Tether, the $84 billion so-called stablecoin bridging the worlds of cryptocurrencies and the dollar, is increasingly showing up in investigations tied to money laundering, terror financing and sanctions evasion.
Tether is now the world’s most heavily traded cryptocurrency by volume. The stablecoin, also known as USDT, maintains a 1:1 exchange ratio with the dollar. Traders use it to stash their cash, easily invest in other cryptocurrencies or swap it into traditional currencies such as the dollar.
Another use for tether appears to be in illicit finance, according to indictments, blockchain analysis and sanctions notices. In the past year, the cryptocurrency has been used to finance Hamas, pay fentanyl suppliers, fund the North Korean nuclear program and help buy sanctioned Venezuelan oil for sanctioned Russian oligarchs.
Tether has $84 billion in circulation. It has maintained its value and trading volume despite two crypto headwinds. During the “crypto winter,” when some of crypto’s biggest players collapsed, the total global market cap for cryptocurrencies has fallen today to about $1.3 trillion from more than $2.1 trillion in April 2022. At the same time, interest rates have soared, making safe investments lucrative again. Tether pays no interest, but yields on the assets it owns have risen sharply. So the opportunity cost of holding it has gone up.
Tether’s eponymous parent company, Tether Holdings, is getting all of the benefits of the higher rates. The company generates billions of dollars of cash as one of the 22 largest buyers of U.S. Treasury debt, holding more than countries like Mexico and Spain, according to the company.
The Hamas attack on Israel has spurred bipartisan calls in Washington to subject cryptocurrency companies to the Bank Secrecy Act and other oversight aimed at deterring money laundering and illicit finance.
Sen. Cynthia Lummis, who has been a crypto industry supporter, and Rep. French Hill, chair of the digital assets subcommittee on the House Financial Services Committee, sent a letter to Attorney General Merrick Garland imploring the Justice Department to accelerate a long-running investigation into Tether. The DOJ should act against Tether “to choke off sources of funding to the terrorists currently targeting Israel,” the legislators wrote.
Tether’s owner is under pressure because tether is a centralized token. That means tether can be frozen by the company that generates it, even in privately held wallets. Bitcoin was also used in several of these cases. But bitcoin is decentralized, meaning it cannot be frozen unless it is stored in an account at an exchange or institution.
Earlier this month, the Justice Department charged eight Chinese companies and 12 employees and officers with crimes related to fentanyl trafficking. Several of those charged maintained cryptocurrency wallets to handle the transactions related to the drug shipments that were also sanctioned by the Treasury Department. The designated wallets received more than $1.2 million in tether over hundreds of transactions, as well as additional transactions in bitcoin, according to data provided by ChainArgos, a blockchain data platform.
The North Korean nuclear-weapons program has also used tether, according to a U.S. indictment from earlier this year. In an effort to fund the nuclear program despite sanctions, employees of the North Korean Munitions Industry Department would use fake documents to get themselves hired at companies—including several cryptocurrency exchanges—that were hiring remote IT workers. At their request, the workers were paid in cryptocurrency. The payments, if not already in tether, would often be swapped into tether, which would be sent back to North Korea through accounts controlled by the country’s sanctioned Foreign Trade Bank. According to an indictment, $7.2 million in tether was sent to an account controlled by a Foreign Trade Bank employee funding the nuclear program.
The Treasury Department also sanctioned Russian cryptocurrency exchange Garantex last year, citing its usage by Russian cybercriminals and willful disregard of anti-laundering policies. Despite the sanctions, around 80% of the exchange’s trading still involves tether, according to a leading blockchain analytics company.
Tether has aided governments worldwide with criminal investigations, helping freeze a total of $835 million in assets it said were mostly tied to theft. Tether said it had frozen 32 addresses with around $873,000 linked to illicit activity relating to Israel and Ukraine.
“There is simply no evidence that Tether has violated sanctions laws or the Bank Secrecy Act through inadequate customer due diligence or screening practices,” the company wrote.
Angus Berwick and Konrad Putzier contributed to this article. Write to Ben Foldy at ben.foldy@wsj.com.
