Tether Plays Offense in Mass Freeze of Over $400M in Crime-Linked Crypto

The world’s largest stablecoin Tether took a major step this week toward clamping down on unlawful uses of its USDT token by freezing over $400 million worth across more than 300 crypto wallets.

Keypoints

• Tether collaborated with US federal law enforcement agencies including the DOJ, FBI, and Secret Service to freeze over $400 million worth of funds across 326 crypto wallets.
• The frozen wallets were implicated in law enforcement investigations into financial crimes
• Tether took this action in response to calls from US lawmakers to scrutinize stablecoins over links to potential terrorist funding as well as clamp down on illicit uses.
• Tether highlighted its ramped up compliance efforts in letters to lawmakers
• This mass freeze of funds marks an unprecedented level of cooperation with law enforcement and Tether’s most aggressive action yet to self-police illegal crypto activity aligned with regulator expectations.

Tether executed the large-scale freeze of funds in collaboration with U.S. federal law enforcement agencies investigating financial crimes tied to blockchain activity. Specifically, the U.S. Department of Justice, Federal Bureau of Investigation, and Secret Service worked jointly with Tether to trace and freeze hundreds of wallets implicated in their probes.

The seizure of illegal funds followed calls by U.S. Senators and Representatives last October for greater scrutiny of Tether and fellow stablecoin issuer Binance over potential ties to terrorism financing. Lawmakers cited the ability of a coordinated Hamas attack against Israel to secure crypto donations through Tether’s network as grounds for pressing the Department of Justice to open investigations.

Tether Releases Letters Shared With The U.S. Senate Committee On Banking, Housing, And Urban Affairs And The U.S. House Financial Services Committee

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— Tether (@Tether_to) December 15, 2023

In response letters to lawmakers this week, Tether sought to reassure them it takes financial crimes seriously and has amped up efforts to detect and prevent illicit transactions. Tether highlighted adoption of stricter know-your-customer identification protocols in line with traditional banks, as well as deployment of advanced blockchain surveillance tools to analyze transaction patterns across multiple cryptocurrencies.

Specifically, Tether noted its use of a leading forensics tool called the Reactor managed by blockchain sleuthing firm Chainalysis. The tool scans reams of blockchain data points to flag high-risk crypto wallet addresses associated with suspicious behavior like rapid currency swaps, ties to dark web marketplaces, links to scam operations, or connections to sanctioned organizations.

By leveraging these tools and collaborating more actively with law enforcement officials, Tether aims to identify dirty money flows early and nip them in the bud with forceful interventions like this week’s mass wallet freeze impacting over $400 million worth of funds.

Tether described its latest actions as an “unprecedented cooperation between a virtual currency firm and federal law enforcement” in demonstrating its resolve to combat illegal crypto activity.

Previously, Tether had resisted calls to preemptively freeze funds without an official request from law enforcement based on probable cause. But this gradual shift toward voluntary freezing and soft censorship tactics shows Tether now taking a more aggressive enforcement stance aligned with heightened regulator expectations.

Other major crypto firms are likely to follow Tether’s lead in expanding voluntary policing of transactions enabled by vast data collection and proprietary analytics. However, the industry remains plagued by questions around users’ financial privacy and the consistency of enforcement actions dictating asset seizures.

The ramped up self-regulation also aims to ward off formal policy actions by federal authorities like the Treasury Department that could severely restrict the industry’s control over currency flows. But for now, Tether appears willing to play ball with law enforcement overseers by flexing its own surveillance muscles to block hundreds of millions worth of funds tied to suspected criminals.