Tether has disputed a media report that its stablecoin is increasingly being used for illicit activities.
The Wall Street Journal (WSJ) reported Friday (Oct. 27) that the stablecoin Tether is increasingly being used in money laundering, terror financing and sanctions evasion. The report cited information from indictments, blockchain analysis and sanctions notices.
Tether has gained popularity for its ability to maintain a 1:1 exchange ratio with the U.S. dollar, making it a convenient tool for traders. However, this convenience has also made it attractive for illicit finance activities, according to the report.
The stablecoin has been used in financing Hamas, paying Chinese fentanyl suppliers, funding North Korea’s nuclear program and facilitating the purchase of sanctioned Venezuelan oil for Russian oligarchs, the report said.
In a Thursday (Oct. 26) blog post disputing the WSJ and other reports about misuse of cryptocurrency — which the WSJ said was published after it reached out to Tether with questions for its article — Tether said the reports are based on “highly erroneous interpretations of data.”
Tether added in the post that it adheres to regulatory compliance and due diligence, proactively safeguards the integrity of its platform and provides the inherent transparency of blockchain technology.
“There is simply no evidence that Tether has violated Sanctions laws or the Bank Secrecy Act through inadequate customer due diligence or screening practices,” Tether said in the post.
The WSJ report said that the use of the stablecoin in illicit finance activities has raised concerns among regulators and lawmakers. Following the Hamas attack on Israel, the Israeli government learned that wallets connected to Hamas received $41 million in cryptocurrency since 2020, with over 99% of it in Tether, per the report.
This has prompted bipartisan calls in Washington to subject cryptocurrency companies, including Tether, to the Bank Secrecy Act and other oversight measures to combat money laundering and illicit finance.
Sen. Cynthia Lummis and Rep. French Hill have urged the Justice Department to accelerate its investigation into Tether, citing the need to cut off funding to terrorists targeting Israel, the report said. The centralized nature of Tether, which allows the company to freeze the token, has also drawn attention, as it contrasts with the decentralized nature of other cryptocurrencies like Bitcoin.
In its blog post, Tether said it welcomes constructive dialogue around integrity and security, and emphasizes the importance of education in terms of virtual assets.
“Decision-makers, stakeholders and the general public must correctly discern between conjecture and fact,” Tether said in its post. “We invite and encourage rigorous scrutiny based on factual, corroborated data rather than misinterpretation and misinformation.”
The report comes as Tether has seen its market capitalization fall for the first time in nine months amid a shaky stablecoin market, PYMNTS reported in September.
Tether’s USDT token’s market cap fell 1.2% to $82.9 billion in August. On top of that, Tether added that the entire stablecoin universe shrank for a 17th consecutive month, falling 0.4% to around $125 billion.
However, despite turmoil in the crypto sector, an analyst said there are still hints that the stablecoin sector may have bottomed out.
“Although it is early to say if the market cap of stablecoins has finally hit a bottom, there are encouraging signs that hint at some inflow of capital,” said Jacob Joseph, a CCData research analyst.