In mid-2019, the Israeli military in a precision strike targeted a Hamas operative as an Iranian stockbroker in Gaza. This executive operated an invisible remittance system in which trusted agents moved cash and goods across borders on behalf of their clients.
It is also known as the hawala network, through which funding of tens of millions from Iran reached the military wing of Hamas.
Turn to crypto
His replacement, a Palestinian businessman named Zuhair Shamlakh, changed strategy to avoid detection by the Israelis: he turned to cryptocurrencies.
According to current and former Israeli and former US officials, Shamlakh increasingly sent digital currencies to partners abroad during his transactions.
Crypto sent to digital wallets controlled by Hamas-linked money exchanges could also be exchanged for cash at their offices in the Gaza Strip.
That axis helped Hamas and affiliated organizations such as the Palestinian Islamic Jihad (PIJ) receive large sums of money from Iran during the two years leading up to the October attacks on Israel, officials say.
Since 2021, Israel’s National Bureau for Countering Terrorism Financing (NBCTF) has issued seven orders to seize crypto funds held by three of these Gaza exchanges.
Digital wallets identified by the NBCTF in two of those orders as linked to the exchanges had received $41 million in crypto, according to research by Tel Aviv-based analytics and software firm BitOK. The corresponding wallets linked to PIJ have received an additional $93 million.
Officials of the relevant Israeli authority said that a significant part of the funds received by the Gaza exchanges were for Hamas.
Some of the exchanges Israel identified look like typical storefronts offering international money transfers. Part of their operations involved legitimate activity, such as commercial payments and remittances, in order to generate sufficient cash flow to hide the funding of Islamist groups, NBCTF officials said. Up to half of the money passing through these exchanges was channeled to Hamas, according to the same sources.
Shamlakh, owner of the Al Mutahadun exchange, which was named in five of the seizure orders, was the “key” link in the Hamas money exchange, allegedly in charge of arranging the transfer of Iranian money, according to the Israeli ministry Defense, which oversees the NBCTF.
The owner of another exchange, Dubai Money, was “key to Hamas’ financial infrastructure for laundering and transferring funds” from abroad, the Defense Ministry said.
Following a ministry order in 2020 to seize his company’s assets, Shamlakh refused saying Israel’s claims were “pure lies and slander”.
Using the hawala networks
Initially, Hamas used crypto only to receive small-scale donations from supporters as part of a larger crowdfunding effort, which Israeli officials said likely netted the organization several million dollars.
Around 2020, encryption became a large-scale transfer method between Iran and Hamas within hawala networks.
Since then, encryption has been an essential part of their business. Iran has long been Hamas’s main financier, with US sources putting regular funding from Tehran at around $100 million a year.
Hamas also has income from a global investment portfolio: it raises money through charities and has siphoned funds from official foreign aid and tax revenues to Gaza.
Seizure orders
NBCTF took action against Shamlakh’s shift to crypto in 2021.
The bureau issued its first order to seize the crypto funds of Shamlakh’s office, Al Mutahadun, targeting 47 accounts on Binance, the world’s largest exchange. It said the funds either belonged to the Gaza exchange or were “used to commit a serious terrorist crime”.
A Binance spokesperson said it follows internationally recognized sanctions rules by blocking a small number of accounts linked to illegal funds.
This and similar subsequent orders sought to seize the Hamas-controlled exchanges’ crypto trading accounts themselves, as well as their customers’ accounts and digital wallets. Of course, as people familiar with the case said, it is not necessary that all the clients had ties to Hamas.
The digital wallets detected likely represented only a fraction of those used by Hamas.
The Gaza exchanges’ use of crypto was more sophisticated than Hamas’ previous bitcoin fundraising efforts.
The digital wallets connected to the exchanges traded funds mostly in the form of linking the stablecoin to the blockchain system called Tron, which has increased user privacy.
They also received funds from Garantex, a large Russian crypto exchange that is included in US sanctions on Russia, and several Iranian exchanges.
The Gaza exchange network remains active. In late September, another exchange provider called AlKahira, which shares an address and phone numbers with Dubai Money, posted a Facebook ad for Tether cash withdrawals and deposits at its two branches in Gaza.
NBCTF officials said that AlKahira and Dubai Money are connected to each other and additionally to another exchange in Istanbul.
AlKahira periodically informs its customers on its Facebook page that it pays remittances to victims’ families. The most recent such post was made on October 3, four days before Hamas attacked Israel.
