US, UK probe $20 billion Tether transfers tied to Russian exchange.

abdelaziz Fathi

U.S. and UK authorities are investigating the movement of $20 billion in the USD-pegged stablecoin tether (USDT) through Moscow-based exchange Garantex.

S&P casts doubt on Tether's stability, USDT reserves

The Russian platform was sanctioned for its role in money laundering, terrorism financing, and facilitating ransomware attacks. According to a Bloomberg report, which cited anonymous sources, this could represent the largest known violation of sanctions imposed on Russia since the onset of the Russia-Ukraine conflict in February 2022.

Garantex was hit with sanctions by the U.S. and UK in April 2022, highlighting a concerted effort to curb financial activities that might support the Russian military actions in Ukraine. The ongoing investigation focuses on the flow of USDT to understand the extent of the exchange’s involvement in bypassing the sanctions.

This inquiry is part of a broader clampdown on entities believed to be assisting Russian nationals in evading international sanctions through the use of cryptocurrencies. On March 25, the U.S. Department of the Treasury’s Office of Foreign Assets Control announced penalties against 13 organizations and two individuals for such activities.

The implications of these findings are yet to be fully realized, and it remains unclear whether Tether’s parent company has violated any laws.

Despite Tether’s operations being outside the U.S., American regulators, through the Office of Foreign Assets Control (OFAC), has mechanisms to influence the stablecoin’s offshore activities.

One notable instance of regulatory intervention involves Tether’s connection with Tornado Cash, a cryptocurrency mixer on the Ethereum network, which was sanctioned by OFAC in August 2022 for money laundering activities. This action confirmed the ability of regulatory bodies to impact the usage of tether indirectly, through international cooperation and measures targeting associated entities.

Earlier in February, JPMorgan Chase suggested that impending stablecoin regulations could pose challenges for Tether. They argue that such regulations are likely to favor stablecoins offering greater transparency and adherence to emerging KYC and AML standards, thereby reducing Tether’s appeal. This regulatory shift could also affect the decentralized finance (DeFi) sector, where USDT plays a critical role as a form of collateral and liquidity.

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