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Two years after Hamas carried out its deadly attack on Israel on 7 October 2023, families of the victims have filed a lawsuit against Binance, one of the world’s largest cryptocurrency platforms, long dogged by regulatory controversies. In a filing dated 24 November 2025, representatives of more than 300 victims and family members accused Binance and its former chief executive, Changpeng Zhao, who was recently pardoned, of wilfully disregarding anti-money-laundering rules and “know your customer” requirements designed to identify those conducting financial transactions.

 

The lawsuit alleges that by failing to enforce these safeguards, Binance and Zhao, who pleaded guilty to money-laundering violations in 2023, enabled US-designated terrorist organisations such as Hamas and Hezbollah to launder nearly $1 billion. Binance has declined to comment on the case, but said in a statement that it complies “fully with internationally recognised sanctions laws”.

 

Yet the implications of the Binance case extend far beyond US-designated terrorist groups. The allegations may represent only the tip of the iceberg in the growing use of cryptocurrency to undermine global security, and, in some cases, American national security. Cryptocurrencies are increasingly being exploited by states such as North Korea, Iran and Russia, as well as terrorist networks and drug syndicates, to fund and procure billions of dollars’ worth of technology for illicit weapons programmes.

 

Although enforcement actions have continued in some areas, the Trump administration’s increasingly permissive stance on cryptocurrency risks weakening the United States’ ability to counter the illicit financing of military technology. Legal scholars such as Professors Yesha Yadav and Hilary J. Allen, former Treasury official Graham Steele, anti-corruption group Transparency International and even the US Treasury itself have warned that regulatory loopholes could further endanger American security.

 

For more than 13 years, the Project on International Security, Commerce and Economic Statecraft has studied how states and non-state actors evade sanctions and fund the proliferation of dangerous weapons technologies, including through the use of cryptocurrency. During that period, researchers have documented a sharp rise in crypto being used both to launder money and to raise funds for weapons programmes, exploiting enforcement gaps and the opaque nature of digital assets.

 

Iran, North Korea and Russia have all leveraged these weaknesses to bypass sanctions and acquire sensitive technology. In 2024, it was estimated that roughly half of North Korea’s foreign currency earnings came from cryptocurrency obtained through cyberattacks. The trend has since accelerated.

 

In February 2025, North Korea stole more than $1.5 billion in cryptocurrency from Bybit, a United Arab Emirates-based exchange, in what amounted to a digital bank heist. The attackers exploited routine transfers from cold, offline wallets, akin to a physical safe, to “warm wallets”, which are connected to the internet but require human approval for transactions.

 

North Korean operatives deceived a developer at a third-party service provider used by Bybit into installing malware, enabling them to bypass multifactor authentication. The stolen funds were then transferred to North Korean-controlled wallets and repeatedly laundered through crypto “mixers” and multiple currencies and exchanges to obscure their origin and destination.

 

While some funds were recovered, much of the stolen cryptocurrency vanished. The FBI later attributed the attack to TraderTraitor, a North Korean cyber unit among several engaged in state-sponsored hacking. Cryptocurrency’s appeal lies in the ease with which assets can be transferred across borders and exchanged for other digital or state-issued currencies, often without meaningful identity checks. As sanctions have tightened around countries such as Russia, Iran and North Korea, crypto has become a critical tool for both fundraising and procurement.

 

Even so-called stablecoins, promoted by the Trump administration as safer because they are pegged to hard currencies like the US dollar, have been linked to extensive misuse in weapons financing and other illicit activity. Traditional financial systems are far from immune to money laundering, but they are governed by established safeguards that limit the abuse of funds for weapons development, controls that much of the crypto sector continues to lack.

 

Also read: India fines Binance $2.25M for AML violations

 

Recent analysis shows that despite regulatory efforts, the cryptocurrency industry remains significantly behind traditional finance in enforcing anti-money-laundering standards. In some cases, this failure appears deliberate, driven by profit motives, ideological opposition to regulation, or disputes over whether platforms should be held responsible for users’ actions.

 

The greater danger lies not only in fundraising by rogue states or terrorist groups, but in the quiet laundering of funds through front companies. Cryptocurrency allows money to move beyond the scrutiny of conventional banking systems, facilitating the purchase of equipment and technology critical to weapons programmes.

 

The sheer volume of crypto transactions, the proliferation of centralised and decentralised exchanges, and uneven regulatory enforcement have made digital assets particularly effective for laundering money linked to weapons development. While virtual asset service providers are theoretically subject to “know your customer” and anti-money-laundering rules, enforcement is inconsistent across jurisdictions, many of which lack either the capacity or the political will to act.

 

North Korea has arguably benefited most from this landscape, having invested early in cyber capabilities designed to exploit cryptocurrency. Although the full scale of its crypto-financed weapons programme is unknown, the country has stolen at least $2.8 billion in digital assets over the past 21 months alone.

 

Iran, meanwhile, has increasingly relied on cryptocurrency to facilitate oil sales connected to its weapons programmes and those of proxy groups such as Hezbollah and the Houthis, aided in part by its domestic exchange, Nobitex. Russia has gone further still, reportedly using crypto not just for laundering but to directly purchase materials and technology sustaining its war in Ukraine.

 

Despite these escalating risks, US enforcement has weakened. The controversial pardon of Binance founder Changpeng Zhao sent a troubling signal about Washington’s commitment to upholding sanctions in the crypto sector. Moves to deregulate banks’ use of digital assets and the closure of the Justice Department’s crypto fraud unit have further undermined efforts to disrupt illicit financing.

 

The administration has also pledged to end what it calls “regulation by prosecution”, withdrawing several investigations into failures to enforce safeguards — including a complex case involving sanctions against a crypto mixer allegedly used by North Korea.

 

These decisions send the wrong message. At a time when cryptocurrency is actively being used to finance weapons programmes that threaten American and global security, the risks are real and growing. While crypto has legitimate applications, ignoring its role in money laundering and sanctions evasion risks serious damage to international stability and national security.