Tether Dubbed ‘Money Launderer’s Dream Currency’ by Media

The founders of Tether may have envisioned USDT as a tool for financial inclusion and a gateway to the crypto market, but the stablecoin has ultimately facilitated the movement of funds beyond regulatory oversight, writes The Economist.

The arrest of a courier carrying £250,000 by British police in November 2021 exposed a large-scale money laundering scheme. The orchestrator was identified as Ekaterina Zhdanova from Russia.

An international investigation by law enforcement agencies from Europe, the Middle East, and the US, dubbed Operation Destabilise, revealed that Tether’s coin served as the infrastructure for Zhdanova’s operations. The entrepreneur facilitated the cashing out of ransomware operators’ proceeds through cryptocurrency.

Zhdanova’s team collected cash from criminals across Western Europe, obtained from the sale of drugs and other illegal goods. In the UK alone, this amounted to £12 million between 2022 and 2023.

Couriers then delivered the money to Russian oligarchs, intelligence representatives, propaganda agencies, and expats who, due to sanctions, were unable to use traditional financial channels. The recipients paid Zhdanova from their bank accounts in Russia.

The entrepreneur settled debts with clients through USDT transactions. The stablecoin allowed for nearly instantaneous transfers of any amount between digital wallets with minimal fees and without regulatory oversight.

“Individually, we knew about many elements of this money laundering activity. But I think Operation Destabilise brings it all together, and you can understand how this global system works. And that’s new for us, really,” commented William Lyne, head of cyber intelligence at the National Crime Agency.

According to law enforcement, the efficiency of USDT made the scheme very cost-effective. While traditional launderers charge at least 10% of the amount, Zhdanova charged less than 3%.

Tether’s Cooperation with Law Enforcement Deemed ‘Strange’

In January 2024, UN experts noted that the stablecoin had become a tool among fraudsters and money launderers.

In October, The Wall Street Journal reported on an investigation by US authorities into Tether for potential sanctions violations and AML rules. The company’s head, Paolo Ardoino, denied the publication’s information.

Tether has repeatedly emphasized its cooperation with law enforcement across various jurisdictions. The company regularly blocks assets suspected of illegal activity. According to a statement, the volume of frozen funds has already reached $2.5 billion.

In 2024, Tether partnered with security firm Chainalysis to create a system for monitoring USDT’s secondary market activity.

Together with Tron and TRM, the stablecoin issuer formed a “financial crime fighting unit” — T3. Discussing the unit’s results, Ardoino stated that its team of “20 or 30” employees had frozen USDT worth tens of millions of dollars at law enforcement’s request.

However, in traditional financial institutions, compliance activities are on an incomparable scale, noted The Economist. In a large bank like HSBC, thousands of employees work in such departments. Tether attracts up to 40 million new clients quarterly, and the 20-30 specialists at T3 cannot physically verify each one’s integrity, journalists highlighted. Given the speed of blockchain transactions, all the team can realistically do in an investigation is describe the exact path of funds post-factum, they believe.

The Economist also found the company’s approach to cooperation with authorities “strange.” According to Ardoino, requests from the US are prioritized, while those from “tyrannical countries” are generally ignored.

“But financial institutions should not have the ability to choose which countries to assist with information. If they operate in a territory, they must comply with the rules in place there,” the publication argues.

The challenge for authorities is that Tether, headquartered in El Salvador, effectively operates in a “supranational cloud,” making it difficult to compel the company to provide data. The issuer’s management typically reacts very sensitively to criticism of USDT’s use in illegal schemes, and law enforcement avoids the topic for fear of ending cooperation.

“Stablecoins are a money launderer’s dream. But we don’t want to say it publicly to avoid damaging relations with Tether,” confirmed a representative of one agency.

In May, the New York prosecutor’s office charged the heir of the Cartier jewelry house and five Colombian citizens with laundering drug trafficking proceeds through USDT.