Two years following the Hamas attack on Israel on October 7, 2023, families of the victims have initiated legal action against Binance, a prominent cryptocurrency exchange facing numerous controversies. In a court filing dated November 24, 2025, representatives for over 300 victims and their families have accused Binance and its former CEO, the recently pardoned Changpeng Zhao, of willfully neglecting anti-money-laundering protocols and “know your customer” (KYC) regulations. These regulations are crucial for financial institutions to verify the identities of individuals conducting transactions. The lawsuit contends that by failing to enforce these measures, Binance and Zhao—who admitted guilt to money laundering charges in 2023—enabled U.S.-designated terrorist organizations like Hamas and Hezbollah to launder an estimated $1 billion. While Binance has refrained from commenting on the ongoing litigation, the company did assert its commitment to adhering to “internationally recognized sanctions laws.”
### Broader Implications of the Binance Lawsuit
The issues highlighted in the Binance case extend beyond the realm of designated terrorist organizations. Experts in the field of countering the proliferation of weapons technology suggest that allegations involving Binance and Hamas could signify a larger problem regarding how cryptocurrency is utilized to compromise global and U.S. national security. Cryptocurrencies are reportedly being employed by nations like North Korea, Iran, and Russia, as well as various terror and drug-trafficking organizations, to fund and acquire technology for illegal weapons development. Despite ongoing enforcement measures, there are concerns that the previous administration’s acceptance of cryptocurrencies could hinder the United States’ capacity to combat the illicit financing of military technologies. Prominent figures, including academic experts and anti-corruption organizations like Transparency International, have warned that existing legislative loopholes could further jeopardize American national security.
### A Mechanism for Evasion
For over a decade, the Project on International Security, Commerce, and Economic Statecraft, where I serve as a research fellow, has been at the forefront of research and outreach aimed at assisting countries in countering the spread of dangerous weapons technology, including the role of cryptocurrency in weapon financing and money laundering. Throughout this period, there has been a noticeable rise in the use of cryptocurrencies for laundering funds and raising finances for weapons initiatives, serving as a sophisticated means to bypass sanctions. State actors in Iran, North Korea, and Russia exploit enforcement gaps and the ambiguous nature of cryptocurrency to facilitate the funding and procurement of weapons technology. For instance, it was estimated that by 2024, approximately half of North Korea’s foreign currency was generated from cryptocurrency acquired through cyberattacks.
### Digital Heists: A New Era of Theft
In February 2025, North Korea successfully executed a cyber heist, stealing over $1.5 billion worth of cryptocurrency from Bybit, a UAE-based cryptocurrency exchange. Such operations are akin to modern bank robberies in the digital realm. During routine transfers of cryptocurrency from cold offline wallets—similar to a home safe—into “warm wallets” that require human verification for transactions, North Korean operatives managed to trick a developer associated with Bybit into installing malware that enabled them to bypass multifactor authentication. This breach allowed the hackers to redirect cryptocurrency transfers to wallets under North Korean control, which were subsequently laundered through mixers and various cryptocurrencies to obscure the funds’ origins and destinations. While some of the stolen assets have been recovered, a significant portion remains untraceable. The FBI later connected the hack to TraderTraitor, a North Korean cyber group involved in various cyber operations.
### Security Concerns in the Crypto Landscape
Cryptocurrency has gained popularity due to its ease of acquisition and transfer between various accounts and currencies, often requiring minimal identification. Countries like Russia, Iran, and North Korea, facing international sanctions, have increasingly relied on cryptocurrency for both fundraising and procuring materials for weapons development. Even stablecoins, which are designed to be less volatile and are backed by assets like the U.S. dollar, have been misused in connection with illicit weapons financing. Traditional financial systems, although not immune to money laundering, typically have robust safeguards in place to prevent the misuse of funds for illegal arms initiatives. Nonetheless, recent assessments indicate that the cryptocurrency sector continues to lag in establishing effective anti-money-laundering measures. In certain instances, this negligence appears intentional, as some crypto firms may seek to bypass regulations for profit, ideological beliefs, or disputes regarding accountability for user actions.
### The Real Threat: Covert Money Laundering
The risk posed by the fundraising efforts of rogue nations and terrorist organizations often captures public attention; however, a more urgent issue is the ability of these entities to discreetly launder money through various front companies. This practice allows them to escape the watchful eye of conventional financial institutions while moving funds from different fundraising ventures or companies used to acquire necessary equipment and technology. The vast volume of cryptocurrency transactions, the sheer number of centralized and decentralized exchanges and brokers, along with limited regulatory oversight, have created an environment where laundering funds for weapon development is alarmingly efficient. The absence of robust safeguards and KYC controls that banks are mandated to follow exacerbates this issue. These regulations should apply to all entities involved in the movement, storage, or transfer of cryptocurrency, referred to as virtual asset service providers (VASPs). However, enforcing these regulations has proven challenging due to the multitude of VASPs operating across various jurisdictions, which often differ in their regulatory willingness and capabilities.
### The Benefits of Cryptocurrency for Rogue States
The potential rewards for countries and organizations like North Korea engaging in illicit activities are substantial. By leveraging cryptocurrency, North Korea has created an extensive cyber operation designed to evade sanctions, heavily reliant on digital currencies. While the total amount of funds raised or laundered for its weapons initiatives via cryptocurrencies remains unclear, it is estimated that the nation has stolen at least $2.8 billion in crypto over the past 21 months. Similarly, Iran has begun to utilize cryptocurrency to facilitate oil sales linked to its weapons programs, benefiting both itself and its proxy forces like the Houthis and Hezbollah, partly through its own exchange, Nobitex. Russia has also been documented as moving beyond merely using cryptocurrency for fundraising and laundering, actively utilizing it to acquire weapons materials and technology that support its ongoing conflict with Ukraine.
### National Security Under Threat
In light of these escalating dangers, the U.S. government is reportedly scaling back its enforcement efforts. The controversial pardon of Binance’s founder Changpeng Zhao has raised concerns about the message it sends regarding the U.S. commitment to enforcing sanctions within the cryptocurrency space. Additionally, actions such as deregulating the banking sector’s cryptocurrency usage and disbanding the Department of Justice’s crypto fraud unit have severely weakened the U.S.’s capacity to disrupt efforts to finance weapons programs through cryptocurrencies. The government has also expressed a desire to end “regulation by prosecution” and has halted numerous investigations aimed at enforcing regulations that prevent illicit tactics employed by entities like North Korea. This includes abandoning a complex legal case concerning sanctions against a “mixer” allegedly utilized by North Korea. These developments send a troubling signal at a time when cryptocurrencies are being misappropriated for funding weapons programs that pose a direct threat to American security. While some enforcement actions are still being taken, the failure to implement and enforce preventive measures means that cryptocurrencies will likely continue to be exploited for illegal arms financing. Although cryptocurrencies can serve legitimate purposes, neglecting the risks associated with money laundering and sanctions evasion will jeopardize both American interests and global security.
