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Brian Nelson, Undersecretary for Terrorism and Financial Intelligence at the US Department of the Treasury, provided critical testimony to Congress on Feb. 14, challenging widely held beliefs about the role of crypto in funding terrorist activities.

Amidst a backdrop of concerns over digital assets, Nelson’s insights during the House Financial Services Committee hearing painted a picture starkly different from previous reports, particularly concerning the involvement of Hamas.

“Small fraction”

Recent narratives, fueled by last year’s media reports, suggested a significant use of crypto by terrorist groups like Hamas, especially following attacks in Israel.

These accounts, including a notable one from the Wall Street Journal in October 2023, were based on analysis that was later refuted by blockchain firms Elliptic and Chainalysis, which showed the initial estimates of crypto funding to be exaggerated.

In response to questions regarding Hamas’ use of crypto during the hearing, Nelson confirmed:

“We don’t expect the number is very high.”

In a clear rebuttal to the misinformation, Nelson emphasized the minimal role that digital currencies play in the financial operations of terrorist organizations. He said that these groups continue to prefer conventional banking and financial services over the complexities of crypto.

This correction is vital, given the ongoing debates around imposing stricter regulatory frameworks on the crypto industry for security reasons. The Treasury’s stance, as outlined by Nelson, reflects a nuanced understanding of the actual threats posed by digital assets in the realm of terrorism financing.

Despite the alarm raised by earlier reports, the undersecretary’s testimony illustrates a need for a balanced approach to regulation — one that acknowledges the limited use of crypto by terrorist groups without stifling innovation or overestimating the risks involved.

More tools needed

Nelson also called on Congress to provide more tools for the Treasury to effectively address any potential misuse of digital assets by terrorists, reaffirming the government’s commitment to disrupting financial networks that support terrorism.

While we continue to assess that terrorists’ use of digital assets remains a small fraction of more established mechanisms to move money, we recognize that terrorist groups have and may continue to turn to digital assets to raise, transfer, and store their illicit proceeds.”

However, he maintained that traditional financial mechanisms remain the primary conduit for such illicit activities.

Nelson said that the Treasury is committed to preventing Hamas and other terrorist groups from using digital assets for their illicit activities. He added that the department’s efforts partially include actions against Hamas fund transfer networks that rely on exchanges and asserted that the Treasury will continue to target such financing in the future.

Nelson said that despite their minimal use by terrorist groups, digital assets are nevertheless “an area of opportunity” that could be taken advantage of by bad actors.

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