The minority staff of the U.S. Senate Homeland Security and Governmental Affairs Committee released a 28-page report stating that USDT has become a primary payment tool for Iran's shadow banking system, and called for the Treasury and Justice Departments to investigate whether Tether has violated sanctions and banking laws.

The report, signed by the committee's chief Democrat Richard Blumenthal, is titled "Tethered to Terrorism." Investigators conducted on-chain analysis of 846 Iranian and proxy organization wallets that have been sanctioned or seized by the U.S. Treasury's Office of Foreign Assets Control (OFAC) or Israeli counter-terrorism financing agencies, claiming that 84% of these wallets primarily transact in fiat-backed stablecoin USDT; the proportion is 87% among the 757 wallets on the Israeli list and 57% among the 101 wallets on the OFAC list. The report states that this channel is used for cross-border fund transfers, supporting local currency, and involves the Iranian central bank.

The report provides scale estimates including: the Iranian central bank reportedly hoarding at least $507 million USDT; a sanctioned oil smuggling network transferring over $603 million USDT between 2021 and 2025; and Iran's crypto transactions reaching about $2 billion in 2025, with USDT dominating. Investigators accused Tether of failing to freeze accounts in a timely manner: it did not systematically freeze addresses named by counter-terrorism agencies before 2024; the Iranian central bank wallet publicly leaked by Babak Zanjani in December 2025 has still not been blacklisted; and Gaza Now, sanctioned by OFAC in March 2024, continued to publicly raise funds using USDT after being named.

The same report links Tether to personnel from the Trump administration: Cantor Fitzgerald, previously led by Commerce Secretary Howard Lutnick and now controlled by his children, is the custodian for Tether's U.S. Treasury holdings and holds about 5% equity; Bo Hines, former executive director of the White House Digital Asset Advisory Committee, took over as head of Tether's U.S. operations weeks after leaving his position. Blumenthal wrote to Treasury Secretary Scott Bessent and Attorney General Todd Blanche, requesting clarification by October 9 on whether existing investigations into Tether would be narrowed, paused, or closed, and mentioned that the Manhattan federal prosecutor had previously filed a case in October 2024, and the Treasury had once evaluated sanctions against the company.

This line of inquiry runs parallel to the Democrats' investigation into the Trump family's crypto business since 2025. In May 2025, Blumenthal filed a case regarding Trump Coin, the Hold Coin dinner, and World Liberty Financial; in June, Elizabeth Warren and Jeff Merkley requested clarification on the UAE's MGX settling about $2 billion in investments in Binance using the Trump family's associated stablecoin USD1; in November, a Democratic report from the House Judiciary Committee stated that the Trump family's crypto assets peaked at about $11.6 billion, with related income exceeding $800 million in the first half of 2025. In 2026, Ro Khanna questioned whether a reported $500 million acquisition of about 49% of WLFI by UAE royal family members was linked to chip policy; Warren and Ron Wyden questioned whether Tether lent to trusts benefiting Lutnick's children; Adam Schiff and others linked Binance's involvement with Iranian funds and USD1 to Trump's pardon of Zhao Changpeng.

Tether stated on the same day that it continues to cooperate with law enforcement, having assisted in freezing about $550 million in Iranian-related USDT in 2026, including over $344 million from two addresses in April and over $130 million from four addresses in July, and claimed to have frozen over 22 million tokens in cases referred by Israel, covering over 640 addresses; the company stated it has assisted in over 2,900 investigations globally, freezing a total of over $4.9 billion. CEO Paolo Ardoino stated that USDT is not a safe haven for sanctioned entities, terrorist organizations, or criminal networks. The report, however, claims the company has not responded to document requests from June and describes compliance as "voluntary adherence to OFAC guidelines."

From a market mechanism perspective, this is a politically driven regulatory pricing, not a spot sell-off. The buyers are Iranian networks needing dollar liquidity, cut off from correspondent banks; the sellers are dollar stablecoins that can be issued instantly on Tron and Ethereum. The flow of funds is from oil and sanction-evading income converted to USDT, then transferred to proxy organizations and central bank addresses. The beneficiaries are issuers that can still provide offshore dollar tracks and custody chains holding U.S. Treasury positions; the pressures are on Tether's U.S. access, the treatment of foreign stablecoins under the Genius Act, and Cantor's political exposure. The event itself does not directly change on-chain supply and demand but will raise the tail risk of wallets being frozen and banking channels being scrutinized.

Source: Public Information