On Monday, Tether issued a statement celebrating its “swift action against the illegal use of its stablecoin to fund terrorism and crime-related activities.” Tether claimed it had “frozen 32 addresses, containing $873,118.34, that were found to be linked to illicit activity in Israel and Ukraine.” Tether added that it was working with Israel’s National Bureau for Counter Terror Financing (NBCTF) to “counter cryptocurrency-funded terrorism and warfare.”
Tether used these claims to push back on “some journalists and detractors … making attempts to spin a case against the crypto industry, while failing to hold the slow or poorly equipped traditional financial system accountable, for not combatting the funding of criminal matters.”
(It wasn’t so long ago that Tether was attributing “the rapid and explosive growth of stablecoins” to the fact that USDT “allows entities and individuals to circumvent capital controls.” The same statement defined capital controls as “any restriction on the free flow of capital or any seizure of individual or corporate assets.” Et tu, Tether?)
Tether’s protestations fly in the face of on-chain data showing the massive transfers of USDT by wallet addresses flagged by the NBCTF. These addresses were linked to terror groups, including Hamas, Hezbollah, the Islamic State of Iraq and Syria (ISIS), and others. And despite Tether’s claims of taking “proactive measures,” it offered no evidence that its freezing actions occurred before the NBCTF flagged the offending addresses, nor that the USDT would have been frozen at all had the NBCTF not spoken up.
Tether wasn’t always so stalwart in opposing terrorist financing, as detailed in this spring’s Wall Street Journal report on Tether and its sister company, Bitfinex, handling $80 million in transfers linked to al-Qassam, the armed wing of Hamas.
That willingness to look the other way could come back to haunt Tether, as this month’s attack in Israel has politicians and regulators vowing to take action against any entity enabling terror funding. This will almost certainly involve the Binance exchange, which continues to find itself at the nexus of terror and ‘crypto.’
Even digital asset supporters in Congress are getting in on this action. In an appearance on MSNBC this weekend, Rep. Ritchie Torres (D-NY) was asked about reports that Hamas was using ‘crypto’ to fund its operations. Torres, who sits on the House Financial Services Committee, said his “understanding is that it was an offshore deregulated exchange like Binance that facilitated the transfer of funds to Hamas.”
Torres said the reports “underscore the need for regulation” and cited his previous efforts to get the U.S. Securities and Exchange Commission (SEC) to “prioritize enforcement actions against offshore, deregulated exchanges” because they posed the greatest risk of terrorist financing and money laundering. Given Tether’s role as the lingua franca of global money launderers, Tether should expect to find itself in Congress’s crosshairs. (This could be why Tether was seeking a new PR Manager a couple of weeks ago.)
Despite its stated commitment to combatting the ‘illegal use’ of USDT for ‘crime-related activities,’ Tether has yet to announce any ‘swift action’ against the kind of demonstrably illegal use of USDT that Bloomberg writer Zeke Faux detailed in his recent Number Go Up book. You know, the kind that results in human slavery in countries like Cambodia.
And a new report from blockchain analysts Bitrace found that over $34 billion in USDT had flowed through sketchy OTC desks in the past 24 months, nearly one-fifth of which was related to money laundering, while another fifth was scam-related.
Speaking of scams, most of the USDT flowing into the NBCTF-flagged wallets occurred on the Tron blockchain (as did the sketchy transactions in the Bitrace report). Justin Sun’s Tron chain is currently home to more than half ($43.8 billion) of the total $83.7 billion USDT in circulation. We eagerly await Tether’s announcement that it has frozen the assets that Justin has ‘acquired’—and will acquire—from his various scams over the years.
New CEO, who dis?
Tether recently celebrated its ninth anniversary, but it will close out its decade of decadence with some major changes at the top. Last week, Tether announced that its longtime CTO/spokesman Paolo Ardoino was being promoted to CEO as of December.
Tether claimed that this “strategic transition has been meticulously planned,” but this not-at-all-rushed lineup shuffle failed to mention who might be taking Ardoino’s place as Tether’s CTO. Apparently this job is simple enough that Ardoino can wear both the CTO and CEO hats while also serving as CTO for Bitfinex and chief strategy officer for Holepunch (an encrypted platform for building peer-to-peer apps that launched in January). Perhaps this panoply of positions is why Tether never catches money launderers, drug dealers, and terrorists until someone else points them out.
As for Tether’s current CEO, Jean-Louis van der Velde (JL), he’ll “transition to an advisory role for Tether while retaining his position as CEO for Bitfinex.” The publicity-shy JL—or Keyser Söze, as some call him—has allegedly “played a pivotal role in managing Tether’s relationships with regulators worldwide.” Okay, but considering how few regulators have approved Tether’s use within their jurisdictions, it’s unclear whether this statement is a compliment.
JL’s skedaddle came shortly after iFinex, the Hong Kong-based parent of both Bitfinex and Tether, announced a $150 million ‘share buyback’ offer to Bitfinex customers who’d been burned by the infamous 2016 hack of the exchange that stole nearly 120,000 BTC tokens.
To mitigate the fallout from this hack, Bitfinex forced its customers to take a 36% ‘haircut’ on their account balances in return for IOUs of dubious value. Some customers opted to exchange these IOUs for shares in iFinex purchased through BnkToTheFuture, an iFinex-owned platform that allows users to invest in fintech startups. The share buyback appears directed at customers who opted for the BnkToTheFuture option.
The bulk of the BTC stolen from Bitfinex is currently the property of the U.S. Department of Justice (DOJ), which seized them last year during the arrests of two individuals who pleaded guilty in August to their roles in the hack. While Bitfinex claims the stolen BTC are its property, the DOJ has so far seen fit to return only around $315,000 to the exchange.
Bloomberg reported that the iFinex share buyback is intended to narrow the list of iFinex shareholders and, in the process, simplify “the Bitfinex Group’s regulatory applications and address scrutiny.” The $150 million offer represents 15 million shares, roughly 9% of iFinex’s outstanding capital.
Shareholders have been given until October 24 to decide whether they wish to participate. The offer is contingent on iFinex receiving an undisclosed amount of cash from one or more of its subsidiary companies. Given the incestuous nature of companies under the iFinex umbrella, this kick-upstairs seems a foregone conclusion.
Bitfinex always claimed that its executive suite wasn’t spared the 2016 haircut, and thus, it should come as no surprise that iFinex founder Giancarlo Devasini—who reportedly owns 40% of Tether shares—will be among the shareholders who get to participate in this buyback.
Tether’s most recent definitely-not-an-audit ‘attestation’ of its finances cited $3.3 billion in alleged ‘profits’ that Tether made investing USDT’s alleged reserves in things like U.S. treasuries (allegedly). It’s unclear why, if Devasini is cash-poor, he can’t just dip into some of those profits. And Tether announced its own $115 million ‘share buyback’ in August that was intended to “further strengthen the shareholder group.”
So if Devasini’s getting paid twice and JL’s extricating himself from Tether’s org chart, is Ardoino being set up as the fall guy? Regardless, the fact that iFinex subsidiaries are required to pony up $150 million to accomplish its buyback program will only increase speculation that Tether’s reserve assets are only a fraction of what they claim, as the insiders appear to be ensuring they get their golden handshakes before any law enforcement action causes a run on Tether’s bank.
The obligatory SBF mention
One of the biggest mysteries to emerge to date from the criminal trial of Sam Bankman-Fried (SBF) is the lack of testimony regarding the roughly $40 billion in USDT that was issued to SBF’s market-maker Alameda Research. Despite its last CEO (Caroline Ellison) and other top guns at SBF’s FTX exchange having turned cooperating witnesses for the prosecution, there have so far been no specifics on how that $40 billion was utilized before the FTX/Alameda crime ring collapsed last November.
Before the trial got underway, the bankruptcy court-appointed FTX Debtors group released an updated version of FTX’s assets and liabilities. That document contained a reference to something called “FIAT INTEGRATION AND REVOLVING LOAN AGREEMENT” between FTX and iFinex that dated back to October 2020. The vast bulk of that $40 billion in USDT sent to Alameda was issued following the signing of this agreement.
While Tether/FTX critics have been asking questions about the nature of this agreement, facts remain elusive. Other parties have noted that Tether has long been rumored to sell USDT to favored customers for less than its presumed $1 per token value, in return receiving perks such as access to the U.S. banking system.
The New York Attorney General’s successful smackdown of Bitfinex/Tether in 2021 noted that the two entities had a deal under which Bitfinex got a line of credit from Tether, allowing Bitfinex to draw upon Tether’s reserves when its own cupboards were bare. More recently, Tether/Bitfinex attorneys admitted that “in certain instances,” Tether issued USDT to Bitfinex without receiving immediate payment.
The prosecutors handling SBF’s trial aren’t expected to rest their case until sometime next week. It’s anyone’s guess whether their remaining witnesses offer any insights that finally pierce the opaque veil that masks all things Tether.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of group—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.