When WIRED reached out to Tether Holdings—the company that issues the stablecoin that shares its name—it responded in a statement following publication of this article that “Tether proactively collaborates with global law enforcement agencies to identify and prevent illicit use of” its cryptocurrency, adding that its “commitment to the highest standards of compliance is evident in our efforts to eliminate various forms of criminal activity.”

Tether argued further that it has contributed to freezing the assets of users involved in scams or found to be violating the US Treasury’s sanctions lists, and noted that all of its transactions, like many cryptocurrencies, can be publicly observed on blockchains—in other words, the observability that made Chainalysis’s report possible. “Between our active and direct engagement with law enforcement and leveraging the transparent nature of blockchain transactions, individuals attempting to conceal their illicit financial activities face significant risks, as every transaction can be easily traced,” the company’s statement reads.

Tether Holdings has more flatly denied other reports of Tether’s use in crime and sanctions evasion. It wrote that an October Wall Street Journal article on the subject was based on “highly erroneous interpretations of data”—though in that case, the company pointed to Chainalysis findings as a more accurate accounting. “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 Holdings wrote in an October 26 blog post addressing the WSJ article.

In contrast to most cryptocurrencies, Tether does have the capability to freeze user funds, and it said in the October blog post that since its launch in 2014, it had frozen $835 million in funds deemed to be tied to illicit activities. “Tether’s ethos revolves around transparency, compliance, and proactive collaboration with relevant authorities worldwide,” the company wrote.

Chainalysis’ Fierman says that Tether’s efforts to freeze criminal funds are having an impact, and more enforcement could help end stablecoins’ exploitation by criminals. “Just as we’ve seen with compliant exchanges dominating more and more of total transaction volumes, illicit activity gets pushed to the fringes,” Fierman says.

Despite Tether’s ability to freeze funds, Chainalysis’ data suggests that illicit use of stablecoins has so far dwarfed those seizures. West, the prosecutor, notes that most Tether associated with crime is cashed out for another currency long before anyone identifies it. That means Tether hasn’t yet come close to solving the underlying problem.

“I applaud it. I’m all for it,” West says of Tether’s efforts to freeze criminal assets. “But when we’re talking about billions and billions of dollars in assets moving, I just think this is one piece of one piece of the puzzle. There are so many more pieces. And the bad actors are so far ahead of us.”

Updated at 9:45 am ET, January 18, 2024, to correctly identify prosecutor Erin West’s professional title and at 2:45 pm ET with a statement from Tether Holdings.

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