US Justice Department goes after Tether execs for possible bank fraud

abdelaziz Fathi

The Justice Department is reportedly investigating whether executives behind the stablecoin Tether, which is closely affiliated with popular exchange Bitfinex, concealed transactions linked to crypto from banks during its early days.

According to a Bloomberg report, Tether Ltd. has been embroiled in a new criminal probe that accuses its operators of committing serious bank fraud. Prosecutors have been building a case to sue the stablecoin issuers and a decision on the probe could be made soon.

The DOJ’s investigation is focused on whether the company behind the third largest cryptocurrency by market cap misled banks by hiding the fact that transactions were linked to cryptocurrency.

Citing three people with knowledge of the matter, Bloomberg reported that federal prosecutors have sent letters to unnamed executives at Tether alerting them that they are the targets of the investigation. The sources, who asked not to be named because the probe is confidential, added that US authorities have been actively looking into the allegations since 2018.

Tether officials denied “the years-old allegations,” and said Bloomberg article follows a pattern of repackaging stale claims as “news,” patently designed to generate clicks.

The company added: “Tether routinely has open dialogue with law enforcement agencies, including the U.S. Department of Justice, as part of our commitment to cooperation, transparency, and accountability. We are proud of our role as industry leaders in promoting cooperation between industry and government authorities in the U.S. and around the world. We remain committed to our customers and the industry-leading technology and transparency that has led to our growth.”

Tether and its associated exchange Bitfinex have always had troubled banking relationships that eventually led to a series of undisclosed arrangements with third-party payment providers. In 2017, they filed a lawsuit against Well Fargo after the US bank blocked US dollar wire transfers originating from the platform’s account with four different Taiwanese banks. The Asian lenders had been using Wells Fargo as the correspondent bank for US dollar wire transfers for over a period of two years without any glitch.

At the time, Well Fargo seemingly stopped processing the funds due to Bitfinex and Tether’s nature of business involving cryptocurrencies. However, the stablecoin issuers argued that the US-based banking institution was aware of their business model through the KYC process shared by the platform’s Taiwanese partners.

The market capitalization of Tether’s USDT has recently surpassed $62 billion, further helping it cement its position as the world’s largest stablecoin. The coin has been rising rapidly in popularity over the last year amid growing institutional and corporate demand.

Since the SEC hit Ripple with the charges of selling unregistered securities, the cryptocurrency community has been wondering which asset could face the same fire?

While a number of cryptocurrencies and similar assets were under speculation, Tether CTO, Paolo Ardoino dismissed these concerns and said there is no evidence that US regulators are coming after them, too.

Ardoino said in December 2020 that Tether is indeed regulated and also registered with the FinCEN. While pointing out to its record market capitalization, he bashes those who echo “the deliberate lies,” accusing them of spreading FUD.

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