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U.S. Representative Warren Davidson (R-Ohio) has voiced concerns over policy proposals targeting the use of cryptocurrency in illicit activities. He argues that these proposals overlook the transparency provided by blockchain transactions and the fact that terrorist groups primarily rely on traditional financial systems for financing. Davidson attributes these proposals to now-debunked reports claiming that Hamas raised significant funds through cryptocurrency before its Oct. 7 attack.
Davidson asserts, "If Congress wants to coalesce around a serious proposal to combat illicit finance, we must acknowledge that digital assets on a blockchain are not the preferred method for terrorism financing. The on-ramps and off-ramps to or from the digital asset ecosystem are already subject to the Bank Secrecy Act today and blockchain provides an immutable record of all on-chain activity. Unfortunately, that’s not enough for those who want to control a person’s ability to transfer their own property (digital assets) between peers or apart from third-party intermediaries. Anyone attacking self-custody clearly wants someone to control your assets on their behalf."
In an opinion piece penned for The Hill on Jan. 8, Davidson critiqued Sen. Elizabeth Warren's (D-Mass.) Digital Asset Anti-Money Laundering Act and the Treasury Department's recent policy proposal. He described them as demonstrating "a shockingly poor understanding of how information is (or isn’t) transmitted on a blockchain network." According to Davidson, these proposals could effectively ban crypto in the United States by imposing an "unworkable compliance burden."
A report by The New York Times in December revealed that Israeli intelligence discovered ledgers detailing sources of Hamas's financing in 2018. Experts believe these funds were used by the terrorist group to expand its military infrastructure in preparation for the Oct. 7 attack. Despite this discovery, the Israeli and American governments did not sanction any of the listed companies until 2022. Udi Levy, a former chief of Mossad’s economic warfare division, commented on this delay, saying, "Everyone is talking about failures of intelligence on Oct. 7, but no one is talking about the failure to stop the money," adding, "It’s the money — the money — that allowed this."
Davidson suggests in his opinion piece that attracting more digital asset firms to the United States could reduce illicit financial activity by subjecting these companies to American laws and regulations. He urges Congress to prioritize providing clarity to crypto industry participants through legislative regulatory frameworks.
Jane Khodarkovsky, a partner of Arktouros and former Human Trafficking Finance Specialist with the U.S. Department of Justice’s money laundering and asset recovery section, echoed Davidson's sentiments during a Congressional hearing on Nov. 15. She stated that blockchain's traceability enables prosecutors and other professionals to track bad actors who attempt to use cryptocurrency for illicit activities. "What I found as a prosecutor—and my experience is not unique—is that when criminals turn to digital methods, they actually leave breadcrumbs for investigators to follow," Khodarkovsky explained.
