Binance Faces Legal Action Following Hamas Attack
Two years after the devastating attack by Hamas on October 7, 2023, families of the victims have initiated legal proceedings against Binance, one of the leading cryptocurrency exchanges, which has been embroiled in various controversies. In a court filing dated November 24, 2025, representatives for over 300 victims and their families accused Binance and its former CEO, Changpeng Zhao, who was recently pardoned, of deliberately neglecting anti-money laundering (AML) protocols and “know your customer” (KYC) regulations. These regulations are essential for financial institutions to verify the identities of individuals engaged in transactions. The lawsuit claims that, by failing to enforce these controls, Binance and Zhao—who pleaded guilty to money laundering in 2023—enabled U.S.-designated terrorist organizations like Hamas and Hezbollah to launder around $1 billion.
Broader Implications of the Binance Lawsuit
While the Binance lawsuit specifically highlights issues related to designated terrorist organizations, its implications extend further. As a specialist in counteracting the spread of weapons technology, I contend that the allegations surrounding Binance and Hamas may only reveal a small portion of how cryptocurrencies are being exploited to threaten global security. Notably, nations such as North Korea, Iran, and Russia, along with various terror and drug-related factions, are reportedly using cryptocurrencies to finance and acquire billions of dollars’ worth of technology for illicit arms initiatives. Despite ongoing enforcement actions, I believe that the former Trump administration’s acceptance of cryptocurrencies could hinder the U.S.’s capacity to combat the illegal financing of military technology. Experts, including academics and organizations like Transparency International, along with the U.S. Treasury, have cautioned that existing legislative loopholes could further jeopardize American national security.
Cryptocurrency as a Sanctions Evasion Tool
For over a decade, the Project on International Security, Commerce, and Economic Statecraft, where I am a research fellow, has focused on researching and fostering collaboration between industry and government to help countries combat the proliferation of dangerous weapons technologies, notably regarding the role of cryptocurrencies in fundraising and money laundering. Over this period, we have observed a surge in the use of cryptocurrencies for laundering and raising funds for weapons initiatives, serving as an innovative means to circumvent sanctions. State actors in Iran, North Korea, and Russia exploit enforcement gaps, regulatory loopholes, and the ambiguous nature of cryptocurrencies to facilitate their funding and procurement of weapons technology. For instance, it was estimated in 2024 that approximately 50% of North Korea’s foreign currency was generated through cryptocurrencies obtained via cyberattacks.
A Digital Heist: North Korea’s Cyber Operations
In February 2025, North Korea orchestrated the theft of more than $1.5 billion in cryptocurrency from Bybit, a UAE-based cryptocurrency exchange. Such incidents can be likened to digital bank robberies. Bybit was in the process of transferring cryptocurrency from secure offline wallets to “warm wallets,” which are online but require human verification for transactions. North Korean operatives deceived a developer at a service utilized by Bybit into installing malware that granted them access to bypass multifactor authentication. This breach enabled North Korea to redirect the cryptocurrency transfers to its own wallets. After moving the stolen funds to North Korean-controlled wallets, the cryptocurrency was subsequently laundered through mixers and various other cryptocurrencies and wallets, obscuring their origins and final destinations. Though some of the stolen assets have been recovered, a significant portion remains missing. The FBI has traced this attack back to the North Korean cyber group TraderTraitor, part of a larger network involved in cyber warfare.
Challenges in Cryptocurrency Security
The appeal of cryptocurrency lies in its ease of acquisition and transfer across various digital platforms and government-backed currencies, often requiring minimal identification. As nations like Russia, Iran, and North Korea face stringent international sanctions, they increasingly resort to cryptocurrencies for fundraising and procuring materials for weapons programs. Even stablecoins, which were promoted by the Trump administration as safer due to their backing by stable assets like the U.S. dollar, have been extensively misused to fund illicit arms initiatives. Traditional financial systems, while not entirely immune to money laundering, typically have robust safeguards in place to prevent funds from being utilized for illegal arms programs. Recent analyses indicate, however, that the cryptocurrency industry continues to lag significantly in enforcing anti-money laundering measures. In many cases, this appears to be a deliberate choice, as some crypto companies may aim to evade controls for profit-driven motives, ideological beliefs, or disputes over accountability for user actions.
Concerns Over Fund Laundering and Evasion
While the financial activities of rogue nations and terror organizations often capture headlines, a more pressing issue is their ability to discreetly launder funds through front companies. This tactic allows them to bypass scrutiny from traditional financial institutions as they move money from various fundraising ventures or firms they utilize to acquire equipment and technology. The vast number of cryptocurrency transactions, coupled with numerous centralized and decentralized exchanges and brokers, along with limited regulatory oversight, has made cryptocurrencies particularly effective for laundering funds intended for weapons programs. This process is facilitated by a lack of stringent safeguards and KYC regulations that banks are mandated to follow to prevent financial crimes. Such regulations should apply to all entities involved in the movement, storage, or transfer of cryptocurrency, known as virtual asset service providers (VASPs). Nonetheless, enforcement remains challenging due to the sheer volume of VASPs across different jurisdictions, each with varying capacities and willingness to implement controls.
The Rewards for Rogue States
The incentives for rogue nations and groups like North Korea can be substantial. North Korea has adeptly capitalized on the potential of cryptocurrencies, establishing a comprehensive cyber program geared towards evading sanctions that relies significantly on digital currencies. While the total amount North Korea has raised or laundered for its weapons initiatives through cryptocurrencies remains unclear, it is known to have stolen at least $2.8 billion in crypto over the past 21 months. Iran has similarly started using cryptocurrencies to facilitate oil sales linked to weapons programs, benefiting both itself and proxy forces such as the Houthis and Hezbollah, partly through its own exchange, Nobitex. Furthermore, Russia has progressed beyond merely using cryptocurrencies for fundraising and laundering; it has begun employing its own digital currency to procure materials and technology for its conflict in Ukraine.
U.S. National Security Under Threat
Despite these escalating dangers, U.S. government enforcement efforts are dwindling. The controversial pardon of Binance founder Changpeng Zhao has raised concerns regarding the U.S.’s commitment to enforcing sanctions related to the cryptocurrency sector. Additional measures, such as deregulating the banking sector’s engagement with crypto and dissolving the Department of Justice’s crypto fraud division, have significantly weakened the U.S.’s ability to intercept and thwart the use of cryptocurrencies for funding weapons programs. The government has also pledged to cease “regulation by prosecution” and has halted multiple investigations aimed at enforcing regulations designed to curb tactics employed by entities like North Korea. This includes abandoning a complex legal case concerning sanctions against a “mixer” allegedly utilized by North Korea. Such actions send a troubling message, as cryptocurrency is currently being misused to finance weapons programs that endanger American security. This issue warrants serious attention, and while some enforcement actions persist, neglecting to enforce preventive measures will allow cryptocurrencies to continue to fund military initiatives. Although cryptocurrencies have legitimate applications, overlooking the risks associated with laundering and sanctions evasion can jeopardize American interests and global security.
