TEL AVIV — Last February, a court in Jerusalem ordered a seven-year prison sentence for Kifah Sarhan, a senior Hamas official based in Jerusalem, on charges of membership in a terror organization and dealing with property for terrorism.

A resident of East Jerusalem and member of the organization's advisory council, Sarhan had a key position in the cell that was active in late 2010. He was in charge of fundraising for financing the organization's activity in Jerusalem, including visits to families of Shahids' ("martyrs") and political prisoners. The funds raised were also used to purchase a building to establish a school in the At-Tur neighborhood in a bid to prevent Jews from purchasing the same building — as well as support for other educational institutes and needy families.

Hamas is labeled as a terrorist organization nearly everywhere around the world. Therefore, it is impossible for the organization to receive funds through legal and legitimate means such as bank transactions and foreign currency transactions. Consequently, it has developed a range of tactics over the years to enable channeling money from its various overseas cells to Gaza.

According to February's court ruling, Sarhan located traders who agreed to smuggle with them amounts of 500,000 Jordanian Dinar ($704,000) from Jordan to Jerusalem without attracting the attention of the authorities. This money was used for financing prohibited activity.

Smuggling of money by traders is a relatively simple example for the tactics the Hamas leadership has developed to funnel money to the organization in Gaza, the West Bank and inside Israel, as Israeli banks have refused to allow money transactions to and from Gaza fearing it will be used for funding terrorism.

These tactics have become increasingly sophisticated since 2010, a recent report from the Israel Money Laundering and Terror Financing Prohibition Authority (IMPA) found.

IMPA is an intelligence body that processes, crosschecks and links reports on hundreds of thousands of financial transactions every year originating from Israeli tax authorities, banks, credit card companies, currency exchange agencies and the postal service.

The information it produces is then passed on to investigation authorities such as the police and the Shin Bet, Israel's internal security service, to thwart money laundering and terrorism. In 2013, about 17% of the cases IMPA had passed on to investigation authorities have raised suspicions of terror-related financial activities.

Intended for orphanages

Still, it remains difficult to verify that these funds are used to finance terror activity because Hamas maintains a comprehensive system of charities, orphanages, soup kitchens and other activities to help the civilian population.

Charity is one of the five pillars of Islam and millions of Muslims give 10% of their savings to donations every year. Yet, part of this money ends up financing terror without donors' being aware of it.

Another method for financing terror that IMPA had identified in past years is international commerce. According to one of its studies, terrorist elements have been using various business owners and traders for illicit fund transfers to Gaza.

This tactic, uncovered in 2008, has led to the indictment of two Israeli firms that traded foodstuff and customs representation. This is how it worked: Hamas leadership buys different goods, mostly basic food items, abroad for very low prices or even for free. It then employs straw men to contract a private company to import the goods to Israeli ports and then transfer them to the Palestinian territories. A local distributor, who is in fact a Hamas operative, receives the shipment and later sells the goods. The high revenues, thanks to the large profit margins, then go to terrorists' coffers.

An additional pattern the IMPA study discovered was the use of accounts owned by diplomatic missions. Financial statements of an unidentified embassy, received by the agency, revealed a large number of transfers from its account to various elements in the Palestinian Authority, including those in Gaza.

An analysis has shown that one beneficiary was an entity suspected in facilitating money transfers to Hamas. IMPA believes the embassy's transactions were made innocently, in what looked to be legitimate payments, without it being aware it could be aiding terror.

These tactics were identified by IMPA in the course of a review of financial transactions reporting as required by standing regulations. However, authorities are also looking elsewhere, including an emerging source of funding for terrorism in criminal activity, such as drug trade and the manufacture of counterfeit pharmaceuticals — activities that obviously go unreported, and whose extent is unknown.

According to sources in the enforcement authorities, it's a simple equation. Drugs and fake medicine sold in Israel are often distributed by elements related to terrorist organizations such as Hamas and the Islamic Jihad. And so, ironically, it is Israelis' money that indirectly helps finance the same organizations that target them.

Foiling terror finances has major importance in the efforts to thwart the activities themselves, IMPA says. The paradox is that the bigger a terrorist organization is, and the more complex its activities are, the more money it needs to maintain its operations, and this can make it easier for the authorities to crack down on illegal financing.