- An ethics watchdog urged senators to look into alleged financing of Hamas and other militant groups.
- But the evidence for crypto’s role remains contentious.
This article was updated on December 1.
A liberal watchdog has urged the US Treasury’s Financial Crimes Enforcement Network to use Section 311 of the Patriot Act to curb the ability of criminals to hide their tracks via decentralised networks.
The watchdog, the Campaign for Accountability, referenced concerns in particular about the potential use of USDC to finance terrorism and about Circle’s links to Justin Sun, the China-born founder of the Tron network.
Tron is one of many blockchains where USDC is available, and the use of USDC on these networks is permissionless. But when crimes are flagged, USDC issuer Circle may freeze associated wallets.
“The Treasury Department should consider the use of 311 authority with respect to protocols that enable unregulated ‘chain hopping’ on blockchains… and any stablecoins listed on those blockchains as a ‘primary money laundering concern’,” Michelle Kuppersmith, executive director of the Campaign for Accountability, wrote in a letter dated November 9.
The letter is a sign that more in Washington and beyond are seizing on alleged Hamas links to scrutinise crypto — armed with mounting global support amid scandals including the conviction of FTX exchange CEO Sam Bankman-Fried and Binance’s $4.3 billion settlement with US authorities.
SEC charges
In March, the Securities and Exchange Commission slapped Sun with charges of fraud and a type of market manipulation called wash trading. Sun has said the SEC suit “lacks merit.”
Under Section 311 of the Patriot Act, the Secretary of the Treasury can designate transactions to be of “primary money laundering concern.”
On October 17, in response to militant group Hamas’s attacks on Israel earlier that month, FinCEN used that authority to propose rules that would require financial institutions to report to FinCEN any transactions with mixers.
Kuppersmith told FinCEN the proposal was a good start, but it was not enough to target money laundering occurring via methods like chain-hopping — moving rapidly between blockchains to clear their tracks.
Kuppersmith claimed that crackdowns on mixers including Tornado Cash have deterred money launderers via these methods.
However, they have just migrated to chain-hopping. Kuppersmith also referred to the National Bureau for Counter Terror Financing of Israel, which issued an asset seizure order targeting the terror group Palestinian Islamic Jihad.
She said the group identified 26 Tron wallets consisting of over $93 million in three cryptocurrencies.
There is no suggestion that entities supporting the development of the Tron blockchain, such as Justin Sun’s Tron Foundation, were involved in any wrongdoing.
Still, the seizure highlights how the anonymity of crypto transactions can be misused.
Under fire
Kuppersmith’s letter has come under fire from both Tron and Circle.
Tron has denied any wrongdoing and in particular has denied it funds, facilitates, or launders money to facilitate the financing of terrorist groups.
Sun posted on X in late November:
“Tron is a decentralised protocol, similar to Bitcoin and Ethereum, with nodes operating worldwide. Global super representatives are responsible for running this protocol. While we are committed to combating terrorist financing by integrating various analysis projects and partners, our top priority remains maintaining decentralisation, ensuring the safety of everyone’s assets, and providing instant, affordable, and reliable transactions, as has always been the case.”
Circle says that the letter is replete with errors, omissions, and misleading information.
“Let us be perfectly clear” Circle chief strategy officer and head of global policy, Dante Disparte said in a post on the firm’s website on December 1. “Circle does not facilitate, directly or indirectly, or finance Hamas (or any other illicit actors).”
He added that “Circle is subject to multiple regulatory regimes — including the Bank Secrecy Act (BSA) and applicable laws focused on anti-money laundering and countering the financing of terrorism — and has forcefully advocated for a comprehensive federal prudential regulatory regime in the United States.”
Nevertheless, in the post, Circle announced that it had terminated all accounts held by Sun and his affiliated companies in February.
Letter to Elizabeth Warren
Kuppersmith’s letter to FinCEN was appended to another letter she sent to senators Elizabeth Warren and Sherrod Brown.
Kuppersmith told the senators they should determine whether US regulators are equipped to ensure that dollar-backed stablecoin issuers are complying with anti-money laundering requirements, and that stablecoins aren’t used in sanctions evasion.
Wall Street backers
“The flow of money to suspected terrorist accounts should be a significant concern for Congress given Circle’s bankers and asset managers on Wall Street,” the letter said.
Circle’s backers include investment bank Goldman Sachs and asset management giant BlackRock.
Bloomberg reported that Circle is considering going public in 2024.
Unlike its peers — including BitGo, Coinbase, and Gemini — Circle has dodged regulations in the US, Kuppersmith said.
That has enabled Circle to issue USDC without regulatory approval on networks like Tron and others that are not subject to US anti-money laundering requirements, Kuppersmith said.
Crypto’s terror links questioned
US authorities reacted to the October 7 attack on close ally Israel by scrutinising whether crypto plays a role in funding groups like Hamas and Hezbollah.
Brown and Warren, one of the crypto industry’s most vocal foes, were among the 100-odd lawmakers who signed an October 17 letter to national security authorities.
The lawmakers urged the Biden Administration to urgently address “the serious national security threats posed by the use of cryptocurrency to finance terrorism.”
Correction: This article was updated on December 1 to include comments from Tron and Circle. Any suggestion that Tron may have been directly involved in terrorism financing was removed. We apologise for any contrary impression.
