Tether Faces Federal Criminal Investigation, What’s The Reason?

U.S. federal authorities are scrutinizing crypto company Tether for alleged violations related to sanctions and anti-money-laundering (AML) regulations. According to individuals familiar with the situation, the investigation, spearheaded by the Manhattan U.S. Attorney’s Office, is examining whether the digital currency Tether (USDT) has facilitated unlawful transactions by third parties. These include alleged financing of illicit activities such as drug trafficking, terrorism, hacking, or laundering illegal funds.

Tether in Crosshairs for Criminal Activities

Meanwhile, the Treasury Department is considering sanctions against Tether. Then USDT stablecoin’s widespread use by individuals and organizations subject to U.S. sanctions, including Hamas and Russian arms dealers, has also raised concerns. Sanctioning Tether would prohibit U.S. citizens and entities from transacting with the crypto company.

Tether’s stablecoin, USDT, has been a focus of increasing regulatory scrutiny in recent years. Unlike cryptocurrencies with high volatility, USDT’s value is tied to the U.S. dollar, making it a potential alternative in areas where the use of American currency is restricted by U.S. authorities.

As the most traded stablecoin globally, USDT sees daily trading volumes of up to $190 billion. The digital currency is reportedly a key financing tool for high-priority national security concerns. The illicit operations allegedly financed with USDT include the nuclear weapons program in North Korea, Mexican drug cartels, Russian arms manufacturers, Middle Eastern terrorist groups, and Chinese chemical producers used in fentanyl production.

Tether’s interactions with regulators and law enforcement date back several years. Initially, the Justice Department’s investigation focused on potential bank fraud, specifically examining whether USDT’s backers falsified documents to secure access to global banking services, sources say.

Company Official Denies Broad Investigation

Tether, however, denies facing an expanded investigation. “To suggest that Tether is somehow involved in aiding criminal actors or sidestepping sanctions is outrageous,” a company representative stated, according to The Wall Street Journal report. They also emphasize that the company actively collaborates with both U.S. and international law enforcement agencies “to combat illicit activity.”

The company has reportedly strengthened its controls to prevent its digital currency from being used in illegal activities. According to Tether executives, the transparent nature of blockchain, where USDT transfers are recorded on a public ledger, makes it impractical for illicit use. They noted that it enables authorities to trace and, if necessary, seize funds, which makes such efforts pointless.

Over recent years, U.S. prosecutors have pursued some prominent players in the crypto sector. These include Binance founder Changpeng Zhao, who was sentenced to a four-month prison term and faced a $4.3 billion fine for failing to meet anti-money-laundering obligations.

Moreover, Tether has also faced previous regulatory challenges. Several years ago, the company paid $61 million to resolve investigations by the New York Attorney General’s office and the Commodity Futures Trading Commission. At the time, the firm was accused of misrepresenting its asset backing.

The ongoing probe into Tether could have implications for its partners, such as brokerage firm Cantor Fitzgerald. This brokerage manages the majority of Tether’s reserve assets, including approximately $80 billion in U.S. Treasury securities, making Tether one of the largest holders of these government-backed assets.

Howard Lutnick, CEO of Cantor Fitzgerald and a Trump ally, holds a prominent role in the Trump-Vance transition team. The Trump campaign commented that Lutnick is a “renowned business leader and philanthropist,” without addressing the ongoing investigation.

Recently, Tether has taken further action to freeze 1,850 crypto wallets and has retrieved an estimated $114 million in assets. To enhance monitoring, the company partnered with analytics firms Chainalysis and TRM Labs. It also expanded its lobbying team, hiring a former PayPal executive experienced in digital currency regulation. Still, the legal scrutiny seems far from being over.

Also Read: Binance Launches GOATUSDT Perpetual Contract With 75X Leverage