Stablecoin issuer Tether has frozen about $5.2 million in USDT as part of its efforts to combat illegal transactions. Blockchain security service MistTrack announced the update in an X (formerly Twitter) post, which stated that the affected addresses are tagged as “USDT Banned Address,” indicating their suspected association with crime.
SlowMist, another blockchain security company, also suggested that the frozen funds in the wallet addresses may be associated with money laundering. However, Tether has yet to officially confirm the reason for the action against these wallet addresses.
Criminals Use USDT to Avoid Law Enforcement Attention
Stablecoins like USDT facilitate payments for various legitimate uses, including cross-border transactions and e-commerce payments. Online service providers like cryptocurrency casinos also support USDT, as well as other digital assets like Bitcoin (BTC) and Dogecoin (DOGE), for players to place bets and withdraw winnings.
Unfortunately, USDT is also easily used to transfer illicit funds.
A TRM Labs report revealed that criminals held and handled more than $34 billion worth of crypto assets last year, despite a 9% year-on-year reduction in the overall proportion of illicit funds in the crypto sector. The report also specified that USDT was the preferred crypto for criminals, with $19.3 billion used for illegal purposes. TRM linked about 1.63% of USDT’s entire volume to criminal use.
In January, a report from the United Nations’ Office of Drug and Crime Unit specified that criminals in Asia are increasingly using USDT to transfer illegal funds. According to the report, an international money laundering syndicate operating in Myanmar and Cambodia advertises USDT as an option to move illegally procured funds.
Unfortunately, the crime has spread to online gambling platforms, as regulations are not as strict at crypto casinos as they are at fiat platforms. While several players visit these platforms to enjoy blockchain-powered gambling by playing crypto poker, blackjack, or roulette, others use the platforms to hold or transfer illegal funds. This is easy because large betting accounts are not uncommon in the gambling industry.
US Treasury Deputy Secretary Adewale O. Adeyemo recently highlighted the illegal use of USDT to buttress the Department’s desire to regulate crypto exchanges in the US. According to Adeyemo in a written testimony in April, Russia uses alternative payment options like USDT to avoid sanctions imposed by the US.
Interestingly, Tether is aware of USDT’s continuous use by criminal players. In a recent interview, Ripple Labs CEO Brad Garlinghouse said the US government plans to go after Tether for these reasons. Although Garlinghouse’s comments did not go well with Tether CEO Paolo Ardoino, his response specified that Tether has been collaborating with law enforcement agencies worldwide. Replying to Garlinghouse, Ardoino noted that since the company’s inception, Tether has collaborated with 124 law enforcement agencies in more than 40 different countries. The CEO added that the company has voluntarily helped with 198 law enforcement requests in the last 12 months, 90 in the US alone. Over the last three years, the company has responded to 339 law enforcement requests (158 in the US alone).
Furthermore, Tether has blocked over $639 million working with law enforcement agencies in the US and over $1.3 billion in total since inception. While most blocked funds were connected to scams, hacks, and money laundering, about $1.6 million is related to terrorist financing.
In addition, Tether complies with restrictions included in the Treasury’s Office of Foreign Assets Control (OFAC) list. Highly trained investigation personnel monitor the company’s core platform, blockchains, and exchanges to detect fraudulent transfers. These comments from Ardoino suggest the company is aware of USDT’s use as a tool to facilitate illicit payments and is working hard at sanitizing the stablecoin ecosystem.
Chainalysis Partnership and Bitcoin Mining
Tether recently partnered with blockchain data platform Chainalysis to develop solutions for monitoring the secondary crypto market. This includes activity on blockchains and exchanges, outside of direct USDT purchases from Tether. An official press release notes that the solution will be a proactive tool to help Tether’s compliance personnel identify suspicious wallets or accounts.
The solution includes four tools, including Categorization, which supports an extensive breakdown of USDT holders by type. The information will include users across exchanges as well as trading platforms and markets on the darknet.
There also is the Sanctions Monitoring tool, which provides a list of all addresses and transactions connected to sanctioned entities. In addition, the Tether and Chainalysis solution features Largest Wallet Analysis, a tool that supports the in-depth examination of large USDT holders and their market activities. Lastly, the Illicit Transfers Detector is used to identify potentially risky transactions connected with terrorist financing and related crimes.
Interestingly, Tether is spreading its efforts across interests outside of stablecoins. For instance, the company will soon complete a $500 million investment in Bitcoin mining. Tether has already constructed mining facilities in locations with abundant renewable energy resources to power the expensive cost of mining Bitcoin. Tether’s mining sites are in El Salvador, Uruguay, and Paraguay.
Tether is focused on constructing solar and wind power energy stations in El Salvador, with plans for geothermal energy sources. For Uruguay, setting up is easier because the country already generates 94% of its power from wind, solar, and other renewable sources.
According to Ardoino, the plan is to distribute mining power to avoid any risks of concentration or control. He explained that although mining initially started in China, it moved to the US after China’s 2021 crackdown that outlawed all crypto and mining activity. While the CEO admits that the US is more receptive to mining, Ardoino believes avoiding dependence on one geopolitical jurisdiction is important. Even though a few local governments in states like Texas and Kentucky are attracting miners with energy deals and tax rebates, spreading mining power outside the US is crucial to decentralization.