Tether’s USDT at center of Iran’s shadow banking network, new Senate Report says

Tether and its USDT stablecoin have become central in "Iran's shadow banking system" and the financing activities of terrorist groups, according to a new Senate investigation led by Sen. Richard Blumenthal and released Monday.

In the 28-page report, Blumenthal, the top Democrat of the Senate Permanent Subcommittee on Investigations, said the panel's Democratic investigators analyzed blockchain transaction data from 846 crypto wallets that had been sanctioned or otherwise blocked because they were associated with Iran.

“My new PSI report exposes how Tether and its flagship token have become central to Iran’s shadow banking system, allowing the Iranian government to fund its regional proxies, commit human rights abuses, and pursue hostile drone and missile programs as they defy our sanctions regime,” Blumenthal said in a statement.

The report said Iran's financial networks rely heavily on USDT, citing that 87% of  757 wallets "implicated in Iranian terrorism financing had predominantly transacted in USDT." 

The investigators said Iran’s preference for USDT is not surprising given its widespread use by Iranian crypto exchanges and the relative liquidity of Tether’s stablecoin compared with other alternatives. The investigators also said Tether failed repeatedly to freeze and block wallets. 

"Outside of sanctions or seizure notices, Tether has also failed to act on wallets that bear strong indicators of illicit finance, despite ample information about their ties to Iranian entities or terrorist organizations being in the public domain," the investigators said. 

In letters to Attorney General Todd Blanche and Treasury Secretary Scott Bessent, Blumenthal also urged them to investigate potential sanctions and banking law violations. The Wall Street Journal earlier reported news of the new report. 

Trump ties 

The report and Blumenthal also highlighted  Tether's connections to the Trump administration, including through Commerce Secretary Howard Lutnick. Before joining the administration, Lutnick led Cantor Fitzgerald, which acts as a custodian for Tether. Lutnick's sons have since taken over leadership at the firm. Meanwhile, Bo Hines, the previous executive director of the White House Crypto Council, now CEO of Tether U.S. 

Given Tether's connections to the U.S., there is a concern that foreign adversaries could put national security at risk, Blumenthal said. 

"Further, given Tether’s deep connections with the Trump Administration, its continuing use by the Iranian regime raises questions as to whether Tether has received lax enforcement and lenient oversight over its anti-money laundering obligations from relevant federal authorities," he said.

On Monday, Tether released a post, which said it had helped freeze $550 million in USDT linked to Iran over the past year.

"Tether has consistently demonstrated that USD₮ is not a haven for sanctioned actors, terrorist organizations or criminal networks," said Paolo Ardoino, CEO of Tether, in the statement. "Public blockchains provide authorities with a level of visibility into the movement of funds that simply does not exist with cash, and Tether can act when credible information is provided by law enforcement."