Tether (USDT) in Crosshairs of US Federal Authorities for Alleged Criminal Activities

U.S. federal authorities are scrutinizing crypto company Tether for alleged violations related to sanctions and anti-money-laundering (AML) regulations.

U.S. federal authorities are investigating crypto company Tether for alleged violations related to sanctions and anti-money-laundering (AML) regulations, multiple individuals familiar with the situation told The Wall Street Journal.

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.

The investigation is a significant escalation in scrutiny of Tether, whose stablecoin is the most traded globally. The 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.

Meanwhile, the Treasury Department is considering sanctions against Tether, the Journal reported, citing people familiar with the matter.

The stablecoin is designed to be pegged one-to-one to the U.S. dollar, making it a potential alternative in areas where the use of American currency is restricted by U.S. authorities.

However, the stablecoin has also become a key financing tool for high-priority national security concerns, multiple law enforcement officials told the Journal.

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. In 2021, the Justice Department began investigating Tether over potential bank fraud, specifically examining whether USDT’s backers falsified documents to secure access to global banking services, sources told the Journal.

The Justice Department investigation was initially limited to potential fraud by a small group of Tether employees, but it has since expanded to include a broader examination of the stablecoin’s use in illicit activities, the Journal reported.

Tether officials have denied the company is broadly involved in aiding criminal activities.

“To suggest that Tether is somehow involved in aiding criminal actors or sidestepping sanctions is outrageous,” a Tether representative said, according to the Journal report. They also said the company actively collaborates with both U.S. and international law enforcement agencies “to combat illicit activity.”