An investigative report published earlier this month purports to show that senior Israeli and American officials had in hand financial intelligence showing the flow of tens of millions of dollars to Hamas and failed to act on it.
That funding, the report alleges, helped Hamas pay for its military infrastructure, laying the foundation for its Oct. 7 massacre.
As Israel now looks to take apart Hamas piece by piece militarily, there is a renewed focus on disrupting its funding.
Erel Margalit, Israeli hi-tech entrepreneur and former member of Knesset’s Foreign Affairs and Defense Committee, told JNS that Israeli cybersecurity companies are among those best weathering the global downturn in the hi-tech sector, and can help contribute to choking off Hamas’s finances.
“We’re finding issues with the way the world is transferring money to Hamas. People think about Hamas militarily, but you need to understand, they have $2.5 billion that’s been coming in to build underground terror tunnels and all these missiles,” said Margalit. “Somebody needs to finance all that. So if you’re going to stop it, you have to be smart about it.”
Developing companies that understand how the money laundering works can provide Israel an opportunity to help governments develop financial and banking policies “so that people don’t give money to people that are doing bad things around the world, whether it’s Iran, whether it’s Hamas, whether it’s Hezbollah, whether it’s Islamic State, anybody else,” said Margalit.
That includes one company working at Margalit’s Startup City New York hi-tech hub. Thetaray, an Israeli-founded entity producing an artificial intelligence-powered transaction monitoring and screening software product, helps to screen financial movements around the world for potential terrorist activity.
“What we do is that we make sure that it is very easy for good people to send payments around the world, but very hard for bad people to do so. So when it comes to terrorist financing, you’re going to need the ability to find bad payments that are going to be hidden as good payments,” Thetaray CEO Peter Reynolds told JNS.
“There are actually very big schemes around the world … going through mainstream banks. We work with a lot of banks in the Middle East and we’re very happy to do so,” said Reynolds.
Tracking funds going to organizations like Hamas has evolved from simple but largely ineffective parameters to Thetaray’s software, which aims to eliminate human bias and keep terror funders on their toes.
“If you think about the way banks used to work decades ago, it was to have a rule. So if this transaction comes from here, or it’s of this amount, then it’s good or it’s bad. Your teams at banks, at fintechs and governments, this is where they spend their time looking at those things that don’t quite look right,” said Reynolds. “Terrorist organizations and financial criminals know this really well. And they can work around the rules.”
The use of AI helps his company and its clients use data models to establish new, improved definitions of “normal,” helping to weed out abnormal transactions.
“What you have to understand is that when you’re looking at payments moving around the world, you will see them hidden as normal payments, because what they’ll do is try to make them look like consistent payments—the same size coming from the same place,” said Reynolds. “You have to understand the network—where the payments are actually coming from, who’s sending them through. It’s harder than just the basics of saying the name of the person. Payments aren’t coming from V. Putin, Red Square. That’s not how it works.”
Instead, Thetaray’s product looks at various risk indicators with its proprietary technology. It helps to eliminate or at least dramatically reduce one of the major problems of pre-AI technology: the sheer volume of false positives, which kept banks and regulators looking unnecessarily at thousands of payments a day, with teams of hundreds of people around the world.
“When you have a lot of noise, the ability to find the real ones becomes very hard. Humans don’t look at thousands and thousands of things in the same way [as AI],” said Reynolds. “It’s all about the quality of what you’re looking at, and it means that it’s easier to investigate. If you’ve got a huge amount of noise, the ability to investigate it all is actually very hard.”
The key, Reynolds says, is to utilize “unsupervised machine learning,” which takes out the old rules and processes humans followed.
Of course, banks need incentives other than pure altruism to incorporate these types of tools into their work. It takes government policies to set the tone, and proactive regulators to push banks into compliance with anti-terror funding directives.
“Banks and fintechs need to be in the fight to find illicit funds going through their banks. The regulators are holding them accountable for it. We have countries imposing sanctions and I wouldn’t like to be the CEO of a bank who didn’t help their government stop financial crime,” said Reynolds.
He added that there has been a recent move away from banks merely ticking a regulatory box and doing the minimum needed, with a shift seen in the last year or so. That is partly as a result of increased fines for compliance failures, and the reputational risk that comes with it.
Other pro-Israel financial actors, like cryptocurrency pioneer Brock Pierce, say their technologies, Pierce’s Tether cryptocurrency, can be used to crackdown on Hamas’s funding avenues.
“There are things like know-your-customer technologies. You follow the money, right? Well, it’s very hard to follow paper bills,” Pierce told JNS. “It’s also very hard to follow money moving through the banking system, because the left hand doesn’t really talk to the right.”
With cryptocurrency, every transaction is visible on a blockchain. As soon as a suspicious transaction or bad actor is identified, watchdogs can track the entire history of transactions.
“It allows you to act more swiftly. Because it involves the internet, we’re actually in a better position to act than with what we might call ‘traditional finance’,” said Pierce. “It’s still new. Everybody’s learning how to use new tools as effectively and responsibly as possible, but I’m proud of the industry’s response to date.”