Crypto, Hamas and Elizabeth Warren

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Oct 13, 2023 View in browser   By Jasper Goodman and Zachary Warmbrodt Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. QUICK FIX Washington’s cryptocurrency lobby is scrambling to contain a Hamas problem that’s about to become an Elizabeth Warren problem. Last week’s massacre in Israel has painted a big target on crypto, thanks to reports that militant groups including Hamas recently received financing via digital currencies. It comes as the industry is already trying to bat down daily headlines from the fraud trial of former crypto magnate Sam Bankman-Fried. Capitol Hill scrutiny is about to ramp up. Senate Banking Chair Sherrod Brown (D-Ohio) — one of the industry’s fiercest critics — is vowing to use his committee to examine the role crypto played in the Israel attacks. The Hamas connection is also giving fresh momentum to a push by Warren to pass a bill that would impose new anti-money laundering rules on crypto — an increasingly bipartisan effort that digital asset firms have tried to quash. “The danger of crypto-financed terrorism is real and should be an urgent priority for Congress,” Warren told MM. “There’s a growing bipartisan coalition of senators who are committed to passing this bill and fighting back against terrorism worldwide by choking off the financing.” While crypto’s use by Israel’s attackers is still being understood, the linkage is shaping up to be the latest in a series of political liabilities incurred since last year’s market meltdown and arrest of Bankman-Fried. The crypto lobby has made some recent strides in its quest for legitimacy — the House is on the cusp of passing industry-blessed legislation — but is facing growing resistance from lawmakers energized by digital currency’s role in financial crimes. “From a crypto skeptic’s perspective, right now, it’s the most potent argument that they have,” said Lee Reiners, a fellow at Duke University. “This is sort of another black eye for crypto.” Hamas was an early adopter of using cryptocurrencies for financing, according to TRM Labs, a blockchain intelligence company. Though most of the group’s funding comes from other sources, groups linked to Hamas have continued to solicit donations through crypto since its weekend attacks, per TRM. Crypto is seen as a potential tool in financial crimes because it allows individuals to move money outside the traditional banking system with pseudo-anonymity and the use of decentralized platforms. Crypto advocates counter that it offers enhanced transparency because transactions are often recorded in public ledgers. Law enforcement has found ways to follow the money. Digital wallets linked to Hamas and Palestinian Islamic Jihad received up to $134 million since 2021, according to crypto analyses cited by the Wall Street Journal. (Warren this week shared the WSJ’s reporting with other senators and encouraged them to back her bill.) Crypto firms including the U.S. exchange Coinbase have rushed to get ahead of the controversy. Sheila Warren, CEO of the Crypto Council for Innovation, wrote on X Thursday that she has “moved from disgust to anger that crypto’s detractors in Washington are using this horrifying moment to push their (overblown) political [points].” Brown’s decision to dig into crypto financing could be a boon to Senator Warren, after he previously downplayed the need for her legislation. Her bill would extend financial crime rules for traditional lenders to players in the digital asset space. “The abuse of crypto by terrorist organizations should serve as a wake-up call to Congress to crack down on digital assets and money laundering that we now know is helping bankroll the horrific massacres in Israel,” said Sen. Roger Marshall of Kansas, the lead Republican on Warren’s bill. Industry groups have been gearing up to fight Warren’s plan. Blockchain Association CEO Kristin Smith said the industry has a history of working with law enforcement. “Unfortunately, Sen. Warren's bill would do nothing to stop bad actors from abusing this technology,” Smith said. “Instead, it would create an unfeasible new regime that law-abiding American companies simply can't satisfy, forcing crypto activity into unreachable, unregulated venues and jurisdictions.” Rep. Jim Himes (D-Conn.), who sits on the House Financial Services and Intelligence committees, said the latest controversy underscores why crypto advocates need to better “articulate what their use case is.” “As long as the use case is some weird combination of libertarian fantasies and drug dealers and terrorists, members of Congress are not going to be excited to give the industry the benefit of the doubt,” he said. Happy Friday — What should Washington do next with crypto? Send thoughts and tips: Zach Warmbrodt, Sam Sutton.   A NEW POLITICO PODCAST: POLITICO Tech is an authoritative insider briefing on the politics and policy of technology. From crypto and the metaverse to cybersecurity and AI, we explore the who, what and how of policy shaping future industries. We’re kicking off with a series exploring darknet marketplaces, the virtual platforms that enable actors from all corners of the online world to traffic illicit goods. As malware and cybercrime attacks become increasingly frequent, regulators and law enforcement agencies work different angles to shut these platforms down, but new, often more unassailable marketplaces pop up. SUBSCRIBE AND START LISTENING TODAY.     Driving the day Earnings season begins with third-quarter reports from JPMorgan Chase, Wells Fargo, Citigroup and BlackRock … The Import Price Index for September is out at 8:30 a.m. … McHenry time? – House Majority Leader Steve Scalise withdrew his bid for speaker, leaving Republicans scrambling for a Plan B. Rep. Jim Jordan is expected to make another run. Our Huddle colleagues report that some Republicans are discussing how to give Acting Speaker Pro Tempore Patrick McHenry more authority to temporarily run the chamber. But some conservatives are wary of McHenry, a close McCarthy ally, and others say they don’t want to ease the pressure to pick a new permanent speaker. Iran funds blocked — The U.S. and Qatar agreed to block Iran’s access to $6 billion that had been transferred as part of a prisoner release deal, per the NYT. Iran is facing global scrutiny over whether it played a role in supporting the Hamas attack in Israel. Republicans and Democrats have been urging the Biden administration to freeze the Iranian funds. The Times reports that Treasury is not employing sanctions powers but has a “quiet understanding” with Qatar that Iran will be unable to retrieve the money. War and inflation — Thursday’s slightly hotter-than-expected inflation number probably won’t change Fed Chair Jerome Powell’s rate hike campaign. But Victoria Guida reports that geopolitical tremors could complicate the picture. The Fed’s concern is that higher energy costs could push up prices elsewhere, from plane fares to industries heavily reliant on shipping, Victoria writes. Regulatory Corner Biden enforcers warn banks on immigrant bias — The CFPB and DOJ told lenders in a joint statement that “unnecessary or overbroad reliance” on a loan applicant’s immigration status may be illegal. Officials said consumers have reported having credit card and loan applications rejected because of their immigration status, even when they have strong credit histories, ties to the U.S. and are otherwise qualified. The CFPB has launched an initiative to better understand the financial experiences of immigrants. “Fair access to credit is crucially important for building wealth and strengthening household financial stability,” CFPB Director Rohit Chopra said. “The CFPB will not allow companies to use immigration status as an excuse for illegal discrimination.” TransUnion penalized over background checks — The CFPB and the FTC fined credit reporting giant TransUnion $23 million for allegedly failing to ensure the accuracy of rental background checks, our Katy O’Donnell reports. Better Markets has a new report showing that the six biggest U.S. banks have accrued $9 billion in fines and other legal payouts over the past 15 months. Wells Fargo makes up a big chunk of the total. Ukraine Treasury enforces oil price cap — Victoria reports that the Treasury Department issued its first sanctions against firms for circumventing the Russian oil price cap, targeting two Turkish and UAE companies.   Enter the “room where it happens”, where global power players shape policy and politics, with Power Play. POLITICO’s brand-new podcast will host conversations with the leaders and power players shaping the biggest ideas and driving the global conversations, moderated by award-winning journalist Anne McElvoy. Sign up today to be notified of new episodes – click here.     Crypto Ellison wraps SBF trial testimony — CoinDesk reports that Bankman-Fried’s defense lawyer on Thursday “meandered” in his cross-examination of Caroline Ellison, the former Alameda Research CEO and SBF ex who is the prosecution’s star witness in the fraud trial. Mark Cohen “wrapped up … without actually trying to assign her blame for her culpability in the FTX catastrophe.”   Follow us on Twitter Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @ @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton   Follow us

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