Israel’s fight against funding Iranian-backed militant groups, from Hamas to Hezbollah, has a new crypto front: the fast-growing Tron crypto network.
According to interviews with seven financial crime experts and blockchain investigators, Tron is faster and cheaper than its larger competitor Bitcoin and has already overtaken it as a platform for cryptocurrency transfers linked to groups that Israel, the U.S. and other countries designate as terrorist organizations.
A Reuters analysis of cryptocurrency seizures announced by Israeli intelligence agencies since 2021 reflects this trend, showing for the first time a sharp rise in Tron wallet seizures and a decline in Bitcoin wallet seizures.
“It used to be Bitcoin, but now our data shows that these terrorist organizations are increasingly favoring Tron,” said Mriganka Pattnaik, CEO of New York-based blockchain analytics firm Merkle Science, citing Tron’s faster transaction times, low fees and stability.
Merkle Science says its clients include law enforcement agencies in the U.S., U.K. and Singapore.
Israel’s National Bureau for Combating Terrorist Financing (NBCTF), which is responsible for such seizures, froze 143 Tron wallets between July 2021 and October 2023 that it believed were linked to a “designated terrorist organization” or used to commit a “serious terrorist crime,” according to a Reuters analysis.
A Hamas attack on Israel on Oct. 7 killed about 1,200 people. Subsequent bombings and Israel’s ground invasion of Gaza killed about 14,000 people. In response, Israel has also stepped up its scrutiny of Hamas funding.
Contacted by Reuters, Hayward Wong, a spokesman for Tron, a company registered in the British Virgin Islands, said all the technology “could theoretically be used for questionable activities,” citing the use of U.S. dollars for money laundering as an example.
Wong said that Tron does not control those who use its technology and that it is not affiliated with the groups cited by Israel.
Nearly two-thirds of Israel’s Tron seizures – 87 – have been made this year, including 39 wallets that Israel said in June belonged to the Lebanese group Hezbollah and 26 that it said in July belonged to Palestinian Islamic Jihad, a Hamas ally that joined the attack on Israel from the Gaza Strip.
The seizure also included 56 Tron wallets that the NBCTF said were linked to Hamas, including 46 last March that it linked to a Gaza-based money exchange company called Dubai Co. For the exchange.
A few weeks after the Hamas attack, Israel announced the largest known seizure of cryptocurrency accounts, freezing some 600 accounts connected to Dubai Co.
More than a dozen people whose funds were frozen as a result of that seizure told Reuters they were using Tron. They said they traded cryptocurrencies to help their businesses or personal finances and denied any connection to Hamas or Islamic Jihad.
One of them, who identified himself only as Neo, said he may have transferred money to someone linked to Hamas in one case.
Israel calls Dubai Co. a terrorist group “due to the assistance it provides to the Hamas terrorist organization, especially its military branch, in transferring funds on the scale of tens of millions of dollars a year.”
A spokesman for Dubai Co. whose e-mail address was listed in the seizure order did not respond to a request for comment.
The armed wing of Hamas, which has been raising cryptocurrency funds since at least 2019, said in April that it had stopped raising funds in bitcoin, citing increased efforts to prevent donations. The Hamas statement did not mention Tron.
Reuters has not been able to ascertain whether Hamas used Tron. NBCTF declined to comment for this article, including on its understanding of the move to Tron and how it links wallets to militant groups. Hamas, Hezbollah and Islamic Jihad did not respond to a request for comment.
Six people named in previous Israeli Tron seizure notices who responded to Reuters’ questions denied links to militant groups. They included people living in Venezuela, Dubai and the West Bank town of Jenin.
Axis of resistance
Israel said in a June statement that it had confiscated funds “intended for use by terrorist organizations funded by Iran.” Iran unites Hamas, Hezbollah and Islamic Jihad in a so-called “axis of resistance” opposing Israeli and U.S. power in the Middle East.
The NBCTF does not claim Tehran as the source of the funding in its confiscation statements. Iran’s foreign ministry did not respond to Reuters’ request for comment on the use of Tron to fund groups it supports.
Iran has previously used Tron to circumvent U.S. sanctions. Reuters reported last year that Iranian companies used it for $8 billion worth of transactions between 2018 and 2022.
Estimates of the amount of money that reaches banned groups through cryptocurrencies are unreliable, as it is difficult to say whether the money sent to the seized wallets was actually intended for those groups.
The value of cryptocurrency transactions and the addresses of the digital wallets used to conduct them can be tracked on the blockchain, the public ledger underlying cryptocurrencies. However, it is difficult for individuals not associated with law enforcement or cryptocurrency trading platforms to know the real identities of those involved in transactions.
The people consulted by Reuters also said that according to their research, the Tron network is dominated by the Tether cryptocurrency.
Tether, the world’s largest so-called stablecoin, is backed by reserves and aims to maintain a 1:1 peg to the dollar. The company said in a statement that it regularly monitors and freezes tokens “used for unscrupulous purposes” and coordinates these actions with law enforcement.
According to CoinGecko, Tether is the third largest cryptocurrency token with a market value of $89 billion.
Despite its lack of prominence outside of cryptocurrency circles, Tron is the dominant blockchain for Tether transactions, which currently holds $48 billion worth of tokens, according to Tether’s website. According to Messari, the average daily transaction volume on Tron in April-June was 9.1 million transactions, up more than 70% from 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 volumes and selling Tron tokens as an unregistered security. Sun said the SEC’s allegations “have no basis in fact.”
Binbin Deng, a spokesman for Sun, referred Reuters to a statement from Tron spokesman Wong.
‘Blind Spot’.
Since its introduction in 2008, the Bitcoin blockchain, and then cryptocurrencies in general, have become a magnet for criminals attracted by liquidity and a reputation for anonymity. According to blockchain tracker Chainalysis, illegal transactions accounted for 0.2% of all cryptocurrencies in 2022, up from 2% three years earlier.
In Israel, bitcoin seizures were meager compared to Tron. In 2021, when the NBCTF first published seizure notices, it froze 30 Bitcoin wallets. Bitcoin wallets did not appear in the notices in subsequent years.
Last month, the Financial Action Task Force, a Paris-based G7 body dedicated to combating illicit finance, warned that terrorist organizations are seeking to further increase donor anonymity, citing the growing popularity of Tether to Tron transfers.
Four people consulted by Reuters said such groups are being pushed toward Tron by the increased ability of law enforcement to track Bitcoin transactions.
Tron initially attracted less attention from blockchain analytics companies, according to Shlomit Wagman, a senior researcher at Harvard University who was director general of Israel’s Anti-Money Laundering and Counter-Terrorism Financing Authority from 2016 to 2022.
“Until now, there has been this blind spot,” she said.
According to US investment firm VanEck, transaction fees in Tron are much lower than in Bitcoin. Wagman said militant groups are also using stable coins on Tron instead of the more volatile Bitcoin tokens to ensure their cryptocurrencies “retain value.”
