LONDON, Nov 27 (Portal) – A new front has emerged in Israel’s fight against funding of Iranian-backed militant groups from Hamas to Hezbollah: a fast-growing crypto network called Tron.
According to interviews with seven financial crime experts and blockchain investigation specialists, Tron is faster and cheaper than its larger rival Bitcoin and has overtaken its competitor as a platform for crypto transfers linked to groups designated as terrorist organizations by Israel, the United States and other countries.
A Portal analysis of cryptocurrency seizures announced by Israeli security services since 2021 reflects this trend, showing for the first time a sharp increase in attacks on Tron wallets and a decline in Bitcoin wallet seizures.
“It used to be Bitcoin and now our data shows that these terrorist organizations are increasingly leaning towards Tron,” said Mriganka Pattnaik, CEO of New York-based blockchain analytics firm Merkle Science, citing its faster transaction times, low fees and stability by Tron.
Merkle Science says its customers include law enforcement agencies in the USA, Great Britain and Singapore.
Israel’s National Bureau for Counter Terror Financing (NBCTF), which is responsible for such seizures, froze 143 Tron wallets between July 2021 and October 2023 that it believed were linked to or for a “designated terrorist organization.” a “serious terrorist crime” were used. The Portal analysis found.
Around 1,200 people were killed in Hamas’ attacks on Israel on October 7th. Israel’s subsequent bombing and ground invasion of Gaza killed approximately 14,000 people. In response, Israel has also stepped up scrutiny of Hamas’ funding.
Contacted by Portal for a summary of this article, Hayward Wong, a spokesman for British Virgin Islands-registered Tron, said all technologies could “theoretically be used for questionable activities,” citing the use of U.S. dollars for money laundering as an example.
Wong said Tron has no control over those who use its technology and it is not affiliated with the groups identified by Israel.
Nearly two-thirds of Israel’s Tron seizures – 87 – have taken place this year, including 39 wallets that Israel said in June belonged to Lebanon’s Hezbollah and 26 that it said in July belonged to the Palestinian Islamic State Jihad, a Hamas ally who joined the attack on Israel from Gaza.
The seizures also included 56 Tron wallets that NBCTF said were linked to Hamas, including 46 in March last year that were linked to a single Gaza-based money exchange company called Dubai Co. For Exchange.
Weeks after the Hamas attack, Israel announced the largest known seizure of crypto accounts to date, freezing around 600 accounts linked to Dubai Co. without specifying which crypto networks or coins were used.
More than a dozen people whose funds were frozen in this seizure told Portal they had used Tron. They said they traded cryptocurrencies to support their business or personal finances and denied any connection to Hamas or Islamic Jihad.
One of the people, who identified himself only as Neo, said it was possible they had once transferred money to someone linked to Hamas.
Israel designates Dubai Co. a terrorist group “due to the assistance they provide to the Hamas terrorist organization, particularly its military wing, in transferring funds in the order of tens of millions of dollars per year.”
A Dubai Co. representative, whose email address was listed in the seizure order, did not respond to a request for comment.
Hamas’s armed wing, which had been collecting cryptocurrency since at least 2019, said in April it would stop fundraising for Bitcoin, citing increased efforts to discourage donations. Hamas did not mention Tron in the statement.
Portal could not independently determine whether Hamas had used Tron. NBCTF declined to comment for this story, including its understanding of the move to Tron and how it linked the wallets to the militant groups. Hamas, Hezbollah and Islamic Jihad did not respond to requests for comment.
Six people listed in Israel’s previous Tron seizure notices and responding to questions from Portal denied links to militant groups. These included people from Venezuela, Dubai and the West Bank city of Jenin.
“AXIS OF RESISTANCE”
In the June statement, Israel said it had confiscated funds “intended for use by the terrorist organizations financed by Iran.” Iran counts Hamas, Hezbollah and Islamic Jihad as part of a so-called axis of resistance that opposes Israeli and American power in the Middle East.
In the seizure statements, NBCTF did not confirm that Tehran was the source of the funding. Iran’s Foreign Ministry did not respond to a Portal request for comment about using Tron to fund groups it supports.
Iran has previously used Tron to circumvent US sanctions. Portal reported last year that Iranian firms used it for transactions worth $8 billion between 2018 and 2022.
Estimates of the amount of money reaching banned groups via crypto are unreliable because it is difficult to tell whether the money sent to confiscated wallets was actually intended for these groups.
The value of crypto transactions and the digital wallet addresses used for them can be tracked on the blockchain – a public ledger underlying the crypto. However, it is difficult for anyone outside of law enforcement or crypto trading platforms to know the true identities of those involved in the transactions.
People interviewed by Portal also said their research showed that the cryptocurrency Tether was dominant on the Tron network.
Tether, the world’s largest so-called stablecoin, is backed by reserves and aims for a 1:1 peg with the dollar. The company said in a statement that it regularly tracked and froze tokens that were “used for nefarious purposes,” and coordinated these efforts with law enforcement.
According to data from CoinGecko, Tether is the third-largest crypto token with a market value of $89 billion, which has increased by around a third over the past year.
Despite its lack of recognition outside of crypto circles, Tron is the dominant blockchain for Tether transactions and is currently home to $48 billion worth of tokens, according to Tether’s website. According to data firm Messari, average daily transactions on Tron reached 9.1 million from April to June, an increase of over 70% compared to the same period last year.
Justin Sun, who founded Tron in 2017, was sued by the U.S. Securities and Exchange Commission in March for allegedly artificially inflating trading volume and selling Tron tokens as an unregistered security. Sun said the SEC’s charges were “dispensable.”
Binbin Deng, a Sun representative, referred Portal to Tron spokesman Wong’s statement.
‘BLIND SPOT’
Since its birth in 2008, the Bitcoin blockchain, and cryptocurrencies more broadly since then, have been a magnet for criminals drawn to its liquidity and reputation for anonymity. According to blockchain tracker Chainalysis, the illicit share of total crypto transaction volume was 0.2% in 2022, compared to 2% three years earlier.
Bitcoin seizures have been rare in Israel compared to Tron. In 2021, the first year that NBCTF issued seizure notices, it froze 30 Bitcoin wallets. In subsequent years, Bitcoin wallets no longer appear in announcements.
The Financial Action Task Force, a Paris-based G7 body designed to combat illicit finance, warned last month that terrorist organizations are trying to further increase the anonymity of donors, citing the growing popularity of Tether transfers on Tron.
Four of the people interviewed by Portal said law enforcement’s increasing ability to track Bitcoin transactions was driving such groups to Tron.
Tron initially attracted less attention from blockchain analysis firms, said Shlomit Wagman, a senior fellow at Harvard University who was director general of Israel’s Authority for the Prohibition of Money Laundering and Terrorist Financing from 2016 to 2022.
“Up until now there has been this blind spot,” she said.
Tron transaction fees cost far less than Bitcoin, says US investment firm VanEck. Militant groups also used stablecoins on Tron instead of the more volatile Bitcoin tokens to ensure “the value of their crypto is preserved,” Wagman said.
Reporting by Tom Wilson and Elizabeth Howcroft in London, additional reporting by Nidal al-Mughrabi in Gaza and Maya Gebeily in Beirut; Edited by Frank Jack Daniel
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