Asian nations more cautious of crypto regulation after Hamas taps digital assets for Israel strike

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The use of cryptocurrency by Hamas to fund its strike on Israel is likely to raise red flags in Asian countries that are framing regulations to govern the digital currency, and underscores the need for harmonising standards, analysts have said. According to a report in The Wall Street Journal, three militant groups – Hamas, Palestinian Islamic Jihad (PIJ), and their Lebanese ally Hezbollah – received large amounts of crypto funds in the year leading up to the October 7 attack. “It is a kick on the backside for most governments. All regulatory bodies will take a closer look at crypto regulation. Governments will need to start implementing new rules and regulations,” said Raj Kapoor, founder of India Blockchain Alliance. Asia’s digital-asset champions hold out hope for ‘crypto spring’ At the G20 summit in New Delhi last month, a joint declaration called for the regulation, supervision and oversight of crypto assets, among other things, with the bloc saying it would support “a coordinated and comprehensive policy and regulatory framework”. Kapoor, who was a speaker at one of the G20 committee meetings on cryptocurrency assets, said the statement had not been translated into action. It was time to revisit the declaration and come up with solutions to back it, he said. Digital-currency wallets that Israeli authorities linked to the PIJ received as much as US$93 million in cryptocurrency between August 2021 and June this year, the WSJ report said, citing analysis by crypto researcher Elliptic. Wallets connected to Hamas received about US$41 million over a similar time period, the report added, citing research by crypto analytics and software firm BitOK that is based in Tel Aviv. “Some countries may bring up the narrative that banning cryptocurrencies is the way forward,” said Anndy Lian, Singapore-based author of the book NFT: From Zero to Hero. “I would argue that banning cryptocurrencies would not stop terrorist financing, but rather drive it underground and make it harder to trace and stop,” he added. “Cryptocurrencies can be traced and tracked, while fiat (currency) such as US dollars cannot.” Singapore and Hong Kong have regulated cryptocurrency markets, but most of the governments in the region are just beginning to understand the power of cryptocurrencies that could open up new financing opportunities. However, investors’ faith has been time and again been tested by scandals and collapses of digital exchanges. Hong Kong’s cryptocurrency sector was recently hit by a JPEX scandal in which more than HK$1.5 billion (US$192 million) went missing, prompting complaints against an ostensibly Hong Kong-based exchange, run by people who have still not been identified. The revelation about Hamas funding could add to public discomfort, analysts said. “The disclosure about Hamas could potentially lead to stricter regulations and enhanced scrutiny of crypto transactions in Singapore. It may prompt the MAS to enhance its oversight and enforcement of the crypto sector, as well as to collaborate more closely with other countries to prevent and disrupt terrorist financing through digital assets,” Lian said, referring to Singapore’s central bank. The Monetary Authority of Singapore (MAS) has been taking measures to regulate the cryptocurrency industry, and has been one of the first to regulate the sector in Asia. Hong Kong has been following Singapore’s lead. “While the government recognises the economic and social potential of cryptocurrency, it is also cautious about identifying and managing risks involved, such as consumer protection and anti-money-laundering/counter-financing of terrorism,” Lian added. But cryptocurrencies could easily be tracked down “so this may not be the best way for terrorist organisations”, said Singapore-based Branson Lee, who runs custody solution provider Custodize.com. “Finally, there are many tools to track and trace these funds. Overall, the crypto industry remains aware of these risks and has done well since to conform to many regulations from FATF (Financial Action Task Force) to jurisdictional compliance,” he said. Southeast Asia, with nearly 700 million residents, has one of the world’s fastest-growing populations, with some 480 million of them as active internet users. Consumers in countries like Vietnam and India have been among the fastest worldwide to adapt to cryptocurrencies, but authorities in many other places have not yet found a path to govern the ecosystem effectively. India does not have any specific cryptocurrency regulations in place, but has been working on introducing legislation. Earlier this month, local media reported that a probe by Indian police brought to light a case where 3 million rupees (US$36,000) in cryptocurrency was stolen from the digital wallets of a Delhi-based businessman and transferred to the accounts of Hamas. Manhar Garegret, India head at digital wallet Liminal, highlighted that Hamas had launched campaigns on social media to raise funds through cryptocurrency, but Israel used its technical know-how to block the crypto accounts. The case of digital theft in Delhi together with the report on Hamas funding showed why each country needed to have standards for cryptocurrency regulation and use technical know-how to integrate into a global standard, Kapoor said. “Criminals are always one step ahead, but if you reverse-engineer processes, then you can have some solutions,” he said. “Every country is vulnerable to some extent or the other.”

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