By Nolan Fahrenkopf, College at Albany, State College of New York
Two years after Hamas attacked Israel on Oct. 7, 2023, households of the victims filed swimsuit towards Binance, a significant cryptocurrency platform that has been affected by scandals.
In a Nov. 24, 2025, submitting by representatives of greater than 300 victims and relations, Binance and its former CEO – lately pardoned Changpeng Zhao – had been accused of willfully ignoring anti-money-laundering and so-called “know your buyer” controls that require monetary establishments to determine who’s partaking in transactions.
In so doing, the swimsuit alleged that Binance and Zhao – who in 2023 pleaded responsible to cash laundering violations – allowed U.S.-designated terrorist entities akin to Hamas and Hezbollah to launder US$1 billion. Binance has declined to touch upon the case however issued an announcement saying it complies “absolutely with internationally acknowledged sanctions legal guidelines.”
The drawback the Binance lawsuit touches upon goes past U.S.-designated terrorist teams.
As an professional in countering the proliferation of weapons know-how, I imagine the Binance-Hamas allegations might signify the tip of the iceberg in how cryptocurrency is being leveraged to undermine world safety and, in some cases, U.S. nationwide safety.
Cryptocurrency is aiding international locations akin to North Korea, Iran and Russia, and varied terror- and drug-associated teams in funding and buying billions of {dollars} value of know-how for illicit weapons applications.
Although some enforcement actions proceed, I imagine the Trump administration’s embrace of cryptocurrency would possibly compromise the U.S.’s potential to counter the illicit financing of army know-how.
In truth, consultants akin to professor Yesha Yadav, professor Hilary J. Allen and Graham Steele, anti-corruption advocacy group Transparency Worldwide and even the U.S. Treasury itself warn it and different legislative loopholes might additional threat American nationwide safety.
A instrument to evade sanctions
For the previous 13 years, the Venture on Worldwide Safety, Commerce, and Financial Statecraft, the place I function a analysis fellow, has carried out analysis and led trade and authorities outreach to assist international locations counter the proliferation of harmful weapons know-how, together with using cryptocurrency in weapons fundraising and cash laundering.
Over that point, we’ve got seen a rise in cryptocurrency getting used to launder and lift funds for weapons applications and as an progressive instrument to evade sanctions.
Efforts by state actors in Iran, North Korea and Russia depend on enforcement gaps, loopholes and the nebulous nature of cryptocurrency to launder and lift cash for buying weapons know-how. For instance, in 2024 it was thought that round 50% of North Korea’s overseas forex got here from crypto raised in cyberattacks.
A digital financial institution heist
In February 2025, North Korea stole over $1.5 billion value of cryptocurrency from Bybit, a cryptocurrency change primarily based within the United Arab Emirates. Such assaults could be considered a type of digital financial institution heist. Bybit was executing common transfers of cryptocurrency from chilly offline wallets – like a secure in your house – to “heat wallets” which might be on-line however require human verification for transactions.
North Korean brokers duped a developer working at a service utilized by Bybit to put in malware that granted them entry to bypass the multifactor authentication. This allowed North Korea to reroute the crypto transfers to itself. The funds had been moved to North Korean-controlled wallets however then washed repeatedly by way of mixers and a number of different crypto currencies and wallets that serve to conceal the origin and finish location of the funds.
Whereas some funds have been recovered, many have disappeared.
The FBI ultimately linked the assault to the North Korean cyber group TraderTraitor, certainly one of many intelligence and cyber items partaking in cyberattacks.
Lagging behind on safety
Cryptocurrency is engaging due to the benefit with which it may be acquired and transferred between accounts and varied digital and government-issued currencies, with little to no necessities to determine oneself.
And as international locations akin to Russia, Iran and North Korea have turn out to be constricted by worldwide sanctions, they’ve turned to cryptocurrency to each increase funds and buy supplies for weapons applications.
Even stablecoins, promoted by the Trump administration as safer and backed by exhausting forex such because the U.S. greenback, undergo from intensive misuse linked to funding illicit weapons applications and different actions.
Conventional monetary networks, whereas not immune from cash laundering, have well-established safeguards to assist forestall cash getting used to fund illicit weapons applications.
However current evaluation exhibits that regardless of enforcement efforts, the cryptocurrency trade continues to lag behind with regards to implementing anti-money-laundering safeguards. In no less than some circumstances that is willful, as some crypto companies might try to bypass controls for revenue motives, ideological causes or coverage disputes over whether or not platforms could be held accountable for the actions of particular person customers.
It isn’t solely the elevating of those funds by rogue nations and terrorist teams that poses a menace, although that’s usually what makes headlines. A extra urgent concern is the flexibility to quietly launder funds between entrance firms. This helps actors keep away from the scrutiny of conventional monetary networks as they search to maneuver funds from different fundraising efforts or companies they use to buy tools and know-how.
The unbelievable quantity of crypto transactions, the big variety of centralized and decentralized exchanges and brokers, and restricted regulatory efforts have made crypto extremely helpful for laundering funds for weapons applications.
This course of advantages from an absence of safeguards and “know your buyer” controls that banks are required to observe to stop monetary crimes. These ought to, I imagine, and usually do apply to entities giant and small that assist transfer, retailer or switch cryptocurrency generally known as digital asset service suppliers, or VASPs. Nonetheless, enforcement has confirmed troublesome as there are an extremely giant variety of VASPs throughout quite a few jurisdictions. And jurisdictions have fluctuating capability or willingness to implement controls.
The cryptocurrency trade, although supposedly topic to many of those safeguards, usually fails to implement the foundations, or it evades detection attributable to its decentralized nature.
Digital funds, actual threat
The rewards for rogue nations and organizations akin to North Korea could be nice.
Ever the savvy sanctions evader, North Korea has benefited essentially the most from its early imaginative and prescient on the promise of crypto. The reclusive nation has established an intensive cyber program to evade sanctions that depends closely on cryptocurrency. It’s not identified how a lot cash North Korea has raised or laundered in whole for its weapons program utilizing crypto, however prior to now 21 months it has stolen no less than $2.8 billion in crypto.
Iran has additionally begun counting on cryptocurrency to help within the sale of oil linked to weapons applications – each for itself and proxy forces such because the Houthis and Hezbollah. These efforts are fueled partially by Iran’s personal crypto change, Nobitex.
Russia has been documented going past using crypto as a fundraising and laundering instrument and has begun utilizing its personal crypto to buy weapons materials and know-how that gasoline its battle towards Ukraine.
A menace to nationwide safety
Regardless of these severe and escalating dangers, the U.S. authorities is pulling again enforcement.
The controversial pardon of Binance founder Changpeng Zhao raised eyebrows for the sign it sends relating to U.S. dedication to implementing sanctions associated to the cryptocurrency trade. Different actions akin to deregulating the banking trade’s use of crypto and shuttering the Division of Justice’s crypto fraud unit have executed severe injury to the U.S.’s potential to interdict and forestall efforts to make the most of cryptocurrencies to fund weapons applications.
The U.S. has additionally dedicated to ending “regulation by prosecution” and has withdrawn quite a few investigations associated to failing to implement laws meant to stop techniques utilized by entities akin to North Korea. This contains abandoning an admittedly difficult authorized case relating to sanctions towards a “mixer” allegedly utilized by North Korea.
These actions, I imagine, ship the unsuitable message. At this very second, cryptocurrency is being illicitly used to fund weapons applications that threaten American safety. It’s an actual drawback that deserves to be taken severely.
And whereas some enforcement actions do proceed, failing to implement and implement safeguards up entrance implies that crypto will proceed for use to fund weapons applications. Cryptocurrency has official makes use of, however ignoring the laundering and sanctions-evasion dangers will injury American nationwide pursuits and world safety.
Concerning the Creator:
Nolan Fahrenkopf, Analysis Fellow at Venture on Worldwide Safety, Commerce and Financial Statecraft, College at Albany, State College of New York
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