On October 20, 2023, the Financial Crimes Enforcement Network (“FinCEN”) published an alert (the “FinCEN Alert”) to help assist financial institutions in identifying funding streams supporting the terrorist organization Hamas and reporting such activity to FinCEN.
In the wake of the October 7, 2023 Hamas terrorist attack in Israel, the FinCEN Alert suggests that Hamas raises funds to support its operations and members in a variety of ways, including through: “support from Iran; private donations; a global portfolio of investments; diverting aid and support from legitimate charities; the control of border crossings and avenues of commerce; racketeering business frameworks; extortionary practices around local populations; and fundraising campaigns involving virtual currency and fictitious charities raising both fiat and virtual currency.” The FinCEN Alert also cautions that Hamas moves funds through “the smuggling of physical currency as well as a regional network of complicit money transmitters, exchange houses, and Hizballah-affiliated banks.” The FinCEN Alert also reminds financial institutions that Hamas and associated entities and individuals are subject to extensive sanctions restrictions by the U.S. and that suspicious transactions associated with Hamas’s financing should be identified and reported as soon as possible.
The FinCEN Alert identifies the following red flag indicators to help financial institutions detect, prevent, and report potential suspicious activity related to terrorist financing:
- A customer or a customer’s counterparty conducts transactions with individuals or entities designated by the Office of Foreign Assets Control (“OFAC”), or transactions that contain a nexus to identifiers listed for OFAC-designated entities and individuals.
- Information included in a transaction between customers indicates support for terrorist campaigns.
- A customer conducts transactions with a Money Services Business or other financial institution, that operates in higher risk jurisdictions tied to Hamas activity, and is reasonably believed or suspected to have lax customer due diligence requirements, opaque ownership, or otherwise fails to comply with anti-money laundering/combatting the financing of terrorism best practices.
- A customer conducts transactions that originate with, are directed to, or otherwise involve entities that are shell corporations, general “trading companies,” or other companies that have a nexus with Iran or other Iran-supported terrorist groups.
- A customer that is a charitable organization or nonprofit organization (“NPO”) solicits donations but does not appear to provide any charitable services or openly supports Hamas’s terrorist activity or operations.
- A customer that is a charitable organization or NPO receives large donations from an unknown source over a short period of time and then sends significant wire transfers or checks to other charitable organizations or NPOs.
- A customer conducts transactions with known or suspected virtual currency addresses tied to terrorism or terrorist financing donation campaigns.
Although no single red flag is determinative of illicit or suspicious activity related to Hamas, financial institutions should consider the totality of available facts and circumstances available to them.
The FinCEN Alert highlights the agency’s focus on identifying and preventing funding streams to terrorist organizations, such as Hamas. The FinCEN Alert builds on additional actions taken by OFAC, including recent designations of numerous Hamas members, operatives, and financial facilitators.
We will continue to monitor developments in this area and encourage you to subscribe to be kept informed of latest developments. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.