Terrorist financing and country risk rating
In November 2023 the German FIU released an information letter for obliged entities, advising them on how to identify any suspicious activities in connection with the attack by Hamas. It called on companies to take note of the potential for misuse of non-profit organisations (associations, charities, etc.) and to pay special attention to individuals associated with Hamas or connected to the conflict area.?
In March 2024 the Wolfsberg Group published its Updated Country Risk FAQs. Besides the financial crime risk and the AML/CTF legal and regulatory frameworks obliged entities need to assess the political and economic environment linked to their overall business and customers including terrorism financing, presence of known terrorist organisations amongst others. Other relevant elements alongside the AML/CTF frameworks, structural elements relevant to political stability and other geographical factors relevant to terrorism financing are to be considered.
The country risk rating should be reviewed at least annually but also when key trigger data are released including related to regime change through a coup d’état or significant political unrest, in addition to regulatory updates or legal changes.
Enhanced Due Diligence should be informed by sectors, activities and jurisdictions more frequently associated with the financing of terrorism.
Multiple countries impose sanctions on Hamas operatives
On 19 January, the European Council published a dedicated sanctions framework for Palestinian terrorist groups Hamas and Palestinian Islamic Jihad. It also listed six individuals who were known Hamas financiers and operatives. The sanctions include asset freezes and travel bans.
The US, UK and Australia also announced their third round of sanctions targeting key figures in the financial networks of Hamas in the aftermath of the 7 October 2023 attacks. Sanctions were imposed on Hamas operatives such as Zuheur Samlakh, who is, according to the UK government, a “key figure in the group's shift towards cryptocurrencies” and Ahmed Sharif Abdallah Odeah, a key operator of Hamas international investment portfolio.
Investment schemes in Turkey and the Middle East and North Africa region (MENA)
Even though investment funds and private equity have historically been considered to be at low risk of use in terrorist financing, a recent case involving Palestinian terrorist group Hamas shows that this view might have to be revised. In the aftermath of Hamas’ terrorist attack in Israel on 7 October 2023, media reports suggested that Hamas had been partly financing itself through investments in portfolio companies across various sectors and countries in the Middle East.
The New York Times in December 2023 reported that leaked documents from 2018 showed that Hamas' investment portfolio was worth hundreds of millions of dollars and included companies located in countries such as Turkey, Saudi Arabia and Sudan, through which Hamas controlled “a multinational network of real businesses churning out real profits”. The article claimed that, alongside other streams of financing such as NGOs and international aid, the disbursement of profits and sale of portfolio companies had been a critical source of income for the group.
Countries historically considered to be most crucial to the financing of Hamas are Iran and Qatar. However, the reports about Hamas’ investment portfolio have demonstrated that strategic investments by the group in other countries in the region, such as Turkey, which does not consider Hamas a terrorist organisation, have also been key to its financing.
Crypto-currency continues to be misused for terrorism financing
Media reports from October-November 2023 indicated that Hamas' recent terrorist attacks on Israel were partially financed through cryptocurrency, causing Israeli law enforcement to crack down on dozens of accounts and seize millions of dollars worth of crypto coins.?
The reports indicated that Hamas had been involved in numerous crypto currency fundraising efforts prior to its 7 October attack on Israel, and that this activity had increased after that date. More than 100 accounts were reported to have been closed on the Binance crypto exchange since the attacks, and information on another 200 crypto accounts have been requested by the authorities.?
Tether, the world's biggest stable coin, has frozen 32 addresses worth almost USD 900,000 that have been linked to terrorism and wars in Israel and Ukraine. Reports also suggested that the crypto-currency Tron was also being increasingly used for terrorist financing purposes. Israel has seized a number of wallets over the past year, including some owned by Lebanese group Hezbollah, the Palestinian Islamic Jihad group and Hamas.?