Tether executives probed by US DoJ over potential bank fraud

  • The US DoJ is looking into claims whether Tether concealed from banks that its transactions involved cryptocurrencies.
  • There are rising concerns about the token enabling money laundering and other criminal activities, and causing financial instability.

The US Justice Department (DOJ) is probing Tether executives to determine if they committed bank fraud. Specifically, federal prosecutors want to uncover if the token hid from banks that their transactions involved crypto, unnamed sources say.

Based in the British Virgin Islands and Hong Kong, Tether has risen to become the most popular stablecoin. The token’s circulation is roughly $62 billion, which supports more than half of all Bitcoin trades. Criminal charges against the token would therefore mark a critical development in the US government’s crackdown on digital currencies.

In response to the allegations, Tether discredited the news as “stale” and click-bait designed. Part of the statement on its website read,

Tether routinely has an open dialogue with law enforcement agencies, including the US Department of Justice, as part of our commitment to cooperation, transparency, and accountability.

Tether and the US authorities

Since 2018, federal prosecutors have been investigating Tether. The officials sought to find out if traders used the token to illegally drive up Bitcoin during its 2017 epic rally.

Recently, the officials sent letters to persons associated with Tether, alerting them that they were targets of the fraud investigation. The notice also signaled that a decision to file a lawsuit would be made soon. Furthermore, senior officials would determine if the charges were warranted.

Notably, authorities such as the US Treasury Department have raised concerns about the criminal activities associated with stablecoins. The token has been designed to allow remittances without involving the regulated banking system. This may, therefore, enable money laundering and other misconduct. More recently, Treasury Secretary Janet Yellen urged US watchdogs to “act quickly” in making regulations regarding cryptocurrencies including stablecoins.

Read More: U.S Treasury’s Janet Yellen meets SEC, Fed and CFTC today to talk stablecoins

Additional reviews and lawsuits

Agencies such as Fitch Ratings credit rating agency have warned about financial instability related to stablecoins. Tether, according to its creators, is pegged to one US dollar through actual money and other holdings. The latter comprises commercial paper, precious metals and corporate bonds. These facts have raised concerns that in the event of heightened stablecoins selling pressure, underpinning assets would run short. This could destabilize short-term credit markets.

Another sore point for Tether was when New York Attorney General Letitia James alleged that Tether affiliates concealed losses. James also claimed that the firms lied about Tether being pegged to USD, as they had no access to banking in 2017. The affiliates, including Bitfinex, settled claims of $18.5 million without admitting or denying the allegations.

First issued in 2014, Tether was developed to solve the issue of crypto volatility. The token also resolved the issue of banks refusing to open accounts for crypto exchanges, fearing criminal activities. Tether, however, still requires banks to hold money and process customer transactions. An example of such a relationship that turned sour is Tether and the Wells Fargo & Co. collaboration. The latter sued Wells for blocking client transactions in 2017. The case was nevertheless dropped just as fast.

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