitt. Sir, I think it is spot on. I cannot reiterate
enough Hamas did not attack because of occupation. Hamas did
not attack because there is no two-State solution. Hamas is
dead-set against a two-State solution or any solution that
would have anything but an Islamist State and no Israel.
Senator Reed. You know, again, I think Hamas hates Israel
and has no regard for the Palestinians either. They are pawns
in their operations, and we have to recognize that as well as
their profound hatred of Israel and the State of Israel. Dr.
Wagman, one of the things that we have been working on with my
colleagues, Senator Warner, Senator Rounds, and Senator Romney,
is legislation that would go after the intermediaries, the
decentralized financed arrangements. Could you comment very
briefly--I am running out of time--about that?
Mr. Wagman. Yeah, sure. So in order to conform to the
threats of this technology--like any other technology, it can
be used in many different ways--a toolbox should be developed
and actually has been developed and should be continued
developing, in order to be able to do some tracing and to have
some accountable parts that we will be able to identify the bad
acts that are going there. Because most of the activities is
going over the blockchain and there is a lot of transparency,
we could actually use this technology in order to trace the bad
actors.
One of the things that we have recently seen is that Hamas
stopped its fundraising through Bitcoin because the Israeli
authorities were able to trace that. And perhaps to add to
that, it is not only the intelligence community that is able to
do that, but here, because everything is transparent, we could
do a lot of work by the private sector. And we see a lot of
crowdsourcing activities of people that actually go after and
try to find those networks and then report that to the
authorities. So that is a very interesting balance that changed
in intelligence communities.
Senator Reed. Thank you very much. Just for the record, the
bill number is S. 2355, so I ask for support.
Chair Brown. Thank you, Senator Reed. Senator Tillis from
North Carolina is online, I think, from his office.
Senator Tillis. Thank you, Chairman, and thanks to the
panel for being with us today. Ms. Pletka, I wanted to talk a
little bit more, drill down a little bit more, based on your
opening statement, about the complex web through which Iran
funds terrorist operations, including Hamas and Hezbollah, but
I would like to shift a bit more toward Qatar. We know that
they provide aid. We know that money is fungible. Can you tell
me, if you have any information available for the Committee,
give me an idea of what we should be concerned with in terms of
those money flows and, with money being fungible, being used
for malign purposes versus the purposes originally intended?
Ms. Pletka. Thank you for the question. So I think, as Dr.
Levitt mentioned, part of the challenge here is that Qatar
plays a double role. The first is helpful interlocutor, a
neutral Government that provides money to Hamas to take the
pressure off, something that the Israelis and the Americans and
others have long been aware of. The problem is that, first of
all, this arrangement, a deeply, deeply Faustian deal that
ended up helping Hamas gather the money necessary to do what it
did on October 7th, but there is blame to go around. But the
broader problem is that Qatar is a home, a home for terrorists,
a home for terrorist money. It is a place where Ismail Haniyeh,
the head of Hamas, lives in enormous wealth, $4 billion. Yes,
part of that is in real estate in Gaza. Part of that is in real
estate elsewhere. Part of that is in villas.
This cannot be. We cannot have, on the one hand, a U.S.
base and a nominal friend who also presents a homeland for
every single terrorist group that, by the way, has been
responsible not simply for the murder of Israelis, not simply
for the murder of Americans in Israel, but responsible for the
murder of Americans in Iraq, responsible for the murder of
Americans all around the world. This is the challenge, and my
most important priority here is to ask the question, what are
they doing? How are they doing it? Are they providing financial
flows to Hamas outside the arrangements they made? Of course
they are. Are they providing financial arrangements to ISIS and
to Hezbollah, as has been alleged in years past? Probably. They
have unique influence with those groups, and unique influence
does not just come from being a nice guy in the Middle East.
Senator Tillis. Yeah, and honestly I think you have
answered those questions. I believe probably that you are
correct, and we need to get to the bottom. I want to talk a
little bit about the Biden administration where I am at odds
with their Middle East strategy and the assumption that Iran is
a rational and could potentially be a good-faith actor. I do
not see any logic behind that, and I think it was that logic
that led, at least initially, to the $6 billion that was going
to be released to Iran.
So does anything--and Ms. Pletka, this is for you or anyone
on the panel that may want to answer--does anything lead you
all to believe that having that posture from this
Administration is productive and has any foundation or
justification? And, Ms. Pletka, we will start with you, but I
am just trying to get why we would think that Iran has any role
to play in deescalating the tensions in the Middle East, based
on their past behavior.
Ms. Pletka. Well, this was a conceit of the Obama
administration, that, in fact, if we could get Iran to step
away from its aggressive nuclear weapons program, that they
would eventually evolve into a more constructive player in the
region. The reverse has been true. I do not think there is any
reason on earth--after Iran has armed the Hashd al-Sha'bi, the
Popular Mobilization units in Iraq, Hezbollah in Lebanon, the
Houthis in Syria, Hamas, Palestinian Islamic Jihad, and
numerous other groups--there is no reason to believe why Iran
has a constructive role to play in any sense.
And let's not forget, please, we talk about what Iran does
to these countries, how Iran has been responsible for the death
of Americans and Israelis. Let's not forget what Iran does to
its own people. Mahsa Amini was a great cause for us last year.
Last week, they murdered another 16-year-old girl for exactly
the same reason. This is an execrable regime. I am going to
leave a second for you, Matt.
Senator Tillis. Yes, Mr. Chair, if I may, because I want to
be mindful of time, if anyone on the panel disagrees with the
position that I have taken or the response from Ms. Pletka, I
would like to give them equal time.
Mr. Levitt. Thank you so much for the question. I am too
smart a man to disagree with Danielle Pletka publicly, but I do
think, at least in my conversations with Administration
officials, I have yet to hear anybody use that type of
language. I do not know anybody in the Biden administration who
thinks Iran has a constructive role to play. I think there were
people who think----
Senator Tillis. Then maybe perhaps you could get to why we
would actually--well, we know the mistakes of the Obama
administration--but why we would even put $6 billion on the
table if, in fact, that is not true.
Mr. Levitt. I think the $6 billion, which I had problems
with, was entirely about securing the release of American
citizens. And if someone else had a better idea for how to
secure the release of these Americans, I would be all ears.
Giving Iran $6 billion was extremely uncomfortable, but I think
it was not in a vacuum. We were trying to secure the release of
Americans, which is a national priority.
Senator Tillis. But I think the irony of it is, money being
fungible, it could be those very dollars that now have some 200
people being held hostage by Hamas. Thank you, Mr. Chair.
Chair Brown. Thank you, Senator Tillis. Senator Menendez of
New Jersey is recognized.
Senator Menendez. Thank you, Mr. Chairman. Through Iran's
funding of terrorist organizations, it continues to work toward
the delegitimization of Israel. Iran has to be held accountable
for its role in funding Hamas and other terrorist groups, and
while I applaud the Treasury Department's recent sanctions on
individuals identified as key Hamas terrorist group members,
operatives, and financial facilitators, much, much more has to
be done to prevent malign actors like Iran from financing proxy
terrorist groups.
Ms. Pletka, in a recent article, you wrote that the United
States has chosen not to enforce its sanctions on Iran. It is
certainly bothersome to me since I was the architect and author
of most of those sanctions. What do you mean by that, and what
recommendations do you have for the U.S. to do better
enforcement of existing sanctions?
Ms. Pletka. Thank you, sir, and Menendez-Kirk is great
legislation, so thank you for your leadership on that. As I
said in my opening testimony, I think there is a lot that
Congress can do to tighten the screws. Why do I think the
Administration is not enforcing sanctions? There is a hope,
there has been a hope, that the United States could either
modernize or reenter the JCPOA as it was if it was able to
secure Iranian cooperation. To me, that is a fantasy land, but
it certainly represented the ambition at the beginning of the
Administration. I hope it is no longer.
What can you do? First of all, we need to go after
everything, and that, I think, has been the message from the
entire table. We need to go after all spigots that are funding
Iran and enabling Iran to fund its proxies around the region.
That means oil sales. It means every other activity that the
Iranians are involved in. We see these illicit oil sales. We
also see, by the way, illegal transfers between Russia and Iran
exchanging grain for oil. All of these are opportunities.
We have task forces in the Persian Gulf that can be used to
interdict ships. We have options at our fingertips to deny even
ships on the high seas insurance, to go after them in a whole
variety of ways, but the most important thing is to impose a
cost on the buyers. They are the ones helping Iran fund these
groups, and most importantly in that group is the Chinese
Government, the Communist Chinese Government in Beijing.
Senator Menendez. Yeah, and that is an issue I have raised
before, which is the Chinese are buying enormous amounts of
Iranian oil and Russian as well, and so at the end of the day,
you have to make a conscious decision. If you really want to
sanction and stop the flow of money, you have to pursue, as you
suggest, the buyer because without a buyer, there is not a flow
of money at the end of the day.
In September, you know, the U.S. agreed that it would
unfreeze $6 billion in Iranian funds. However, in light of
Hamas' attack on Israel, the U.S. and the Qatari Government
have agreed to temporarily prevent Iran from obtaining access
to the $6 billion. It seems to me that the goal of any
sanctions regime is to use economic leverage to bring about
changes in a foreign actor's behavior. With that said, Iran is
obviously openly hostile toward Israel. It supports Hamas, and
while it denies that it assisted Hamas' terrorist attack
against Israel, Hamas does not have the intelligence and
technological capabilities to launch such an operation. That
can only come from a State actor, and the only State actor who
would help Hamas is Iran.
Dr. Wagman, should not one of the conditions for unfreezing
the $6 billion is the cutting of all ties by Iran to Hamas and
its flow of money to it?
Mr. Wagman. Thank you for the question. I am not fully
familiar with the U.S. policy and approach in those aspects,
but I would say that obviously Iran is financing Hamas, and I
do believe that any action that can prevent that should be
taken, anything that stop the funding to Hamas.
Senator Menendez. Well, it just seems to me, and of course
we always want to get American citizens back, but that brings a
larger question. We should not let American citizens travel to
countries where they are likely to be hostages, i.e., Iran,
Russia, and others, because then we put ourselves in a hostage
situation. But it also, I think, encourages other countries to
say if you detain Americans illegally, then you can hit a cache
of gold, and that is something that we just simply should not
allow. Thank you.
Chair Brown. Senator Kennedy of Louisiana is recognized.
Senator Kennedy. Thank you, Mr. Chairman. Dr. Levitt, Hamas
runs Gaza. Is that correct?
Mr. Levitt. Yes, sir.
Senator Kennedy. And lots of people help Hamas, do they
not?
Mr. Levitt. There are people who help. There are lots of
people in Gaza who oppose Hamas as well.
Senator Kennedy. Well, Qatar sends Hamas $10 million a
month to run the place, does it not?
Mr. Levitt. It has.
Senator Kennedy. The Palestinian Authority, which the
people of Gaza rejected in favor of Hamas, pays Gaza's
electricity bill. They keep the lights on for Hamas, do they
not?
Mr. Levitt. Well, to be clear, the people of Gaza did not
reject the Palestinian Authority. Hamas took over----
Senator Kennedy. I do not want to----
Mr. Levitt. ----with force of arms.
Senator Kennedy. I do not want to debate that.
Mr. Levitt. There is not much to debate.
Senator Kennedy. Yes----
Mr. Levitt. The Palestinian Authority does provide salaries
to its people in Gaza.
Senator Kennedy. Does the Palestinian Authority pay for
keeping the lights on in Gaza?
Mr. Levitt. They pay for some of it, yes.
Senator Kennedy. The U.N. sends Hamas money to educate the
children, does it not?
Mr. Levitt. The U.N. pays for some education in Gaza. They
do that----
Senator Kennedy. Is that a yes?
Mr. Levitt. ----through their own agencies.
Senator Kennedy. Is that a yes?
Mr. Levitt. They provide the money into Gaza, yes.
Senator Kennedy. I will take that as a yes. The U.N. gives
Hamas money to run hospitals, does it not?
Mr. Levitt. The U.N. runs hospitals in Gaza, too, yes.
Senator Kennedy. And, in fact, does Hamas not tax, at the
rate of 16\1/2\ percent, every bit of food and aid that comes
into Gaza?
Mr. Levitt. They do tax everything. I do not know the exact
percentage.
Senator Kennedy. And Hamas levies a tax on even fish
caught, does it not?
Mr. Levitt. They tax everything.
Senator Kennedy. And Hamas also levels an income tax, does
it not?
Mr. Levitt. That, too.
Senator Kennedy. OK. President Biden's administration has
not enforced the sanctions on Iranian oil, has it?
Mr. Levitt. No.
Senator Kennedy. OK. So you agree with Ms.--I am sorry, I
cannot see your----
Ms. Pletka. Pletka.
Senator Kennedy. Pletka. So you agree?
Mr. Levitt. I tend to make it a policy to try to agree with
Ms. Pletka whenever possible.
Senator Kennedy. Yeah. Well, you are smart. You told us you
were smart. President Biden has not chosen to impose the
snapback sanctions under the JCPOA, has he?
Mr. Levitt. Correct.
Senator Kennedy. OK. Ms. Pletka, who has the $6 billion?
Ms. Pletka. It is in a bank in Qatar.
Senator Kennedy. OK. So Qatar has control of it.
Ms. Pletka. In essence, that is correct, although----
Senator Kennedy. Well, let me put it this way. There is a
Qatar bank. If Qatar tells them to do something, the United
States tells them not to do something, who is the bank going to
listen to?
Ms. Pletka. Well, that is the question before us right
now----
Senator Kennedy. Who is the bank going to listen to?
Ms. Pletka. Qatar.
Senator Kennedy. Of course.
Ms. Pletka. Their Government.
Senator Kennedy. OK. And is it not a fact that back in
2021, Treasurer Yellen, through special drawing rights at the
International Monetary Fund, gave Iran $4\1/2\ billion?
Ms. Pletka. That is what I understand, yes.
Senator Kennedy. And she would like to give them more.
Ms. Pletka. That is what I understand, yes.
Senator Kennedy. That is like cash money. It is really a
dividend you can cash in for U.S. dollars. Is that right?
Ms. Pletka. That is what I understand.
Senator Kennedy. Wow. It seems to me that we could cutoff
Hamas, or at least go a long way toward doing that, by actually
just enforcing the things that we already say we are enforcing.
Ms. Pletka. Every authority that is necessary to cutoff
Iran, Hamas, and every other terrorist group is already in the
President's hands. The question is never whether the President
can. It is whether the President will.
Senator Kennedy. Well, why has the Biden administration
been so soft on Iran? If we know Iran is funding Hezbollah,
Hamas, the Houthis, their surrogates in Syria, their surrogates
in Iraq, why has President Biden's administration been so soft
on them?
Ms. Pletka. Well, I am not----
Senator Kennedy. Do they just think love is the answer and
that this is not a bar fight? I mean, it just looks to me like
this Administration is quoting Socrates in the middle of a
prison riot.
Ms. Pletka. That is a very apt picture. I am not a
spokesman for the Biden administration, so I can only give you
my estimation. There has always been a problem in our
compartmentalization in dealing with Iran. We have prioritized
their nuclear weapons program, understandably, but we have not
ignored but diminished the importance of their support for
terrorism, their regional disruptions, and their human rights
record. Those things need to change. We need to tighten the
screws on Iran in every single aspect.
Senator Kennedy. Peace through weakness never works, does
it?
Ms. Pletka. No.
Chair Brown. Thank you, Senator Kennedy. Senator Cortez
Masto from Nevada is recognized.
Senator Cortez Masto. Thank you. Thank you, Mr. Chair and
Ranking Member. Thank you for the panelists as well. This
really requires us to work in a bipartisan way without
``gotcha'' moments. And I appreciate the discussion today, but
I do think let's be candid and at the same time tell the facts.
We are concerned about previous actions as they led to where we
are today and then how we address moving forward, working
together. If I recall, in 2018 it was the Trump administration
that pulled us out of the JCPOA. It was the Trump
administration who refused to impose sanctions under CAATSA. So
there is enough blame to go around, but let's focus on where we
are today because I think this is where we should be and what
we need to do.
Let me just start with the first question. I think what I
have been hearing, and I have been listening this morning as
well to the conversation from the panelists--and thank you,
very esteemed panelists--we all agree that we need to make sure
that Israel has the support it needs to defend against the
threats posed by Hamas and other terrorist organizations. I am
also concerned about the threat by Hezbollah that it continues
to pose against Israel's security. We all know, and we are
hearing from all of you, much of the support comes from Iran's
State sponsorship of terrorism with Hezbollah, Hamas, and the
like. I also recognize that Hezbollah and Hamas still receive
funding from private donations and organized crime syndicates
across the globe.
My question to all of you is, how can and is the
Administration working with our European allies to really crack
down on the illegal funding of terrorist organizations like
Hamas, like Hezbollah, like we have been talking about? What is
it that is happening with our European allies, and what more
should we be doing? And maybe, Mr. Levitt, I will start with
you.
Mr. Levitt. Thank you so much. The Deputy Secretary of the
Treasury is about to take off for Europe on this exact issue,
and so you are seeing top-level engagement on this issue in
general and specifically on the issue of Hamas, which
traditionally has not gotten as much traction with our foreign
partners, including the Europeans, who have seen Hamas as a
lesser threat, not a threat to the international community,
just to Israel.
The October 7th attack was one of the worst acts of
international terrorism ever--number of countries that were
affected, number of people killed, number of people wounded,
number of people kidnapped--and so there is an opportunity now
to see Hamas for what it is and to get better buy-in and
activity. When the President of France goes to Israel and says
the Counter ISIS Coalition should take on the job of countering
Hamas, that is not likely to happen, but a coalition of its own
to get together and do more, in particular on the financing, is
a very smart idea. Whether it happens or not, when the
President of France says this, not someone who has typically
been so hard on Hamas, that is a big step forward.
Senator Cortez Masto. Thank you. Anyone else?
Mr. Wagman. Yeah, I am happy to respond. I do think the
Coalition Against Hamas is required, like was done with ISIS,
and I think that there are many tools that have not been used
so far. First, to have a global designation on Hamas as a
terror organization as was done on ISIL, meaning that all
countries will have to impose that in all currencies, not only
in U.S. dollars or euro. In addition, we need to make sure that
secondary sanctions are being imposed. For example, it is known
intelligence that Turkish exchanges and banks are constantly
working in order to support Hamas, and the world is just
putting, you know, a blind eye on that.
Another thing is to make sure that we have enough
transparency on the economies of the region. For example,
Lebanon is hosting, or is having internally Hezbollah. We have
not seen a report, for example, by FATF, that is actually doing
the analysis of how to treat the Lebanonian economy and what
should be done in order to make sure that Hezbollah does not
control it or use that in order to do those actions.
And last but not least, also the Palestinian Authorities
have never been evaluated by FATF in order to check what is
going on on the financial system of the Palestinian Authority,
and this should be examined so we will better understand the
relationship between the economies of Gaza and the rest of the
Palestinian Authorities, and actually also answer previous
questions about how do we know where the funds are going. If we
do not know what happens in the Palestinian Authority economy
in general, we will never know what actually is going in
practice.
Senator Cortez Masto. And I only have a few seconds left,
but you touched on something that was the next question, was
Turkey because we also know where Erdogan basically stated
Hamas are not terrorists. So how do we address the concerns
that you brought up, which was my question, is how do we
address the terrorist financing that potentially may be going
through that country?
Mr. Wagman. So I think that after the event of this month,
no question mark should still be there. This is pure terrorism,
and this is why we need, you know, the international pressure,
if that was not clear until now.
Senator Cortez Masto. Thank you. Thank you all. Appreciate
it.
Chair Brown. Thank you, Senator Cortez Masto. Senator
Hagerty of Tennessee is recognized.
Senator Hagerty. Thank you, Mr. Chairman. There has been a
lot of discussion among Members of Congress about the role of
cryptocurrencies in funding the recent attack on Israel that
was carried out by Iran-backed Hamas. Policymakers that are
hostile to cryptocurrency have even gone so far as to suggest
that by eradicating the crypto industry, perhaps the attack
would never have happened. I find that amazing to hear, but
that is some of the claims. I would like to provide some
context to these claims.
The Wall Street Journal recently reported that Hamas and
Palestine Islamic Jihad, since 2021, have received roughly $130
million in crypto financing via offshore exchanges and
platforms like Binance. It is important to note that these
figures are disputed and per independent analysis that was
released just this week, could be overestimated by as much as
99 percent. The data analytics firm cited in this Wall Street
Journal report has even disputed the estimates that were
reported, stating that there is no evidence to suggest that
Hamas fundraised anything close to this $130 million reported.
Make no mistake. Any such funding is unconscionable and
should be addressed in a thoughtful, targeted way in order to
choke off these terrorists, but we should do this without
pushing the crypto industry overseas. In this case, we need a
scalpel, not a sledgehammer. What seems to be lost in the
discussion is the billions of dollars--I am talking about
billions with a ``B''--that have been funneled to these very
organizations we are concerned about their principle sponsor,
Iran--with the blessing of the Biden administration.
Until recently, this appeasement policy was led by Special
Envoy for Iran, Rob Malley. Rob Malley, who has had his
classified security clearances ripped away, who has been kicked
out of the State Department, and whose team included at least
one person who it has been reported is a member of the Iranian
Experts Initiative, which is a foreign influence and collusion
network that is run by the Iranian regime.
Biden's lax sanctions enforcement on Iranian crude sales
have allowed the terrorist regime's oil revenues to surge from
$7.9 billion during the final year of the Trump Maximum
Pressure Campaign--I might add that the secondary sanctions I
was involved in imposing in that Administration worked--from
$7.9 billion in the final year of the Trump administration to
more than $42 billion in 2022. According to estimates, the
Iranian regime has been able to amass up to $91 billion in
illicit oil revenue since the Biden administration came into
office.
President Biden has also greenlighted a $10 billion payment
from Iraq to Iran for electricity. Further, President Biden has
sent UNRWA over $730 million. UNRWA nominally provides direct
relief and works programs for Palestinian refugees in Gaza and
the West Bank, but these funds are fungible. And UNRWA has an
abhorrent track record of supporting anti-Semitic curricula
that refer to Israel as the enemy and teach math--I am not
making this up--they teach math by counting martyred
terrorists. I have seen the materials. At the same time, Qatar
has over the past decade provided more than $2 billion in
fungible economic and humanitarian aid.
So my first question is a simple one, Dr. Wagman. Is tens
of billions of dollars in Iranian oil revenue and sanctions
relief from this Administration, plus whatever direct monetary
relief to Hamas-controlled Gaza that has flowed that way, is
that in any way comparable to the $130 million that allegedly
has flowed through, which is probably overstated, from the
crypto markets?
Mr. Wagman. Yeah. So as I mentioned, I mean, crypto right
now is not the main source of funding for Hamas, but definitely
the old traditional ways in which we see that State funding is
the most dominant thing that is funneling into the Gaza Strip,
from cash----
Senator Hagerty. Let me follow up on that. Is it fair to
say, then, that these oil revenues, the sanctions relief, and
the direct monetary relief revenue streams have done far more
than any crypto financing to either directly support these
terror groups or to buildup the resources that they could then
divert to other malign activities?
Mr. Wagman. Generally speaking, the funding of Hamas comes
from State funding in many different channels. It goes through
Turkey, to money exchanges, through trade-based terrorism
financing, cash deliveries being sent, banking system,
underground banking, many variety of ways.
Senator Hagerty. Yeah.
Mr. Wagman. Crypto is only one of them, and right now it is
a limited part.
Senator Hagerty. The point being that we brought those
revenues down dramatically through the Maximum Pressure
Campaign. They have skyrocketed because of non-enforcement of
sanctions. And what seems to be happening here is that we are
trying to divert attention from that fact, attacking an
industry that we should be moving onshore. We want to actually
have control and promote it and be able to deal with it.
Instead pushing it offshore strikes me as a very bad idea.
Dr. Wagman, one last question. Do you agree that
international entities are harder to work with to combat these
illicit flows? Would providing clarity to the crypto industry
and encouraging these companies to move to the United States
and within our jurisdiction rather than forcing them offshore
not be a more straightforward way to reduce these illicit
flows?
Mr. Wagman. I think that having a global regime is
extremely important in order to make sure that there are no
weakest links because you could impose whatever you want
internally, but then everything is being pushed away to other
jurisdictions. So you have to have it both internally and
internationally, and with that respect we do see that the
weakest link is in other countries that do not enforce FATF
regulations. And I do think that the U.S. can push very
strongly the FATF in asking it to actually publish gray list of
countries and jurisdictions that do not enforce the regulation
and that do not impose the travel rule, and all the other
regulations which can actually create a safer global
environment.
In addition, the U.S. could also choose and go and sanction
or designate particular exchange platforms that are being used,
in fact, for terrorism and criminals as like mixers because
they do not fully support or fully contact the way that this is
required.
Senator Hagerty. Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Hagerty. Senator Warner of
Virginia is recognized.
Senator Warner. Thank you, Mr. Chairman. Thank you for
holding this critical hearing. I have got to say to my friend,
Senator Hagerty, and I know another advocate, Senator Lummis,
around the areas of crypto, I believe strongly in the value of
decentralized ledger. But I do think--and I see more of this,
frankly, from a classified setting as Chairman of the
Intelligence Committee--that, unfortunately, crypto is being
used in a disproportionate way, I think particularly around
rogue regimes like North Korea.
I think one of the things that really ought to be incumbent
upon me and others on the intel side to get more of this
information declassified so we can at least have more facts out
there on this subject matter. There has been some
documentation, I think there will be more coming out, about
literally some the payments to Hamas being made through crypto.
It is one of the reasons why a lot of us on the Committee, in a
bipartisan way, worked for years literally on the Anti-Money
Laundering Act. That was 3-plus years ago. Took a lot of time.
Mike Crapo was very active, the Chair was very active, and the
implementation of that bill is still being, unfortunately, too
slow.
It is one of the reasons why, recently, I have been working
with Senator Reed and Senator Rounds, Senator Romney on Senate
Bill 2355, the CANSEE Act, which actually goes and tries to put
a definitional approach and some responsibility around DeFi.
Just as a commentary, I do not accept the premise that there is
no father or mother of any DeFi system. Somebody is making
money off of that, and we try to grapple on that. That is why
more recently, we have been taking some of the ideas around
DeFi and also thinking about secondary sanctions, particularly
when it comes to terrorist organizations. And what we have used
as a template--and I am going to come to you, Mr. Levitt, in a
moment--is we have actually passed a law in this area. Back in
2015, we passed a secondary sanctions law against Hezbollah
using traditional areas around banking sanctions because in
2015, there was no part of the crypto industry.
I am still working with Senator Reed as well on a bill that
would apply secondary sanctions, restrictions on transactions
with foreign parties who facilitate transactions with terrorist
organizations, and not just using traditional financial tools,
banks, but also using crypto. This----
[Voice.] What the hell?
Senator Warner. You will have a chance to rebut my question
in a moment, whoever was making those comments.
Under our bill, using the Hezbollah bill as a baseline,
using our definition of DeFi, and under this bill, Treasury
must identify any foreign bank or foreign cryptocurrency
entity, which we have called a digital asset transaction
facilitator, known as an FTO, so that there would be then
secondary sanctions placed on these entities, whether it be
traditional banks or these FTOs. Again, as I said, we would
include using the definitions we had on DeFi from CANSEE.
So let me actually get to the question in my last minute,
Dr. Levitt. In your testimony, you cite the Hezbollah
International Financing Prevention Act, and said it is long
time past that we go beyond Hezbollah to cover these other
foreign terrorist organizations. This approach that would both
build on the Hezbollah Act, take on foreign terrorist
organizations, include their usage not only of traditional
financial tools but of crypto with a DeFi definition included,
would this make some sense, or not?
Mr. Levitt. Tremendous sense and long overdue. Terrorists
are still using banks, but they are using other methods, too.
And while I think that the Wall Street Journal figure is
probably exaggerated, there is no question we have seen DOJ
action targeting Hamas crypto and other actions. The Israelis
took an action just the other day. This is a growth area, and
so we need to try and get, I do not know if it is still safe to
say ahead or maybe catch up, on crypto and DeFi and recognize
that this is a space where legitimate transactions can happen
and illegitimate transactions can happen. And what you are
proposing, to me, makes tremendous sense.
Senator Warner. And I appreciate, Mr. Chairman, that I know
you and your staff are working on this as well. Hopefully, we
can combine efforts. And frankly, to my colleagues who have
been strong advocates of crypto, I think if we can decrease the
illicit use, particularly terrorist organizations like Hamas,
and add that secondary sanction in, it might bring actually
more legitimacy to this form of transaction, wherever they are
located in the world. Thank you, Mr. Chairman.
Chair Brown. And thank you, Senator Warner, and the uses of
crypto on child trafficking and drug running and all of that
and understanding it better, thank you. Senator Lummis of
Wyoming is recognized.
Senator Lummis. Well, thank you, Mr. Chairman. I am so glad
we are having this discussion, and I agree with Senator Warner.
This is an area where crypto is being used to finance
terrorism, and we have to provide the tools necessary to stop
that. In fact, earlier this year, I worked with my colleagues
on both sides of the aisle to add an amendment to the NDAA that
would require examination standards for crypto asset
intermediaries and request a report from FinCEN on mixers and
tumblers, the way that information is scrambled to prevent
detection.
Furthermore, let's get after Binance and Tether. These are
offshore companies that are financing illicit activities and
terrorism. We have got to prevent Hamas, Hezbollah, and other
terrorist organizations from using digital assets, using
cryptocurrency as a means to finance their activities. So mixed
in with the talk of stronger sanctions on Iran and other
avenues to prevent the flow of illicit finance, we have heard a
lot about crypto assets today. We should be hearing a lot about
crypto assets today. I think it is because our panel is, in
part, missing the perspective of FinCEN and the law enforcement
agencies that are actively fighting the finance of terrorism.
When we ask FinCEN and others what authorities they need to
combat illicit finance in crypto assets, they say they do not
need more laws. They need more resources. I have heard from law
enforcement that in many ways, crypto assets are more traceable
than cash. In fact, we have had people testify under oath in
this Committee that crypto assets are easier to trace than cash
because the data is permanently available for everyone to see
on a distributed ledger. If you want to download on a computer
the entire distributed ledger of Bitcoin, you can do it in your
office. It will take you--plug in a computer, sign on--take you
about 100 hours. You can download the entire distributed ledger
of Bitcoin from day one in 2009, currently, and it will update
every 10 minutes. It is remarkable the information that is
available there. So what we need to do is give FinCEN and our
regulators the resources to carry out the mission.
Now, we address this in the Responsible Financial
Innovation Act that Senator Kirsten Gillibrand of New York and
I have sponsored. It is a comprehensive framework for digital
asset regulation. It provides these resources. As a starting
point, it gives FinCEN $150 million to carry out its mission in
regard to crypto assets and provides the flexibility to hire
and retain highly qualified individuals.
Now, let's turn for a minute to intermediaries like Binance
and Tether. We know that Hamas and other terrorist groups have
on literally hundreds of occasions been able to open accounts
with Binance, even after public reporting about the issue.
Binance is knowingly facilitating violations of sanction laws
and the Bank Secrecy Act by failing to carry out adequate
customer screening when it is aware the exchange is being used
to finance terrorism.
It is also well known that Tether is a favored on and off
ramp for illicit activities to interact with crypto asset
markets and is knowingly facilitating violations of the law. It
was recently reported that Israeli law enforcement directed
Tether to freeze 32 addresses controlled by Hamas- and Russian-
linked entities in Israel and Ukraine. Tether is failing to
conduct adequate consumer and customer due diligence and
screening, despite being aware that its product is used to
facilitate terrorism and other illicit activities.
That is why today, I sent a letter with Representative
French Hill, who is the Chairman of the House Digital Assets
Subcommittee, to Attorney General Merrick Garland, asking the
Department of Justice to wrap up its investigation and consider
criminal charges against Binance and Tether for their
involvement in illicit finance. And we now know, as Senator
Hagerty noted, that the role of crypto assets in funding Hamas
has been overstated, but even $1 going to support the recent
heinous attacks is too much. Binance and Tether have knowingly
been allowing terrorists to move funds using their unregulated
exchanges. They are based in the Seychelles, in the Caymans, in
the British Virgin Islands. It is time they are brought to
justice.
Mr. Chairman, I ask unanimous consent that my letter to
Attorney General Garland be entered into the record.
Chair Brown. Without objection, so ordered.
Senator Lummis. We have tried the status quo where crypto
asset intermediaries operate in an environment without clear
paths to registration. As policymakers, we need to be making it
more difficult to operate a crypto asset intermediary in the
shadows offshore. But we also need to make it possible to
operate a compliant exchange in the United States. By providing
robust regulation, the United States can force bad actors out
of the crypto asset space and ensure financial innovation can
continue in our Nation in a manner that does not allow illicit
finance to occur.
I have used up my time and more, so I do not have any
questions for you, but Mr. Chairman, thank you kindly for
holding this hearing. I yield back.
Chair Brown. Thank you, Senator Lummis, for your comments.
Senator Smith of Minnesota is recognized from her office.
Senator Smith. Thank you very much, Chair Brown, and thanks
to our panelists for being with us today.
So just over 2 weeks ago, this brutal terrorist
organization, Hamas, perpetrated a vicious attack on Israel,
murdering 1,400 civilians and taking over 200 hostages, most of
whom are still being held in unknown conditions. And I know
that everybody on this Committee and in our country has been
horrified and heartbroken at the devastation and terror and
violence that unfolded on that day and that has since unfolded.
I agree with the Biden administration that the United States
must stand with Israel as it defends itself against this
existential threat posed by Hamas, and we also need to work
with Israel and all of our regional partners to address the
humanitarian crisis in Gaza and minimize further harm to
innocent civilians.
So I want to ask a question to you, Mr. Levitt. The mission
to stop Hamas must include cutting off their access to
financial resources, and it seems to me that we need to focus
not just on what they have done in the past to raise money, but
what they will do next, that we need to look forward and be
proactive. For example, this past April, Hamas stopped
soliciting donations in Bitcoin because of enforcement actions
taken against their donors and, instead, are now leveraging
other digital assets and technology. And to be clear, I heard
the important testimony earlier that what goes on in crypto is
a small portion of what it is that we need to do to stop the
flow of money to this terrorist organization.
But, Mr. Levitt, could you talk about how, as we work with
our international partners to cutoff Hamas access to financing
through crypto and other means, how can we be more forward
looking? How can we anticipate what their next strategies are
going to be as we go forward?
Mr. Levitt. Thank you so much for the question. When I was
in Government, we used to do this all the time, look at what we
did now and try and anticipate how our adversaries would react
because they are not just going to stop. As Hamas is defeated
in the Gaza Strip and it cannot raise money through governance,
it is going to rely more on Iran. It is likely going to try and
move more toward crypto, though probably not in big numbers. It
is definitely going to try and rely more on abuse of charity.
In the wake of this war that Hamas brought on, starting
with their slaughter on August 7th, there is lots of suffering.
And you will have good people raising money to help innocents,
and you will have bad people who are using this as a pretext,
saying they are raising money for innocents when they are
really raising money for Hamas. As I have written in my
testimony, we have already seen just in the past few weeks
since the attack, in some cases, previously designated entities
ratcheting up their fundraising, crowdsourcing, and
``charitable campaigns.''
I also applaud the Treasury Department's focus, now a third
tranche just this week, on Hamas' finance and investment
committees, which have successfully raised hundreds of millions
of dollars for Hamas. So it is important to note that is not
liquid cash. It is held up in investments.
Senator Smith. Mm-hmm. So following up on that, we know
that terrorist organizations exploit charity and the suffering
of innocent people for their own evil purposes. Are there best
practices or things that Americans should know if they are
seeking to participate in the humanitarian needs that are
unfolding for these innocent civilians in Gaza who are not
Hamas and are not supporting Hamas? Is there anything that, you
know, Americans out there should be thinking about as they are
wondering what they can do to help?
Mr. Levitt. Absolutely, and here again I applaud Treasury's
FinCEN just the other day issuing an alert to financial
institutions to counter Hamas financing. Among the several red
flags they highlighted were indicators focused on charitable
giving to help detect, prevent, and report suspicious
activities related to abuse of charity. So we need to
communicate to the public the type of things to look for, and
Treasury just did that the other day.
Senator Smith. Thank you. And I just have a couple of
minutes left, but, you know, we know that Hamas has solicited
donations through various social media platforms, posting
addresses and so forth. And while many platforms have banned
Hamas, accounts aligned with Hamas continue to emerge. And so I
am wondering, what responsibilities do we think that these
platforms bear for facilitating such payments? You know, for
example, Mr. Levitt, X has recently started boosting content
from paid verified users and has adopted this arrangement to
share revenues. How concerned should we be with this kind of
activity?
Mr. Levitt. I am very concerned by it. I am very concerned
that we do not hold platforms sufficiently responsible for the
real-life consequences of what they allow on their platforms,
whether or not they then monetize that on top of it.
Senator Smith. Right.
Mr. Levitt. And if you look at what the platforms have been
doing the past few weeks, it is just disgusting.
Senator Smith. If you want to change the outcomes, you have
to change the incentives, and I think the incentives are all
wrong there. Thank you.
Chair Brown. Thank you, Senator Smith. Senator Daines of
Montana is recognized.
Senator Daines. Chairman Brown, thank you. Five weeks
before the October 7th terror attack in Israel, I was in the
Hezbollah terror tunnels on the border of Lebanon seeing it
firsthand, descending 80 feet down with IDF soldiers, and the
next day, I met with Prime Minister Netanyahu in Jerusalem. I
was the last U.S. Senator, I believe, to meet with Bibi prior
to the attack, and we talked about three things: Iran, Hamas,
and Hezbollah.
It has been very clear to many of us, including clear to
many leaders in Israel, that the appeasement strategy of the
Biden administration is a failed policy. It has not only
failed. It is also dangerous. The Maximum Pressure Campaign
against the Iranians is the right policy position to take. And
I will just tell you, I speak for many who have been very
disappointed with this Administration's kind of standing back
on the linkages between Iran, Hezbollah, Hamas, as well as the
Houthis in Yemen. I mean, good grief, they have got the USS
Crane in the Red Sea shooting down cruise missiles and drones.
This is a shooting war, and the U.S. is involved in this at
this moment.
And all three of these groups, I mean, two being Shiites
with the Houthis and Hezbollah, Sunnis with Hamas, I hope this
Administration will develop moral clarity at this moment in
history. It is a dangerous moment. It is a dangerous moment
that we hope and pray does not escalate. But this appeasement
strategy, starting with JCPOA with the Iranians leading to
unleashing billions of dollars to Iran, has absolutely failed,
and not only has it failed, it is a threat to the stability of
the entire world. We all know that Iranian funds flow into
illicit finance networks that directly support Hezbollah,
Hamas, the Palestinian Islamic Jihad, and other terror networks
across the world. And much of this support, Iran's support, is
derived from oil exports.
The Biden administration has irresponsibly relaxed the
sanctions and the enforcement on these Iranian oil exports,
resulting in a massive windfall for the regime in Tehran. The
regime in Tehran calls out death to America. They call us the
Big Satan and Israel the Little Satan. And yet this
Administration is rewarding that with billions of dollars
through relaxed sanctions relating to oil exports. Estimates
place the revenue of Iranian oil exports under the Biden
administration between $80 and $90 billion. These rockets,
these missiles, the other arms these terrorists have have to be
funded somewhere, and they are coming from Iran. And why can
the Administration not be clear on that and move away from
trying to bring Iran to the table and instead bring Iran to its
knees through Maximum Pressure Campaign?
To make matters worse, the Biden administration was
committed to providing Iran yet another $6 billion. At a time
when the State of Israel is under attack by Iranian-backed
proxies, it is unthinkable--unthinkable--that an American
President would even consider the idea of letting billions of
dollars find their way into the hands of terrorists. While
those funds have now reluctantly been refrozen, there is
currently nothing stopping the Administration from seeking to
reinstate this unconscionable policy. And that is why I have
introduced legislation that would repurpose that $6 billion,
and instead of giving it to Iran, why do we not repurpose it
and give that $6 billion for the defense of Israel?
Ms. Pletka, it seems the biggest opportunity to impact
Iran's financing of Hamas and Hezbollah is directly linked to
the enforcement of Iranian oil sanctions. OFAC maintains a
sanctions evaders list. This list only has one entity on it. Do
you believe that this list is being used to its full potential,
and how can we better use it to disrupt Iran's oil exports?
Ms. Pletka. No, I do not believe the list is being used to
its full potential. There is no question that the
Administration needs to both widen its aperture on who to
sanction but also to step up its enforcement. And when I say
``step up,'' I really mean transform their attitude toward
enforcement so that Iran is not able to earn the revenues that
it has been earning, so that it does not have the windfall that
it has had over the last 2\1/2\ years because that and only
that is going to be a message to them that we are more serious
about their financing of terror.
Senator Daines. You used the words ``change your
attitude.'' I just call it a 180-degree change in their foreign
policy related to Iran in terms of moving away from an
appeasement strategy, which is very, very dangerous and gets
increasingly more dangerous every day that goes by as we watch
what is happening right before our very eyes in the Middle
East. Dr. Levitt, you host a podcast titled ``Breaking
Hezbollah's Golden Rule''.
Chair Brown. Please ask your last question quickly, and if
you will answer.
Senator Daines. OK.
Chair Brown. We have been called to a vote 15 minutes ago,
so thank you, Senator Daines.
Senator Daines. Thank you, Chairman. I will cut right to
this. Their golden rule is the less you know, the better, from
Hezbollah. In your opinion, what does the U.S. need to do to
better attack illicit financial flows from bad actors like
Muhammed, Qusayr, Illumix, or other fronts owned by Hezbollah
family members? And we will need a quick answer, and it is my
fault, not yours.
Mr. Levitt. There is a lot more that has to be done, but I
do think, per the title of the podcast, a lot of it is exposing
it and making it public, in part so that the financial system,
the financial community knows how to follow up. But there is a
lot more to do, and I will pause because of the time.
Senator Daines. Yes, that is my fault, not yours. Thank
you.
Chair Brown. Thank you, Senator Daines. Senator Van Hollen
of Maryland is recognized.
Senator Van Hollen. Thank you. Thank you, Mr. Chairman.
Thank all of you for your testimony today. Dr. Levitt, in your
opening remarks, you made the important distinction between the
sources of Hamas funding and the transfer of those funds and
wanted to spend more time on the transfer issue. I know it has
been covered a little bit, but can you talk about that network
and what more we can do to confront it?
Mr. Levitt. Thank you so much for the question, and not
only because I am your constituent. It is very important to
stop as much funds as possible. We will never drain the swamp,
and so we need to also look at how they are moving the money.
If some bad guy has money in Point A but cannot get it to Point
B, I will take that as a win. We have not been doing enough
there. It also applies not only to money but to other
resources. All the weapons that we saw in the Gaza Strip just
now, that came from someplace. There is a lot more that can be
done on trade-based money laundering. There is a lot more that
can be done on cash couriers.
We know, FinCEN just informed this week, that Hamas has
been transferring money through Hezbollah-affiliated banks.
This is low-hanging fruit, and we have opportunities now. And
by ``we,'' I do not only mean the United States. Sanctions
diplomacy by the United States can get buy-in from our allies
in Europe and elsewhere. Now is the time. If the heinous attack
of October the 7th does not push people to act, I do not know
what will.
Senator Van Hollen. Right. So and the major tool that you
are suggesting in that regard are the secondary sanctions on
Hamas. Is that correct?
Mr. Levitt. Correct.
Senator Van Hollen. And then it comes to FinCEN, we, the
United States, has been asking them to do a lot more in a short
period of time. I chair the Appropriations subcommittee that
oversees the Treasury and funding for that. I hope actually as
part of one of the supplementals we deal with, emergency
supplemental, we increase funds for FinCEN, and I think all the
issues that you are talking about here are part of that.
Dr. Wagman, you have had experience, you know, through the
Israeli efforts to crack down on these money launderings. What
lessons have you learned that could be helpful to us in terms
of the transfer?
Mr. Wagman. Thanks for the question. Actually, there are
many things that could still be done. First of all,
international collaboration and cooperation, there is not
enough of it. Like the ransomware mechanism that was
established, 24/7 response, I think that it is very important
to disrupt terrorism. Second, to make sure that sanctions are
being enforced, sanctions and secondary sanctions. We still
see, as was mentioned here before, low-hanging fruits, Turkey
still being a major channel to accept those funds. We see that,
you know, Hezbollah and Hamas and the trade-based, there are
still many areas that we could do much more.
In addition, to make sure that law enforcement have the
right capabilities and resources, as you rightfully mention.
And we would just like for FinCEN perhaps to add to their
authorities also the suspension, the temporary freezing,
something that is common and exists in Europe that is, in
particular, relevant to disturb terrorism financing. So this is
some of the sources, and also I think that the U.S. could
actually, through the international organizations, such as
FATF, could actually promote international response to those
actions.
Senator Van Hollen. No, I appreciate those lessons learned,
and the putting the fund on pause, this is an authority that
FinCEN does not currently have. OK. We look forward to pursuing
that. Just in closing, Dr. Levitt, and I only raise this
question because Senator Kennedy made some remarks about, for
example, transfers from the Qataris, the transfer from the P.A.
I think you are well aware of the fact those transfers took
place with the concurrence of the Israeli Government and Prime
Minister Netanyahu earlier on. Is that not right?
Mr. Levitt. It is right. The Israelis wanted stability and
quiet, thinking that would buy deterrence and calm.
Unfortunately, that has been proven wrong, but it was the
policy. It was the U.S. policy as well.
Senator Van Hollen. Right. And so I just think it is
important because we have heard that a couple of times today.
We want to get after all the illicit financing, but just to be
clear, those transfers were done with the concurrence of both
the United States and Israel, right?
Mr. Levitt. Yes, sir.
Senator Van Hollen. OK. And in fact, there has been much
written about how part of Prime Minister Netanyahu's
motivations at the time actually were to prevent the
Palestinian Authority from gaining in greater legitimacy. I am
sure you are aware of different things that have been written.
What is your sense of what the motivation for this was?
Mr. Levitt. I will leave Israeli domestic politics aside. I
think across Israeli administrations, it was a clear policy to
try and keep the calm, and the way to keep the calm was to make
sure that there was at least enough economic activity in Gaza.
The week before this attack, the Netanyahu Government, that
Government increased the number of Gazans who were going to be
allowed into Israel to work. So this was the policy to buy calm
at the time, and everyone was caught off guard and everyone was
found wrong on all sides of the partisan divide.
Senator Van Hollen. Yeah. Thank you. Thank you all. Thank
you, Mr. Chairman.
Chair Brown. Thank you, Senator Van Hollen. Senator Warren
of Massachusetts is recognized.
Senator Warren. Thank you, Mr. Chairman. On October 7th,
Hamas militants killed 1,400 people and took more than 200
hostages. So where did they get the money to outfit their
fighters with guns and rockets and radios? I mean, after all,
Hamas is already one of the world's most heavily sanctioned
organizations. That means that the traditional channels for the
global movement of money are largely closed off to them. Any
money laundering rules that banks, gold traders, stockbrokers
all follow make it hard to finance terrorism, but terrorists
have found ways around those rules. One big one? Crypto.
Dr. Levitt, as a Treasury official, you saw firsthand how
terrorists structure their transactions to evade detection.
Recent reporting has suggested that Hamas and Islamic Jihad-
linked crypto wallets, identified in seizure orders by the
Israeli Government, received an estimated $134 million in the
2\1/2\ years leading up to the attacks. So here is my question.
Do you think that Government authorities know the full extent
of all the crypto funds that Hamas and Islamic Jihad received
over that time period?
Mr. Levitt. By definition, they cannot know the extent of
it, but I do think that number is very likely exaggerated. It
is happening. They are getting money through crypto, there is
no question, but the experts who follow this closely think that
number is inflated.
Senator Warren. So you think that they do not know all of
the transactions that are occurring, so there are more
transactions that are just out there in the dark and, I take
it, no real way to estimate how big or how small they are?
Mr. Levitt. You know, it is not anonymous, but you have to
be able to put a long set of numbers to a person's name, and
because of that, it can be complicated. Most of this is not
ending up in an account of Hamas, Incorporated, or Islamic
Jihad, Incorporated. By definition, because this is still an
emerging technology and we are all catching up with it--we are
behind--I cannot imagine anybody sitting in front of you and
saying, yeah, we know the full scope of this.
Senator Warren. OK. Fair enough. So the reason that
conclusion is so important is because crypto industry players
acknowledge that Hamas was financing itself through crypto, but
they claim that the terrorist organization--and I am going to
quote them--``stopped soliciting crypto donations because they
were traceable.'' Now obviously, the industry's claim is false.
In fact, just last week, the head of Cyber Defense Division of
Israel's National Cyber Defense Directorate said, ``In this
period of war, cryptocurrency is a major issue for financing
terror because there are no other options,'' and that the
amount of crypto flowing to terrorist groups has, ``super-
increased since the attack began.''
Now, Senator Marshall and I, along with 14 of our Senate
colleagues, including Senator Cortez Masto, Senator Smith, and
Senator Fetterman right here on the Banking Committee, believe
that Congress has talked about the threat of illicit crypto
finance for long enough, and now it is time for Congress to
act. We have a bill called the Digital Asset Anti-Money
Laundering Act, which closes loopholes in our anti-money
laundering and anti-terrorism financing, or AML/CFT rules, and
cuts off terrorists and other criminals from using crypto to
fund their illegal activities.
Dr. Wagman, you were the Director General of the Israel
Money Laundering and Terrorism Financing Prohibition Authority.
Last year, you wrote that, ``In their attempt to avoid being
traced, illegal actors have adopted ever-more sophisticated
cryptocurrency technologies, such as noncustodial wallets.''
You wrote that Hamas uses noncustodial wallets to evade
detection. Do those wallets pose a particularly high risk of
attracting terrorists and other very dangerous people?
Mr. Wagman. Thank you for the question. It is important,
perhaps if I may, just to refer to your earlier comments about
the funding of Hamas. The major funding of Hamas,
unfortunately, the current sanction regime is far from being
sufficient, and most of its budget and funds are still going
through the traditional channels. And I want to put it clear
because crypto is a problem, but this is not the major problem,
and we have to look, you know, in other traditional channels,
like banking and exchanges, money exchanges and cash and so
forth. So let's not forget that.
Having said that, crypto, it is a technology like any other
technology that could be used for legitimate and illegitimate
purposes. We do see trends on both sides. As long as we are
able to create a framework of compliance into those systems, we
are able to create environments in which we could trust some of
the transactions that are going there, even most of them, when
the platform is compliant. Therefore, I think that it is really
important to make sure going forward that we are creating those
environments that we could actually inspect and put forward the
relevant technologies to ensure compliance.
Senator Warren. OK, so I appreciate that----
Chair Brown. There is a vote call----
Senator Warren. OK. I will be really quick. I just want to
point out, you wrote that decentralized finance and peer-to-
peer transactions between unhosted wallets are ``higher-risk
structures.'' Two days ago, the Treasury Department wrote to
lawmakers here, ``There are steps that Congress could take that
would bolster Treasury's resources and authorities to combat
both terrorist financing and mitigate illicit finance risks
posed by virtual assets.'' Hamas is using crypto to help
finance terrorism. Our current laws are inadequate. We have the
power to choke off that lifeline, and I think that is what we
should do. Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Warren. Senator Warnock of
Georgia is recognized.
Senator Warnock. Thank you very much, Chair Brown. The
heinous acts of terrorism committed by Hamas were horrific and
are rightly condemned by all who believe in human dignity and
seek a lasting peace. What these events make clear is that
there are those who are afraid of peace, and they seek to
sabotage it at any cost. We must not let them win, and we must
recommit ourselves to the hard work of a lasting peace,
grounded in justice and in human dignity for all of God's
children, both our Israeli and Palestinian brothers and
sisters.
Shortly after the terrorist attack in Israel, I joined
Senators Warren, Marshall, and many on this Committee in urging
Treasury to immediately investigate and halt the illicit usage
of cryptocurrency by Hamas, by Hezbollah and other terrorist
groups for money laundering and financing of their terrorist
operations. I am glad that Treasury has made some moves here to
clamp down on some of the crypto technologies being utilized by
Hamas, but the threat does persist. There is debate and
conversation here that is very helpful here about the extent of
the threat, but I think there is agreement that the threat
persists.
Dr. Wagman, why are cryptocurrencies apparently a method of
choice for these terrorist groups to transfer funds, and are
these factors intrinsic to crypto?
Mr. Wagman. So yeah, crypto does have advantages for
illicit counterparts to work in because the [Speaking foreign
language] or the compliant environment at least used to be
lower than the other financial system, and this is why they
were using that. I mean, the technology is there whether we
like it or not, and it is really important to look forward and
to continue our process, and make sure that we are creating
environments that are secure enough.
And even when we are getting to DeFi and all other
technologies, there is a way, there is a technology that could
also inspect that. And because of everything is transparent on
the blockchain, we should focus our efforts on how to make sure
that we have the ability to designate bad actors, and we see
many exchange platforms that are working under countries which
do not enforce the AML/CFT regulation that was adopted by the
international regulators, and there are countries that do
impose that. And we see differentiation in the way that
terrorists are using those platforms. In the supervised and
compliant platforms, there is less use. So I would suggest to
put our efforts on making sure that we are sanctioning and
supervising the unlicensed or those that are not compliant in
order to reduce the activity there and also to ensure that we
have better monitoring tools to continue to supervise that.
Senator Warnock. We have seen the ways in which crypto has
been proven to be widely used by criminals and terrorists the
world over. Even executives at Binance, the largest crypto
exchange in the world, are accused by the CFTC of being
seemingly dismissive of the risk that Hamas is utilizing their
platform to fund terrorism, and authorities have closed over
100 accounts linked just to Hamas on Binance since Hamas'
attack on Israel. Dr. Levitt, what considerations do you make
when examining the use of crypto in financing these terror
groups?
Mr. Levitt. Like Shlomit, I am concerned about the ability
not only to raise funds but to move funds as a means of
transfer because there are no borders. And so as we crack down
on other means of Hamas financing, they are going to, you know,
squeeze that balloon. It will expand elsewhere. And so while I
do not think that Hamas has made tremendous amounts of money by
crypto, I am concerned that it is a growing industry. It is a
place where they will try to expand their opportunities, and so
it is something we have an opportunity now, I do not know if we
can say get ahead, but to hurry up and catch up and prevent it
from becoming something big before it does.
Senator Warnock. Thank you so much. I look forward to
working with my colleagues to find ways of clamping down on
this issue and making sure that we are not making it easy for
these groups, like Hamas, to finance their awful crimes against
humanity. Thank you.
Chair Brown. Thank you, Senator Warnock. Senator Fetterman
of Pennsylvania is recognized.
Senator Fetterman. Thank you, Mr. Chairman. Thank you for
all being here today, experts, and it is always a treat to be
here when I am able to talk to people much smarter than I am.
And this last time I was in this very same chair, we were
talking about crypto, and I asked the experts and I said a
couple of questions, and they were kind of fundamentalist-like.
And I just want to ask you as well, too, as experts, should
crypto exist? In other words, you know, where should it exist?
Like, you know, why should it endure, if anyone has any
answers.
Mr. Wagman. Happy to assist. Actually, that is the exact
question that I was asked by the Minister of Finance in Israel
a couple of years ago, and he asked me, you know what, let's
just outlaw, you know, this entire crypto. It is going to be
used for bad purposes. And I told him, Mr. Minister,
unfortunately, the technology is out there, so it is not a
question whether you like it or not. You need to manage the
risk and find the ways to actually supervise that and make sure
that it will be compliant.
So there are good uses of crypto, financial inclusion and
many others. At the same time, we have to be very strict to
make sure that the legislative framework is addressing the
concerns that we have. We have to make sure that all platforms
are compliant, that we have very clear rules, that all
countries are enforcing them in a similar manner, and that we
are not letting other countries to get off the hook and
actually encourage environment in which bad actors can work. We
could create, together with the FATF, a gray list of those
countries and make sure that they are publicly announced, and,
you know in addition to other tools, we will have a better way
to monitor what is going on there rather than just, you know,
assume that it is not happening.
Senator Fetterman. Yeah. And so where does the value
assigned to crypto come from? Where does it come from because
it is really just a mathematical idea. You know, kind of for
me, it feels like it is a gimmick. But you know, where does the
value of that come from other than there is not somebody kind
of less informed, that I will pay more than what you just, you
know, bought it for. So anyone have any thoughts on that?
Mr. Wagman. Well, I can answer again. I mean, there are
some rationales, you know, having a more decentralized economy
and theories behind that. But, I mean, at the end of the day, I
think that this discussion, even if it was relevant a couple of
years ago, it does not matter anymore because the technology is
there, and it is not something that is possible now, you know,
to decide. I mean enough people think that there is value, and
they are spending the money on it, and, of course, illicit
actors are using that as well, no doubt about it. So I think
that the major challenge that we should focus our energy on is
how to make sure that their options are being smaller and that
we are closing the gaps as much as possible these days.
Senator Fetterman. So let me ask you, why did Hamas not use
its American Express card to finance that awful terrorism? Why?
Why would they not use their AMEX or PayPal?
Mr. Wagman. So actually, they are using bank accounts and
credit cards and payment cards. I know that firsthand because
many Israelis are now monitoring all, you know, campaigns, and
they see that.
Senator Fetterman. Oh, so it is traceable then, right?
Mr. Wagman. Yes. No, no, no. What I just want to say is
that, you know, I do not want us to fall into the, you know,
the assumption that crypto will solve everything. Other
traditional channels are also being used. This is all just I
want to say.
Senator Fetterman. Yeah. Well, I was just trying to drill
down. It is, like, of course, you know, it seems that they used
crypto because it is really difficult or impossible to trace,
so, you know, the bug is the feature, it seems, you know, to
me. And if you are able to remove that ability to be anonymous,
would crypto even endure because to me, it seems like whether
you are financing terrorism or purchasing illicit drugs, you
know, on the dark web, or other kinds of illegal things, no one
is doing that using, you know, Apple Pay or whatever. They are
using crypto. So really, is the one major reason why crypto
exists is to finance things that are either illegal or they
would not want to be attached to that kind of a thing? Is that
a fair question?
Mr. Wagman. I mean, I do not want to step up like
encouraging the industry, because that is not my purpose. But
it is important also to mention that because everything here is
digital, in many aspects, sometimes as law enforcement
community, there are better monitoring tools to go on crypto
and blockchains rather than cash, for example, because there
are always alternative for that. So we should, I think, focus
our efforts on how to improve the monitoring resources and
tools that we have, how to impose more compliance, and how to
differentiate between those environment of legal and illegal
activities. And there are ways to do that, and once you are
putting them aside, you could have better things. By the way,
there are some cryptocurrencies that you could actually
confiscate from afar, from a distance, just by disabling them.
So this is something, like one of the solutions that some
actors from private sector came up with in order to minimize
the options to misuse crypto.
Again, it is not that I am supporting the industry. I am
just in a place in which it exists, and we have to find a way
to deal with it because outlawing that altogether just will
create a black market that we will not able to supervise at
all, and that actually I am more afraid of than, you know,
having some monitoring tool and working on improving them and
making sure that law enforcement authorities may have the
option of doing that, and being realistic because money
laundering and terrorism financing happen in many platforms.
Senator Fetterman. Mr. Chairman, may I indulge for 30
seconds?
Chair Brown. Go ahead.
Senator Fetterman. Oh, thank you, sir. It is more of a
statement where it is, like, to me, my question is, like, if
you are able to effectively track it or document, you know, it,
would anybody really use it anymore, you know? To me, that is
what I am really trying to get to, and I am not saying there is
an answer. That is why I am asking the experts. It is, like, if
you are able to effectively track it, would it really be
attractive for anyone to traffic in that, especially because
how volatile it is. And I really hope Hamas and everyone took a
bath in crypto, you know, with the rest of everyone else, too,
so they got a lot less guns for what they used to have, maybe.
Mr. Wagman. So we are definitely hearing a lot of use cases
in the market of people that are using that, you know, in order
to make sure that they are not attached to a certain currency
but have something that, you know, is linked to the dollar,
that they want to put their funds in places or to transact with
lower cost to have more financial inclusion options. So there
are some legitimate use cases for that, and the blockchain
technology, generally speaking, has its advantages in the way
that it is easier to transact around the globe.
Chair Brown. Thank you, Senator Fetterman. Thank you to the
panel for being here. Thank you for providing testimony and
your responses.
Senators who wish to submit questions for the record, those
questions are due 1 week from today, November 2nd. For the
witnesses, you have 45 days to respond to those questions.
Thank you again. The Committee is adjourned.
[Whereupon, at 12:12 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIR SHERROD BROWN
This hearing will come to order.
Earlier this month, the world watched in horror as Hamas committed
brutal acts of terrorism against the people of Israel.
Hamas murdered innocent women and men and children. They attacked
teenagers at a music festival. They took hostages--families, kids.
We are horrified.
In the days and weeks that have followed, the United States has
taken strong, swift actions to support Israel as they defend their
country against terrorism, and to aid civilians in Gaza.
Now, it's vital to our national security that we provide critical
assistance to Israel--including robust military, economic, and
humanitarian aid that is desperately needed for those harmed by Hamas'
terrorism.
We must stand with both Ukraine and Israel as they fight back
against two of the biggest threats facing the world: Putin and Iranian-
backed terrorists like Hamas.
This isn't a time to play politics--we must stand united with our
allies and we must defend American interests.
We also need to confirm key national security nominees who play a
critical role in working with their Israeli partners. We've had too
many delays already.
Right now, politics is holding up several key positions--including
the Ambassador to Israel and at least 12 key military personnel--
preventing important work in the Middle East.
This is why people think Washington doesn't work. Political
grandstanding is hurting America's ability to effectively protect our
interests at home and abroad, and keeping talented ambassadors and
career military personnel on the sidelines.
On this Committee, we have a long history of keeping the politics
out, and working together to address threats from Russia, North Korea,
China, and Iran.
In the aftermath of October 7th, we are again confronting a
challenge to the civilized world, and our humanity compels us to combat
terrorism and hold State sponsors of terrorism, like Iran, accountable.
We must be clear, and speak with one voice: There is no
justification for terrorism. None.
On this Committee, we have a unique role to play, working to
understand the financing behind Hamas' attacks, so we can work to cut
off funding for terrorism at its source and work to prevent future
attacks.
Iran has an alarming history of supporting terrorist proxies
engaged in unspeakable atrocities.
It's clear they provide significant funding for the military wing
of Hamas--they provide training, they provide capabilities.
We will assess what additional economic tools we need to stop State
sponsors of terrorism, including Iran, from supporting Hamas,
Hezbollah, Palestinian Islamic Jihad, and other terrorist proxies.
And we will examine multiple terrorist funding streams, including
cryptocurrency, and consider additional measures to stop the flow of
those funds.
In response to the brutal and horrific attacks, last week the
Treasury Department's Office of Foreign Assets Control imposed
additional sanctions on key Hamas terrorist group members, operatives,
and financial facilitators located in Gaza and elsewhere, including
Sudan, Turkey, Algeria, and Qatar.
This action specifically targeted those managing assets within a
secret Hamas investment portfolio, a Qatar-based financial facilitator
with close ties to the Iranian regime, a key Hamas commander, and a
Gaza-based virtual currency exchange and its operator.
But that is not enough.
The Administration must take additional steps to impose sanctions
and dedicate resources toward a multilateral effort to coordinate with
allies to track, freeze, and seize any Hamas-related assets, and take
steps necessary to deny Hamas terrorists the ability to raise funds.
We need to not only identify the bad actors, but also their money
pipelines, so we can shut off their funding.
We must undertake a more robust approach to identifying and
preventing transactions that take place not only through financial
institutions, but also through trade-based money laundering,
cryptocurrency transactions, and other channels designed to avoid
detection.
On this Committee, we've raised the alarm about crypto and its role
in illicit finance--including the use of crypto to both fund terrorists
and enable the rogue Nations financing them.
Too often, crypto platforms don't use the same commonsense
protections that help keep illicit money out of the traditional banking
system--safeguards like knowing their customers, or suspicious
transaction reporting. 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.
They stop one transaction.and the criminals have moved on to
another platform, with another alias.
Terrorists know they can use crypto in ways they could never use
dollars.
That's why President Trump's Justice Department warned back in 2020
that terrorist groups--including ISIS, al Qaeda, and the military arm
of Hamas--were ``raising funds using cryptocurrency.''
Not surprisingly, after the attack it was reported that Hamas has
raised millions of dollars in crypto to fund their operations.
We need to crack down on the use of crypto to fund terrorism and
evade sanctions.
Last week, Senator Warren and I, along with more than 100 of our
colleagues of both parties, wrote to the Administration to voice our
concerns about these issues.
And I'm glad that Members of this Committee, including Senator
Warren, Senator Reed, and Senator Warner, have put forward bipartisan
plans for closing gaps around digital assets in our illicit finance
rules. These are important steps forward, and I welcome more ideas.
We'll work together on this Committee, in a bipartisan way, to make
sure terrorists and bad actors can't exploit crypto.
This Committee and the Senate have a bipartisan history of
combating the ways in which Iran threatens the region--not just its
nuclear weapons development, but also its support for terrorism.
There has been a steady drumbeat recognizing the need for the
United States and our allies to maintain and ramp up sanctions on
Iran's harmful and destabilizing activities in the region. The Senate
voted overwhelmingly to support the Countering America's Adversaries
Through Sanctions Act to impose sanctions on Iran, North Korea, and
Russia.
We also passed the Hezbollah International Financing Prevention
Amendments Act, which imposed sanctions on Russia, Iran, or any other
foreign Government supporting Hezbollah.
And let's not forget that this Committee acted together to tighten
the rules around anonymous shell companies--which too often operate
here in the United States--and which fund criminal syndicates and
terrorists alike.
We've strengthened our money laundering rules and our sanctions
tools in a bipartisan way, and we can do it again.
We need a comprehensive approach to shutting off Iran's funding
sources--not just the $6 billion, but the many more billions of dollars
Iran uses to continue its destabilizing activities in the middle east
and around the world.
Now is the time, once again, to act. I look forward to working with
my colleagues on this Committee to stem terrorist financing, address
the problems posed by crypto, and further strengthen sanctions.
PREPARED STATEMENT OF MATTHEW LEVITT
Director, Reinhard Program on Counterterrorism and Intelligence,
Fromer-Wexler Senior Fellow, The Washington Institute for Near East
Policy
October 26, 2023
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF DANIELLE PLETKA
Distinguished Senior Fellow in Foreign and Defense Policy Studies, AEI
October 26, 2023
Mr. Chairman, Senator Scott, thank you for including me in today's
hearing. I'm especially glad to be testifying with two outstanding
witnesses.
We are here today to talk about terrorist financing in the wake of
the most serious assault on the Jewish people since the Holocaust. For
many of us, the horror of the brutality of Hamas was compounded by the
one of the most dreadful displays of public antisemitism since, well,
the Holocaust. Hatred of Jews is perhaps the last remaining widely
tolerated ``ism,'' and it has reminded many of us of the reason Israel
must exist as a homeland and a safe haven for the Jewish people.
In the important discussions in Congress about how to stem the tide
of cash to terrorist groups, Hamas among them, much attention has been
given to the $6 billion in cash the Biden administration transferred to
Qatar from accounts in South Korea for Iran's use in September. That $6
billion was advertised as payment for the release of five hostages, but
widely understood to be the consideration paid for an ``understanding''
between the Biden administration and the Iranian regime about its
conduct over the coming months, including a pause on attacks on
Americans and a slowdown in Tehran's accumulation of highly enriched
uranium. All carefully constructed, of course, to evade the
congressional review requirements of the Iran Nuclear Agreement Review
Act of 2015.
An additional $10 billion sitting in Oman for the same purpose--
Iran--was also transferred from Iraq.
A few things: If this $6 billion was our only problem with Iran, I
would thank our lucky stars. This is the tip of the iceberg. But let's
start with the $6 billion. The Biden administration, which came in for
substantial criticism for allowing Iran access to this money, has said
it will not allow it to be used right now. As Brett McGurk, the White
House Coordinator for the Middle East and North Africa, explained, the
system for disbursal will work something like a joint signature on a
checking account, that should be the end of the story. However, Qatar
has contradicted our Government.
Should Qatar, a topic I will return to later in this testimony,
defy the wishes of the U.S. Government and proceed with a disbursal to
Iran, you have options. First, it is important for Congress to
ascertain whether the Government of Qatar has agreed to make Iran whole
while it withholds the $6 billion from South Korea. In that scenario,
Qatar could simply hand over its own cash to Tehran and pay itself back
later from the South Korean funds once the pressure is off. We don't
know if that's the case, but Iran's pro-forma protestations don't sound
like those of a Government that's just been deprived of $6 billion.
Second, if Qatar is actually disbursing the cash from South Korea,
focus on the bank. If it chooses to become a financier to the Islamic
Republic of Iran, the U.S. Government can choose to designate that bank
as a primary money laundering concern. Should that not deter the
Qataris, a designation of that country as a State sponsor of terrorism
is an option. Both are Executive actions, but Congress can force a
decision with legislation. But I'm getting ahead of myself.
Let's move on from the $6 billion for now. Since 2021, ``the
estimated value of Tehran's additional oil sales--the difference
between its realized revenue and what it would have earned had its
exports remained at the maximum pressure period's average level--was
$26.3 to $29.5 billion dollars,'' per research by the Foundation for
Defense of Democracy. From 2019 through the end of 2020, Iranian oil
exports averaged .775 bpd. In 2021, per the same report, they rose to
an average of 1.14 mbpd, and this year jumped to an average of 1.38
mbpd. Iran's total revenue from oil exports since 2021 is between $81
and $90.7 billion. Iranian foreign exchange reserves have doubled,
growing from $12.4 billion in 2020 to $21.1 billion in 2023. Oil and
oil-related exports are Iran's primary money earner; numbers 2 and 3
are iron and steel and. edible fruits and nuts. So, it's the oil that
is at the heart of the Islamic Republic's finances.
How did that happen? Simple. The U.S. Government allowed it to
happen. To review the bidding, in 2016, Iranian oil exports were 2
mbpd. In 2018, they hit 2.8 mpbd. After President Trump pulled the plug
on the JCPOA, they dropped to somewhere between half-a-million and
three-quarters-of-a-million mbpd. Many, myself included, were skeptical
of Trump's ability to stuff the genie back into the bottle after the
wave of JCPOA sanctions waivers opened the spigots to Iran. But sure
enough, he did just that.
The simple reason the Trump administration was able to execute this
miracle was the President's complete and utter indifference to
conventional wisdom, his willingness to link trade to sanctions
violations, and a keen sense that if forced to weigh America and Iran
in the balance, even difficult players like the Chinese would make the
right choice. They did.
That all ended the month Joe Biden came to office. Why? One thing:
Enforcement. It was no secret that the President hoped to reenter the
JCPOA; his lead Iran negotiator took such an expansive approach to
propitiating Iran that his deputy and other staff chose to resign in
disgust. So, Iran began to make money again. The issue was not the lack
of sanctions on the books or necessary authorities. Simply, the White
House, or more accurately, Treasury stopped imposing sanctions.
``In the first 6 months of the Biden administration,'' United
Against a Nuclear Iran's research shows, ``no new sanctions
were introduced on Iran's oil sector. Finally, in August 2021,
amid an extended break in the nuclear negotiations, the U.S.
Treasury Department imposed new sanctions on an Omani
businessman and companies linked to him, alleging that he was
involved in an oil-smuggling network whose proceeds benefited
the Islamic Revolutionary Guard Corps (IRGC)'s Quds Force.
However, in the next 9 months, the Biden administration largely
failed to levy new sanctions to stanch the flow of oil
revenue.''
Who was buying the oil? Businesses in the People's Republic of
China, among others. So as China escalated threats against the U.S. and
Taiwan in the Pacific, sanctions against Chinese companies for buying
Iranian oil dropped off. The UANI chart below makes clear who Iran's
buyers are.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
By the way, that's not the only sanctions break we see. According
to the Wilson Center, ``between 1995 and 2022, five Administrations--
Clinton, Bush, Obama, Trump, and Biden--sanctioned 11 Iranian proxy
groups in five countries. They also sanctioned 89 leaders from 13
groups supported by Tehran.'' Per the same report, the Trump
administration imposed 40 percent of those sanctions--7 groups and 32
leaders tied to Iran. ``The Biden administration removed designation
from one group (Ansar Allah) and sanctioned three leaders.''
The cost to Iran of supporting these proxies isn't cheap. In 2016,
Hezbollah Secretary General Hassan Nasrallah credited Iran for
``Hezbollah's budget, everything it eats and drinks, its weapons and
rockets, comes from the Islamic Republic of Iran.'' In 2018, the
Treasury Department pegged Iranian aid to Hezbollah at more than $700
million per annum. Hamas reportedly costs Iran about $100 million a
year, though new reports estimate it could be up to $350 million a
year. Palestinian Islamic Jihad (whose failed rocket inflicted the
casualties at the al Ahli hospital) receives in the tens of millions as
well.
To give you a sense of what happens when Iran has less money at its
disposal, during the height of the so-called maximum pressure campaign,
transfers to Iran's terrorist proxies dropped dramatically, with
Hezbollahis complaining to the Washington Post about furloughs, cut
salaries, and necessary withdrawal from Syria where they had been
fighting to support Bashar al Assad. Hezbollah was so strapped for
money, it doubled down on organ trafficking, reportedly an important
source of cash. In short, evidence suggests that when Iran doesn't have
money, terrorists don't have money. That doesn't shut down terrorist
operations, but it curtails them dramatically.
Terrorist groups do have other sources of income. Hamas in
particular earns substantial amounts from corruption, with almost every
import into Gaza subject to ``taxes'' that go into Hamas leaders'
pockets. Indeed, while the U.N. bemoans the plight of Gaza residents--
and rightly so--we should note that senior Hamas officials in both Gaza
and Qatar, where the Hamas leader resides, have gotten very, very rich.
Numerous reports cite Doha-based Hamas leader Ismail Haniyeh's net
worth at $4 billion. His predecessor Khaled Meshaal is said to be $2.6
billion, with money in Qatar and Egypt. And there are others in Hamas
worth billions.
Another source of money for terrorist groups is the illegal
captagon trade. You'll remember that some of the Hamas killers were
found with the drug in their pockets. Hezbollah apparently makes
millions from the illicit trade in the drug, in partnership with the
Syrian Assad dictatorship.
And then there's Qatar. There has been an unholy understanding
between Israel and Qatar for some time: While Israel maintained its
embargo of Gaza, carefully filtering employees and imports across the
Israel-managed crossings, Qatar has been allowed to act as a pressure
valve, funneling cash into Gaza to allow Hamas to buy peace with
occasional distributions of energy and basic goods. But Israel's
dealings with Qatar are not a get out of a jail card from U.S.
congressional scrutiny.
Indeed, I would ask you, what role does Qatar play in the Middle
East? It enjoys positioning itself as an entrepot--just a middle man
with no favorites. That's garbage. Qatar's favorites are the Islamist
extremists it promotes with its pet television channel, Al Jazeera. Who
lives or has lived in Qatar? The Taliban. al Qaeda. The Hamas
leadership. ISIS leaders. All of them, cheek by jowl with one of
America's major airbases in the region, Al Udeid. Now should be the
moment Congress begins to scrutinize Qatar.
So, what else should Congress do?
1. Understand how U.S. assistance to both the West Bank and Gaza is
enabling the perpetuation of both Hamas and Fatah rule.
2. Understand how UNRWA, the recipient of almost $6 billion in U.S.
support since 1950, has aided, nurtured and supported Hamas in
Gaza.
3. Understand why it is that Lebanon, a country ruled by Hezbollah,
a beachhead of anti-Israel attacks at its northern border, has
been able to skate without a State sponsor designation.
4. And most importantly, shut down the loopholes in sanctions
enforcement that, since 2021, have been permitted to facilitate
Iran's accumulation of cash that funds and arms and trains
Hamas, Palestinian Islamic Jihad and Hezbollah, among so many
others.
a. Specifically, use the language in existing legislation like
INKSNA to require the Executive branch to notify you of every
instance in which it has credible information that there has
been a sanctions violation, and justify to you its inaction any
time it does not impose sanctions in response to that
information.
b. Use the language of CAATSA to require every waiver of sanctions
to be notified to Congress with 30 days' notice, and expedited
procedures for an up or down vote in both chambers on whether
to disapprove that waiver.
You may ask me why I do not insist on stopping that $6 billion.
There's no need; simply outline the consequences to Qatar. Go after the
big money funneled to the terrorists by Iran. That is what fuels the
savagery of October 7.
______
PREPARED STATEMENT OF SHLOMIT WAGMAN
Affiliated Scholar and Former Chair, Harvard Kennedy School, Israel
Money Laundering and Terror Financing Prohibition Authority
October 26, 2023
I am honored to present my expert opinion before the distinguished
Committee regarding the combat against networks of illicit finance and
terrorism.
As one of the experts who participated in the design of the
international regulatory approach to virtual assets, as well as gained
practical experience while leading numerous financial investigations of
money laundering and terrorism financing, I am honored to share with
you several insights and offer actionable proposals both domestically
(in the U.S. and elsewhere) and globally (through multilateral efforts,
such as within the framework of the FATF).
I've served as the Chair of the Israeli Money Laundering and
Terrorism Financing Prohibition Authority and was also the Cochair of
the Financial Action Task Force's (FATF) Risk, Typologies and Methods
Working Group. While serving in these capacities, I managed dozens of
terrorism financing investigations and shaped global and national
policy in the field. In addition, I led the Israeli accession to the
FATF following a thorough evaluation process in which Israel achieved a
(rare) High Effectiveness rating regarding the use of financial
intelligence, terrorism financing investigations and confiscation.
Currently, I am an affiliated scholar with the Mossavar-Rahmani Center
for Business and Government and the GETTING-Plurality Network at the
Harvard Kennedy School and the Berkman-Klein Center at the Harvard Law
School. I am also a senior executive at Rapyd, a global payment
company.
The opinions presented in this testimony are my own and should not
be attributed to any of the institutions with which I am affiliated
with.
A. Background
Quite simply, funding is essential for the operations of terrorist
organizations. Conversely, the disruption of funding channels used by
terror organizations plays a pivotal role in countering (and even
abolishing) their activity.
Looking specifically at Hamas and Hezbollah--both function like any
other terror organizations. For example, the horrifying terror attacks
of October 7th demonstrated the extent to which Hamas adopted the ISIS
playbook: Hamas slaughtered innocent civilians in a brutal and well-
organized attack.
This extensive operation, in which thousands of terror activists
took part, required substantial funding for vehicles, weapons, drones,
tracks, explosives, tunnels, logistic support, and more. In addition,
substantial funding is likely required by Hamas to finance its
continued holding of the 200+ hostages (from 33 countries) kidnapped
from their homes and taken to Gaza.
My goal in today's testimony is to review the funding channels used
by illicit and terror organizations and--as per your request--focus
specifically on the use of cryptocurrencies, which most likely funded
(both directly and indirectly) Hamas' activities.
This testimony document outlines the following:
Surveys the main legal framework and regulatory
requirements found in the domain of anti-money laundering and
counter-terror financing (AML/CFT) with respect to terrorism
financing.
Discusses current terror financing trends. In light of the
October 7th attacks, and at the request of the Honorable
Committee, this discussion focuses on Hamas current terrorism
financing trends, existing legal frameworks, and gaps and
challenges in the specific context of virtual assets.
Proposed actions that can be taken in the domestic sphere
(such as by the U.S. and other countries) and in the
international sphere to strengthen the existing legal framework
and target the very gaps in this framework that are exploited
by terror organizations like Hamas and Hezbollah.
B. Legal Framework Background--The Global Combat Against Terrorism
Financing
After the 9/11 attacks, a global unified framework was designed to
combat terror financing using the same toolbox previously developed to
combat money laundering. This toolbox included the imposition of
administrative obligations on the private sector (such as monitoring
customer activity and reporting suspicious transactions to designated
intelligence and law enforcement authorities) and requiring sovereign
countries to establish financial investigation, enforcement and
punitive capabilities, including confiscation of funds.
This global response was designed by the Financial Action Task
Force (FATF), the international watchdog in the field. Today, the FATF
is composed of 39 member countries (including most of the G20
countries) and regional organizations, and together with its nine
associated FATF-Style Regional Bodies (FSRBs), it encompasses over 200
jurisdictions.
The FATF has defined global mandatory standards in the domain of
Anti-Money Laundering and Counter Financing of Terrorism (AML/CTF) that
all jurisdictions must implement into their national legal systems and
ensure their effective enforcement. The FATF and FSRBs conduct ongoing
monitoring to review and evaluate the level of compliance of countries
with these standards, when noncompliant jurisdictions may be listed on
the infamous gray or blacklist. These lists are powerful signaling
tools that put severe pressure on the listed jurisdictions to quickly
meet FATF standards, as the listed jurisdictions are marked as high-
risk territories for AML/CFT purposes, limiting their respective
financial sectors' ability to participate in the global market. A place
on the blacklist practically limits financial activities dramatically
between the financial institutions in the blacklisted country and other
jurisdictions.
The Global AM/CFT Approach to Virtual Assets
Cryptocurrencies pose substantial challenges to national security
and the integrity of financial systems. Certain unique characteristics
make them appealing for conducting illegal activities: (1) they are
decentralized, unsupervised by any Government or central bank, and
therefore, like cash, preserve a high degree of anonymity; (2) they are
virtual and therefore generally unbounded by geographical borders; and
(3) they do not require transactions be conducted in-person. At the
same time, they are also reflecting financial innovation, with the
potential to initiate a revolution in the way society transfers value,
facilitate international commerce and cross-border financial
activities, decrease transaction costs and barriers, and enhance
financial inclusion.
The FATF was the first international organization to develop a
holistic strategic response to cryptocurrency risks. In 2018, the FATF
amended its mandatory standards to explicitly apply cryptocurrency to
its rules, and subsequent updates and clarifications. The FATF's
regulatory approach to cryptocurrency is similar to the approach it has
taken to regulating traditional financial activities. The FATF requires
countries to impose the full AML/CFT framework, albeit with relevant
modifications pertinent to cryptocurrencies' unique technological
characteristics. \1\
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\1\ To ensure that the regulations are as effective as possible,
and to avoid circumvention of its global Recommendations, the FATF
defined cryptocurrency assets broadly. FATF chose the term ``Virtual
Assets'' (VA) rather than ``cryptocurrency'' or ``digital asset'' to
refer broadly to any ``digital representation of value that can be
digitally traded, or transferred, and can be used for payment or
investment purposes.'' The definition does not include the digital
representation of fiat currencies.
---------------------------------------------------------------------------
As it has done when regulating other financial activities, the FATF
identified virtual asset platforms capable of monitoring the financial
activities conducted through their systems, termed ``Virtual Assets
Service Providers'' (VASPs). This term was defined broadly to capture
all relevant services, including virtual currency exchanges and certain
types of wallet providers.
All jurisdictions must establish licensing or registration
requirements for VASPs. At a minimum, VASPS must be licensed where they
were legally created. Some jurisdictions may also require licensing or
registration as a condition for conducting business. VASPs should be
subject to the full range of preventative measures and AML/CFT
obligations, similar to other financial intermediaries. These
obligations include, among others, the requirements of conducting
customer due diligence and ongoing monitoring, recordkeeping,
submitting of suspicious transaction reports (STR) to the designated
Financial Intelligence Unit (FIU), and screening customers and
transactions against designation lists. In order to conduct the needed
examinations as part of the consumer due diligence and licensing
process, the FATF recommends using relevant tools and resources, such
as blockchain analytic tools. Given the cross-border nature of VASPs'
activities, the FATF is required to impose additional preventive
measures, for example conduct Customer Due Diligence for every
transaction above 1,000 dollars/euros.
In addition, the FATF adopted a ``Travel Rule'' requirement for
VASPs. The Travel Rule, a modification to its approach regarding wire
transfers, requires VASPs to obtain, hold, and transmit required
originator and beneficiary information, immediately and securely, when
conducting VA transfers. These are the same obligations traditional
financial intermediaries are required to undertake when they transmit
transaction information via SWIFT (in a way which is compatible with
data protection and privacy laws).
Investigative Aspects of Virtual Assets
Aside from the risks associated with virtual assets, their digital
environment actually provides unique opportunities for law enforcement
agencies (LEAs) to conduct financial investigations. Analysis of public
blockchain ledgers allows both the private sector (VASPs and other
financial institutions) and LEAs to trace financial activities over the
public blockchain and identify connections to suspicious transactions
and illegal activities even if the cryptocurrency holder is represented
only by a wallet number. The public ledgers allow analyzing and tracing
a long history of transactions, thereby identifying whether the funds
were involved in a known illicit activity, comingled with illegal
funds, processed by an unregulated VASP, or were suspiciously treated
(e.g., they were treated with an anonymity-enhancing mixer). In
addition, because the data is available in digital format, analysts can
apply sophisticated techniques to process and analyze it. At the same
time, it is important to note that blockchain analytics is not a silver
bullet. Private ledger cryptocurrencies, such as Monero, provide very
limited public information.
When VASPs collect data pursuant to their AML/CFT obligations, the
data can provide the linkage between pseudonymous wallets and
identifiable entities, especially when virtual asset holders cash in/
out from/to fiat currency. The information collected by VASPs as part
of their customer due diligence obligations includes a vast repository
of revealing data, including Government-issued identification (which is
often crossed with biometric data), geographical location, IP
addresses, statements regarding the source of funds, beneficial owners,
and VASP-identified concerns based on the consumer or transaction's
nature. This information can be obtained by LEAs as a result of
spontaneous reporting by VASPs to the relevant FIU, or following a
request by an LEA (either a request for additional information by the
FIU or a court-issued warrant). When the financial intelligence held by
LEAs is combined with other relevant intelligence (such as open-source
intelligence (OSINT)), signals intelligence (SIGINT), and human
intelligence (HUMINT), it empowers LEAs to trace suspicious financial
activities and unmask the lawbreakers.
Implementation of the FATF Standards by Countries--Statues and Gaps
So far, only a limited number of countries have implemented this
framework.
As of June 2023, \2\ 4 years after the FATF's adoption of standards
on VAs and VASPs, 75 percent of the countries that went through their
routine reviewing process have not implemented the framework in full.
In addition, one-third of the countries have not conducted a risk
assessment, and a similar number have not yet decided if and how to
regulate the VASP sector.
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\2\ https://www.fatf-gafi.org/content/dam/fatf-gafi/guidance/
June2023-Targeted-Update-VA-VASP.pdf.coredownload.inline.pdf
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Moreover, more than half of the countries have not taken any steps
towards Travel Rule implementation.
It should be highlighted that this situation has a major cost.
Platforms that are not subject to the full extent of FATF standards are
becoming crypto mixers, as it is almost impossible to track the illicit
assets inserted or transferred via the platform. This continues to make
the use of VASPs attractive to terrorist organizations.
C. Current Trends in Hamas Terror Financing
Hamas--General Sources of Funding
Hamas is designated as a terror organization by the U.S., EU, U.K.,
Australia, Canada, Israel, and other countries. Unlike ISIS, it has not
yet been designated by the U.N. as a global terror organization, hence
the financial sanctions toolbox is somewhat limited, as described
below.
Hamas' funding resources include the following main channels:
State funding, which is transmitted mainly by cash, cross-
border payments, Hawala, trade-based terrorism financing, money
exchanges and banks.
Business portfolios, including real estate and investments.
Fundraising, including through social media platforms and
crowdfunding campaigns in which money is transmitted via bank
accounts, payment services and crypto exchanges.
Humanitarian aid, which is misappropriated to and stolen
for its own activity.
Hamas' Use of Virtual Assets
Hamas was an early adopter of virtual assets, using them to
circumvent global supervision on money transfers and to raise funds. In
recent years, tens of millions of dollars in virtual assets were
identified as being linked to Hamas, however, only a small portion of
these funds were successfully confiscated, as detailed below.
Starting in 2019, Hamas has been fundraising in cryptocurrency.
Initially, Hamas received a relatively small donation of several
thousands of dollars in Bitcoin. It used regular cryptocurrency
wallets, later moving to noncustodial wallets, and then in 2021 adopted
more advanced techniques, generating a unique address for each new
donation.
In the summer of 2021, after a conflict with Israel, Hamas
solicited increasing sums in Bitcoin. By July 2021, following Israel's
designation of Hamas crypto wallets, more than $7.3 million worth of
virtual assets were seized. The designation included over 20 different
types of virtual assets, including Bitcoin, Ether, Tether, TRON,
Cardano, XPR, Dogecoin, and more.
In April 2023, following a further series of Israeli asset freezing
orders and seizure of many accounts, Hamas announced to its supporters
that it would stop receiving fundraising via the crypto currency
Bitcoin, citing an increase in ``hostile'' activity against donors and
that ``this comes out of concern about the safety of donors and to
spare them any harm.'' \3\ Such a statement demonstrates that the FATF
approach of signaling to the market of ``blacklisted'' crypto, was
proven to be efficient.
---------------------------------------------------------------------------
\3\ www.reuters.com/world/middle-east/hamas-armed-wing-announces-
suspension-bitcoin-fundraising-2 023-04-28/
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On October 10th, 2023, after the recent terror attacks, Israel
police froze the cryptocurrency accounts that Hamas was using to
solicit donations on social media to support it during the war. \4\
---------------------------------------------------------------------------
\4\ www.reuters.com/technology/israel-freezes-crypto-accounts-
seeking-hamas-donations-police-say-20 23-10-10/
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It is important to note that after each designation of a Hamas
wallet became public, many VASPs, regulated and nonregulated,
identified connections to the designated wallets and shared additional
information with the Israeli authorities. Some sources communicated the
information directly to Israel, to the National Bureau for Counter
Terror Financing (NBCTF), while others informed the relevant LEAs in
their respective jurisdictions or disseminated suspicious transaction
reports to their own FIU, which in turn cooperated with the Israeli FIU
and other relevant LEAs. The valuable information provided by VASPs
around the globe included significant data they gathered by following
their AML/CFT obligations, as well as through open-source information
and blockchain analytics, and greatly assisted in tracing relevant
wallets and seizing related funds.
Additionally, blockchain analytics companies conducted independent
research regarding the designated wallets, revealing connections to
additional wallets associated with the designation and with previous
terror financing investigations. Most findings became public when the
companies published their investigations, which assisted in revealing
new links to relevant suspected terrorism financing activities.
Hamas Fundraising Via e-Commerce and Technology Platforms
According to open-source intelligence, Hamas collects funds using
social media and commercial platforms. They direct supporters to
purchase certain goods and services via e-commerce platforms,
centralized and others that connect buyers and sellers. No real goods
change hands and the money is funneled to Hamas.They are relying on the
relatively low onboarding KYC examination performed by those platforms,
which are mainly lacking the context of the overall transaction.
Humanitarian Fundraising Campings
Hamas is known to lead a variety of fundraising campaigns on social
media that seem to be legitimate humanitarian campaigns, and linked to
charity organizations, making it difficult to trace by the intelligence
community, the private sector and donors.
After being published on social media, mainly via Telegram, the
donations are being collected in bank transfers, payment transactions,
and crypto.
Hamas Use of Trade-Based Terrorism Financing
Another typology which is constantly identified as being used by
Hamas is ``trade-based'' financing, which is very similar to the
``trade-based'' money laundering'' typologies. \5\
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\5\ FATF report: https://www.fatf-gafi.org/content/dam/fatf-gafi/
reports/Trade-Based-Money-Laundering-Trends-and-
Developments.pdf.coredownload.inline.pdf.
---------------------------------------------------------------------------
The typical use case would be State-sponsored funding which is
sent, either in cash or Hawalla, to another country. Hamas is
purchasing goods, and shipping them to Gaza. The products imported to
Gaza are being sold and the cash proceeds are being collected by Hamas
in Gaza. Many cases were inspected in which Hamas was using trade and
commerce of physical goods to transfer value to Gaze, including toys
and chocolate. \6\
---------------------------------------------------------------------------
\6\ IMPA report (in Hebrew): https://www.gov.il/BlobFolder/
dynamiccollectorresultitem/red-flags-typology-terror-financing-impa-
080822/he/professional-docs-red-flags-typology-terror-financing-impa-
080822.pdf at p.9.
---------------------------------------------------------------------------
D. Proposed Action Items Going Forward
My testimony above surveyed the global AML/CTF legal framework and
the current trends in terror financing by Hamas (including the methods
in which Hamas funds its own activities and, likely, the October 7
attacks). In this chapter, I propose several practical operative
actions that can be taken, both by the international legal community
and the U.S., to further strengthen the international community's
ability to disrupt terror financing channels and--ultimately--the
financial ability for terror organizations to carry out their
activities.
A. Strengthening the Global AML/CTF Regime for Virtual Assets
The issue: Many countries have yet to implement the FATF's
regulatory framework regarding virtual assets and,
particularly, the Travel Rule and inspections on licensed
exchanges. This regulatory arbitrage creates a major loophole
in the global regulatory regime by allowing for ``weakest
link'' jurisdictions. The result is that illicit and terror
organizations ``forum shop'' and exploit exchanges based in
jurisdictions with weak oversight. In addition, no global
response is available in real time to such illicit activity and
there is no united coalition to promote a response.
Proposed measures--global level: The following measures are
proposed to help strengthen the existing regime and support
better implementation and enforcement in jurisdictions with
weak oversight:
The FATF must take an aggressive approach to enforcing
its global AML/CTF framework and work towards closing the
global regulatory arbitrages which create the ``weakest
links.'' This includes:
(i) creating a public ``gray list'' of countries that
have not yet adopted and implemented virtual asset-related
controls, such as the ``Travel Rule,''
(ii) ensure that countries are effectively supervising
their licensed VASPs and imposing dissuasive sanctions for
noncompliance, and
(ii) imposing its customary sanctions regarding
noncompliance on such countries (for example, recommending that
member States impose advanced due diligence standards and
suspicious activity reporting requirements on financial
institutions engaged in virtual asset transactions with gray-
listed countries).
The FATF should further recommend additional measures to
regulate Peer-to-Peer, De-Fi and smart contracts.
Proposed measures--domestic level: In the absence of
appropriate response by the regulating county in which an
exchange is licensed, or in case of a nonregulated exchange, it
is proposed that countries will consider designating the
exchange itself, to avoid its use as a ``mixer'' to launder the
funds.
B. Real-Time Collaboration and Information Sharing re Virtual Assets
Issue #1: Due to the rapid and cross-border nature of
payment services and virtual asset transactions, there is a
need for 24/7 international collaboration between intelligence
and law enforcement authorities to identify, freeze and disrupt
the flow of funds.
Proposed measure: Establish mechanisms for collaboration
between intelligence and law enforcement authorities, similar
to the case of ransomware and other social engineering fraud.
Issue #2: Public authorities require a more effective
channel with the private sector, as most of the data relevant
to crypto-related investigations is publicly available (over
blockchain) and can be analyzed by the community.
Proposed measures: Law enforcement agencies (LEAs) should
establish channels for rapid information sharing with the
private sector and, in particular, with financial institutions,
``RegTech'' companies, and blockchain analytics experts, about
the up-to-date trends used by designated terror organizations.
In this regard, Financial Intelligence Units (FIUs), who
receive financial intelligence from the private sector, should
actively share with the private sector the red flags,
typologies, relevant keywords and even ``name codes'' which are
indicative of illegal donations that are channeled to terror
activity. The information sharing does not have to be public,
but can be done with entrusted RegTech companies.
FIUs should also publish lists of bank accounts, payment
accounts and crypto wallet details which they have identified
on social media or otherwise, block them and alert the entire
financial system, on an ongoing and consistent basis.
To make screening more effective for financial
institutions, FIUs should make lists accessible in different
formats and languages, with as many identifying data points as
possible so that private sector organizations can effectively
screen, regardless of their size or ability to dedicate
resources to compliance.
C. ``Sanctions'' Designations
Issue: Hamas is currently designated by the U.S., EU and
other countries, but not by the U.N. Therefore, it is not
necessarily screened in all countries and in relation to
different currencies.
Proposed measures:
A proposal for the U.N. Security Council should be
submitted to designate Hamas as a terror organization, as was
the case with ISIS. Such action will ensure that Hamas'
financial activities will be screened and frozen by all
financial systems, in a unified and automatic manner, across
all countries, even in those institutions that are physically
removed from the conflict zone or may have limited awareness of
the nature and type of the terror financing typologies (as is
common), or may be operating with different currencies.
Countries that have already domestically designated
Hamas, such as the U.S., EU, and others, should instruct their
enforcement agencies to focus on enforcement relating to this
specific designation and consider adding additional measures as
a policy matter. The U.S. designation of a group of Hamas
leaders made on October 18th is a positive, if belated, step.
More actions of a similar nature are required.
Additional designations should be considered as well, for
example, charity organizations that were designated by Israel
based on relevant intelligence that connect them to the terror
activities.
D. Improving Financial Investigations Capabilities--Domestically
Issue: FinCEN currently does not have authority to ask for
additional complementary information from financial
institutions or to freeze funds related to terrorism financing,
which are crucial operative capabilities needed to disrupt
terrorism.
Proposed measures: The following measures are proposed to
help strengthen FinCEN's ability to effectively collect
financial intelligence information from financial institutions
and to take swift (if temporary) action to disrupt terror
financing:
FinCEN should be granted with the legal authority to
compel all financial institutions to provide additional
supplementary information (as opposed to requesting such
institutions to do so voluntarily, which is the current
situation). This is especially important in the domain of
virtual assets, where many different VASPs and other financial
institutions are involved.
In addition, FinCEN should be granted the legal authority
to order an administrative freeze on terror-financing related
funds for specified limited periods of time (e.g., 24-72
hours). Similar mechanisms exist throughout EU member States,
which enable local authorities to respond swiftly to fast-
moving funds, which is normal in today's markets, and to
disrupt terrorism financing efficiently.
E. Risk Assessments of High-Risk Jurisdictions
Issue: Key stakeholders in the public and private sectors
can serve as gatekeepers or a ``first line of defense'' against
the exploitation of financial and monetary markets by terror
organizations. To do this effectively, they need to understand
the risks emanating from high-risk jurisdiction, identify their
organizational appetite for risk; review their operations to
identify exposure to terror financing risk; and adopt risk-
management controlling measures.
Proposed measures:
A clear, professional analysis of the risks emerging from
high-risk countries (from the perspective of terror financing)
should be made available to stakeholders in both the public and
private sectors. This will help facilitate the ``risk
management'' process described above, including establishing
effective management of risk appetite, risk exposure and risk-
management controlling measures by these stakeholders.
Ensuring that the FATF (and other parallel institutions)
are working in a transparent and credible manner to undergo and
swiftly publish their evaluations of countries that are at
high-risk for terror financing.
In this regard, there is a need to mention the concerns
that were raised over the past few years regarding the
professional capability of the MENAFATF, which is the FSRB
mostly relevant to jurisdictions exposed to high risks of
terror-financing (such as Lebanon, the Palestinian Authority,
and Syria). It is critical that evaluations of these countries
are supported by appropriate and professional experts.
For example, Hezbollah is a major stakeholder in the
Lebanese economy. Thus, it is critical that the ongoing
MENAFATF review of Lebanon will include a clear and reliable
review of its implication on Lebanon economy and its potential
exploitation to TF risks and funnel economic resources to
Hezbollah.
In addition, the global financial community requires more
clarity regarding the financial ecosystem of the Palestinian
Authority and Gaze to allow it better manage TF risk. For a
variety of reasons, the PA has not gone through an objective
international assessment regarding their compliance with global
AML/CTF standards as set by the FATF. Based on publicly
available information, I estimate that the outcome of such an
evaluation would have likely been unsatisfactory and would have
led to the PA being placed on the FATF's ``gray list.'' The
result of such a listing is that countries which implement
FATF-recommended controls would require their domestic
financial institutions to impose enhanced measures in relation
to transactions with the Palestinian Authority (for example,
reporting transactions exceeding certain monetary thresholds).
Moreover, a reliable evaluation could have assisted in mapping
the compliance gaps in the Palestinian Authority's financial
system and clarifying how sources of funds enter Gaza without
supervision and get distributed through illicit channels to
Hamas (a situation that is common to the provision of
humanitarian aid to Gaza). Such an evaluation, if conducted by
a credible and professional team, needs to be conducted without
undue delay.
F. Following additional funding channels and social media platforms
Issue #1: Hamas was recently inspected to expand its
activities to commerce and technology platforms. This typology
can be seen, for example, in temporary housing websites, etc.
Those platforms have limited ability to identify and monitor
risks, and additional discussion on this is required.
Proposed measures: It is suggested to consider
Issue #2: Certain social media platforms, such as Telegram,
are hosting a substantially large volume of terrorism financing
solicitation.
Proposed measures:
The EU's Digital Service Act enforces on large social
media platforms certain liabilities, including to ensure the
content is not infringing the safety of the public and does not
call to illegal activities etc. This applies, among others, to
Meta, TikTok and such. A reduced level of responsibilities and
liabilites is imposed on ``host'' platforms, such as Telegram,
to the content included there. A further discussion is needed
on this topic, including references to explicit solicitation
for terrorism financing.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM MATTHEW LEVITT
Q.1. On October 7, 2023, Hamas militants killed 1,400 people
and took more than 200 hostages. \1\ In the days following,
reports emerged suggesting that crypto wallets linked to Hamas,
Palestinian Islamic Jihad, and other terrorist organizations
received tens of millions in crypto over the years and months
preceding the October 7 attacks, and continue to use crypto to
fundraise and transact. \2\
---------------------------------------------------------------------------
\1\ NPR, ``New Details Emerge About the Hamas-Led Attackers Who
Massacred Israelis'', Daniel Estrin, Aby Bakr Bashir, Samantha Balaban,
Claire Harbage, October 27, 2023, https://www.npr.org/2023/10/27/
1208836319/israel-hamas-islamic-jihad-militants-videos-details.
\2\ Wall Street Journal, ``Hamas Militants Behind Israel Attack
Raised Millions in Crypto'', Angus Berwick and Ian Talley, October 10,
2023, https://www.wsj.com/world/middle-east/militants-behind-israel-
attack-raised-millions-in-crypto-b9134b7a; Financial Times, ``Israel
Orders Freeze on Crypto Accounts in Bid To Block Funding for Hamas'',
Scott Chipolina, October 17, 2023, https://www.ft.com/content/e03a370b-
777f-46c2-8576-d1cee731efe2?accessToken=; CNN, `` `They're
Opportunistic and Adaptive': How Hamas Is Using Cryptocurrency To Raise
Funds'', Scott Glover, Curt Devine, Majlie de Puy Kamp, and Scitt
Bronstein, October 12, 2023, https://www.cnn.com/2023/10/12/us/hamas-
funding-crypto-invs/index.html.
---------------------------------------------------------------------------
In an attempt to minimize the role that it is has played in
the financing of terrorist organizations, including Hamas and
Palestinian Islamic Jihad, crypto industry players are now
working furiously to downplay reports that claiming that ``[i]t
is not known what proportion of the funds received by those
wallets are directly attributable to PIJ or other terrorist
groups.''
But the facts remain clear. As Elliptic, one of the
blockchain analytics firms whose crypto terrorist financing
findings were reported in the Wall Street Journal in early
October, \3\ stated in the release it issued to quell intense
industry pressure, ``[i]n July this year, the NBCTF [National
Bureau for Counter Terror Financing of Israel] issued a seizure
order for crypto wallets linked to Palestinian Islamic Jihad
(PIJ), a terrorist organization active in the Gaza Strip.
Elliptic analysis of the wallets seized by the NBCTF shows that
these wallets received transactions totalling just over $93
million between 2020 and 2023.'' \4\
---------------------------------------------------------------------------
\3\ The Wall Street Journal, ``Hamas Militants Behind Israel
Attack Raised Millions in Crypto'', Angus Berwick and Ian Talley,
October 10, 2023, https://www.wsj.com/world/middle-east/militants-
behind-israel-attack-raised-millions-in-crypto-b9134b7a.
\4\ Elliptic, ``Setting the Record Straight on Crypto Crowdfunding
by Hamas'', October 25, 2023, https://www.elliptic.co/blog/setting-the-
record-straight-on-crypto-crowdfunding-by-hamas.
---------------------------------------------------------------------------
The industry group claims, ``[i]t is likely that some of
the wallets listed by the NBCTF belonged to small service
providers such as brokers that were used by PIJ.'' \5\ The
industry is using this possibility to minimize the role that
crypto as played in the financing of PIJ, Hamas, and other
terrorist groups.
---------------------------------------------------------------------------
\5\ Elliptic, ``Setting the Record Straight on Crypto Crowdfunding
by Hamas'', October 25, 2023, https://www.elliptic.co/blog/setting-the-
record-straight-on-crypto-crowdfunding-by-hamas.
---------------------------------------------------------------------------
Are ``small service providers'' that transmit funds to or
from terrorist organizations immaterial to the financing of
those terror groups?
Are ``small service providers'' that transmit funds to or
from terrorist organizations responsible for their role in the
financing of those terror groups? Should they be held
responsible for that role?
On October 18, 2023, the U.S. Treasury Department
(Treasury) imposed sanctions on one such service provider, a
Gaza-based crypto exchange service ``for having materially
assisted, sponsored, or provided financial, material, or
technological support for, or goods or services to or in
support of, Hamas.'' \6\ According to the U.S. Treasury
Department, that crypto exchange was involved in Hamas
fundraising, and ``has also been used to transfer funds by
affiliates in other terrorist groups,'' including an al Qaeda
affiliate and individuals acting on behalf of the Islamic State
of Iraq and Syria (ISIS). \7\
---------------------------------------------------------------------------
\6\ U.S. Department of the Treasury, ``Following Terrorist Act on
Israel, Treasury Sanctions Hamas Operatives and Financial
Facilitators'', press release, October 18, 2023, https://
home.treasury.gov/news/press-releases/jy1816.
\7\ Id.
---------------------------------------------------------------------------
Do you believe that these Treasury actions were appropriate
based on the role that this exchange may have played in
providing material support to terrorists, even if we are not
certain that all funds that passed through this exchange went
directly to or in support of Hamas?
More broadly, do you believe that these service provider
can materially assist, sponsor, or provide financial, material,
or technological support for terrorist organizations even if
terrorist organizations may only receive a small portion of the
funds flowing through them?
A.1. I have met with Israeli officials on this subject, and
they concur that while Hamas and PIJ both use cryptocurrencies
to move funds, especially funds raised via crowd funding
campaigns, crypto is not a major financing tool for either
group compared with other means of raising and moving funds.
Expect to see more actions targeting those entities that do
provide crypto services for Hamas and PIJ, which is good, but
this should not be made out to be more than it is. The WSJ
report in question vastly overstated the amounts involved,
according to Israeli officials with whom I have spoken.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM MATTHEW LEVITT
Q.1. What have we learned from FinCEN's enforcement efforts
since 2020?
FinCEN has raised concerns with illicit finance of
terrorism through crypto currencies. Do you agree with the
current approach FinCEN is taking to preventing these types of
finance from occurring?
A.1. I do agree with FinCEN's approach. As discussed at the
hearing, while Hamas does use crypto to send funds, mostly via
crowd funding campaigns, it is far less of an issue that some
of made it out to be (like the WSJ story). I recently held
meetings with Israeli counterterror finance officials, and they
confirm that crypto is used by Hamas but that it's not a major
aspect of the group's financing, at least today.
Q.2. What more can Treasury do to better block Hamas from
raising revenue across the Middle East?
UAE comes up a lot in Treasury designations (as an example)
related to sanctions evasion regarding Russia and Iran. Why is
this and what makes the UAE a seemingly desirable jurisdiction
for money laundering and terrorist financing?
Are there meaningful measures the UAE can take to stop this
facilitation through its financial system?
A.2. Treasury is working hard to block Hamas fundraising,
including several recent designations and other actions, some
done jointly for foreign partners. It is also active in a task
force with foreign partners aimed to coordinate efforts to
counter Hamas financing.
The UAE was placed on the FATF grey list in 2022 due to
AML/CFT shortcomings, some of which remain. Enforcement remains
spotty in the UAE, but the country has adopted in mutual
evaluation report and the State Department reports it is making
significant progress. The UAE is also a member of the U.S.-
Saudi cochaired Terrorist Financing Targeting Center (TFTC).
Q.3. How often does FinCEN update reporting forms like the SAR
form? When can we expect this issue to be fixed?
A.3. I have no special insight into this issue.
Q.4. Social media compliance, and the programs those companies
put in place, appears to be collapsing, with layoffs of many
staff who covered this issue. Has there been an increase of
terrorist groups and other illicit actors using social media
platforms as a result?
Do Hamas and other designated terrorist groups leverage
social media to raise money?
A.4. Hamas engages in crowd funding campaigns. The concern is
that with the Hamas attack on Oct. 7 and the war that followed,
these will pick up pace. According to Israeli authorities, this
has already been the case. Much of this activity occurs on
social media platforms.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM MATTHEW LEVITT
Q.1. As you know, cryptocurrencies operate on a global scale,
making international cooperation crucial. Some jurisdictions
have introduced regulations, but global implementation is
relatively poor and compliance remains low. U.S. exchanges do
AML/KYC checks and screen all potential customers for
sanctions. However, according to the Financial Action Task
Force--an international standard setting body--73 of the 98
jurisdictions assessed by the task force are either partially
or noncompliant. Noncompliant exchanges are often the way bad
actors can turn their digital currency into cash. What actions
could Treasury or even Congress take to stymie the use of these
noncompliant virtual asset service providers by bad actors?
A.1. I am not a crypto expert, so I defer here to my
colleagues.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM DANIELLE PLETKA
Q.1. What have we learned from FinCEN's enforcement efforts
since 2020?
FinCEN has raised concerns with illicit finance of
terrorism through crypto currencies. Do you agree with the
current approach FinCEN is taking to preventing these types of
finance from occurring?
A.1. Cryptocurrency is not my area of expertise.
Q.2. What more can Treasury do to better block Hamas from
raising revenue across the Middle East?
UAE comes up a lot in Treasury designations (as an example)
related to sanctions evasion regarding Russia and Iran. Why is
this and what makes the UAE a seemingly desirable jurisdiction
for money laundering and terrorist financing?
A.2. The issue for the United States is enforcement and
sanctions. A vigilant enforcement regime will push the Emiratis
to end their role as an entrepot for terrorist financing.
Seizures and bank designations, removal of liaison
relationships and other serious legal efforts will prove to
them that the United States is serious. So far, that proof has
not been forthcoming.
Q.3. Are there meaningful measures the UAE can take to stop
this facilitation through its financial system?
A.3. This is easy for the Emiratis to, but requires will on
their part to ensure they are not a middle ground for terror
financing. Should it be useful, the Treasury Department could
send a team to help scrub their system. My guess is that they
will resist this.
Q.4. How often does FinCEN update reporting forms like the SAR
form? When can we expect this issue to be fixed?
A.4. Not my area of expertise.
Q.5. Social media compliance, and the programs those companies
put in place, appears to be collapsing, with layoffs of many
staff who covered this issue. Has there been an increase of
terrorist groups and other illicit actors using social media
platforms as a result?
Do Hamas and other designated terrorist groups leverage
social media to raise money?
A.5. Almost certainly yes, but this is an area the other
witnesses can speak to more seriously.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM DANIELLE PLETKA
Q.1. As you know, cryptocurrencies operate on a global scale,
making international cooperation crucial. Some jurisdictions
have introduced regulations, but global implementation is
relatively poor and compliance remains low. U.S. exchanges do
AML/KYC checks and screen all potential customers for
sanctions. However, according to the Financial Action Task
Force--an international standard setting body--73 of the 98
jurisdictions assessed by the task force are either partially
or noncompliant. Noncompliant exchanges are often the way bad
actors can turn their digital currency into cash. What actions
could Treasury or even Congress take to stymie the use of these
noncompliant virtual asset service providers by bad actors?
A.1. Again, not my area, but the key is clarity in regulation/
law, enforcement, sanctions. The reason for lack of compliance
is because it it possible. We have seen that when the United
States is serious (periods after 9/11, periods under the Trump
administration), compliance improves. There is a clear link.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM SHLOMIT WAGMAN
Q.1. What have we learned from FinCEN's enforcement efforts
since 2020?
FinCEN has raised concerns with illicit finance of
terrorism through crypto currencies. Do you agree with the
current approach FinCEN is taking to preventing these types of
finance from occurring?
A.1. In recent years, the Financial Crimes Enforcement Network
(FinCEN) has taken several significant steps to address the
potential risks associated with virtual assets and to promote
the implementation of the FATF standards on them. Among others,
it clarified the regulations by issuing guidance on how
existing AML/CFT rules apply to virtual currencies and
businesses dealing with them (2018). It established reporting
and record-keeping requirements for exchanges and
administrators, and updated FinCEN's reporting forms and
advisories, and improved its ability to track and analyze
suspicious activity involving virtual assets, particularly in
ransomware payments and terrorist financing.
Recently, on October 19, 2023, FinCEN published Notice of
Proposed Rulemaking (NPRM) on Beneficial Ownership Information
for Convertible Virtual Currency Transactions. This NPRM
identifies international Convertible Virtual Currency Mixing
(CVC mixing) as a class of transactions of primary money
laundering concern. This NPRM highlights the risks posed by the
extensive use of CVC mixing services by a variety of illicit
actors throughout the world and proposes a rule to increase
transparency around CVC mixing to combat its use by malicious
actors including Hamas, Palestinian Islamic Jihad, and the
Democratic People's Republic of Korea (DPRK).
FinCEN also took enforcement actions, including the civil
enforcement actions against the cryptocurrency exchange BitMEX,
and imposing a fine of $100 million for violating AML/CFT
regulations, including failing to implement a proper anti-money
laundering program (2021); and against Hydra Market, a darknet
marketplace that primarily used virtual currencies, for
facilitating the sale of illegal goods and services (2023).
These cases had a major impact on the markets, expressing
FinCEN's mission in cracking illegal activities facilitated by
virtual assets.
In addition, FinCEN urges countries to adopt the FATF
framework into its domestic legislation, as part of its
membership at the U.S. delegation to the Financial Action Task
Force.
I do support finCEN's approach regarding virtual assets and
believe they are crucial in order to reduce situations under
which virtual assets may be used for terrorism financing.
At the same time, I do think that the U.S., as other
countries, should urge the FATF to take more actions against
countries who do not fully implement the FATF standards
regarding virtual assets. In addition, I believe that the U.S.
Treasury should consider publishing designations on particular
VASPs, especially from noncompliant jurisdictions, in order to
combat their activity, which has severe negative implications
for the global economy.
Q.2. What more can Treasury do to better block Hamas from
raising revenue across the Middle East?
UAE comes up a lot in Treasury designations (as an example)
related to sanctions evasion regarding Russia and Iran. Why is
this and what makes the UAE a seemingly desirable jurisdiction
for money laundering and terrorist financing?
A.2. UAE's level of compliance with the global AML/CFT
standards has been evaluated by the Financial Action Task Force
(FATF). Based on its finding, the overall level of compliance
was not satisfactory and met the FATF's criteria to be included
under its gray list. Currently, the UAE is subject to a
scrutiny review of its national efforts to strengthen the
effectiveness of its AML/CFT framework, and it will be removed
from the gray list only after the needed improvements will be
fully implemented.
Given the systematic deficiencies identified by FATF,
illicit stakeholders are also likely to take advantage of this
situation and try hiding illicit activities in its financial
system.
Based on publicly available information, it seems that
Hamas is/was operating in the UAE and holds there certain
assets. See, for example, the recent NYTimes report on Hamas'
assets identified around the globe, which includes assets in
the UAE.
Q.3. Are there meaningful measures the UAE can take to stop
this facilitation through its financial system?
A.3. Yes. The UAE should continue strengthening the
effectiveness of its AML/CFT framework and ensure efficient
implementation of it, on a risk based approach. It should
create intelligence collaboration with other agencies and act
upon receiving data from its counterparts, including freezing
assets related to suspected terror activities, initiate
investigations, submit indictments and ensure it understands
the risks and design tools to mitigate them. It should join a
global task force and share information with it on a regular
basis, in order to identify suspicious assets and freeze them.
Q.4. How often does FinCEN update reporting forms like the SAR
form? When can we expect this issue to be fixed?
A.4. Unfortunately, I do not have data on this matter. I
believe this question should be addressed to FinCEN.
Q.5. Social media compliance, and the programs those companies
put in place, appears to be collapsing, with layoffs of many
staff who covered this issue. Has there been an increase of
terrorist groups and other illicit actors using social media
platforms as a result?
Do Hamas and other designated terrorist groups leverage
social media to raise money?
A.5. Yes, Hamas uses social media for fundraising campaigns.
The most common platform is Telegram, which does not easily
collaborate on removing such content. We have seen in the past
months campaigns calling directly for donations to Hamas, and
others that do not provide explicit indication, but seem to
have some ties to Hamas. The later cases are usually being
reported to LEAs. To the best of my knowledge, most other
social media outlets, mainly those who are subject to the EU's
Digital Services Act and have AML/CFT as well as violence free
monitoring measures in place, and they try removing such
content upon notice or following their internal monitoring and
review.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM SHLOMIT WAGMAN
Q.1. As you know, cryptocurrencies operate on a global scale,
making international cooperation crucial. Some jurisdictions
have introduced regulations, but global implementation is
relatively poor and compliance remains low. U.S. exchanges do
AML/KYC checks and screen all potential customers for
sanctions. However, according to the Financial Action Task
Force--an international standard setting body--73 of the 98
jurisdictions assessed by the task force are either partially
or noncompliant. Noncompliant exchanges are often the way bad
actors can turn their digital currency into cash. What actions
could Treasury or even Congress take to stymie the use of these
noncompliant virtual asset service providers by bad actors?
A.1. Indeed, many countries have yet to implement the FATF's
regulatory framework regarding virtual assets and,
particularly, the Travel Rule and inspections on licensed
exchanges. This regulatory arbitrage creates a major loophole
in the global regulatory regime by allowing for ``weakest
link'' jurisdictions. The result is that illicit and terror
organizations ``forum shop'' and exploit exchanges based in
jurisdictions with weak oversight. In addition, no global
response is available in real time to such illicit activity and
there is no united coalition to promote a response.
There are a couple of actions that may assist in
strengthening the existing regime and support better
implementation and enforcement in jurisdictions with weak
oversight.
The U.S. should urge the FATF to take a more aggressive
approach in order to enforce the global AML/CTF framework in
all jurisdictions and work towards closing the global
regulatory arbitrages which create the ``weakest links.''
This includes the following suggested actions:
1. Creating a public ``gray list'' of countries that have
not yet adopted and implemented virtual asset-related
controls, such as the ``Travel Rule,''
2. Ensure that countries are effectively supervising their
licensed VASPs and imposing dissuasive sanctions for
noncompliance, and
3. Imposing its customary sanctions regarding noncompliance
on such countries (for example, recommending that
member States impose advanced due diligence standards
and suspicious activity reporting requirements on
financial institutions engaged in virtual asset
transactions with gray-listed countries).
4. The U.S. and FATF should further recommend additional
measures to regulate Peer-to-Peer, De-Fi, and smart
contracts.
In addition, on the domestic level, given the absence of
appropriate response by certain regulating counties in which an
exchange are licensed, or in case of a nonregulated exchange,
it is proposed that the U.S. will consider designating the
exchange itself, to avoid its use as a ``mixer'' to launder the
funds.
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