Senator Blumenthal: USDT Becomes Lifeline for Iran's Shadow Banking
The U.S. Senate Homeland Security and Governmental Affairs Committee's minority party released a report on September 28 titled "Tethered to Terrorism: Crypto & Iran’s Shadow Banking Network," stating that Tether's USDT has become a primary cross-border payment tool for Iran's shadow banking network, used to evade international sanctions, transfer funds abroad, and support the local currency. The report was led by Connecticut Democratic Senator Richard Blumenthal, the minority party leader of the committee.
The report analyzed 846 Iranian and related wallets identified by the U.S. Treasury's Office of Foreign Assets Control (OFAC) and Israeli counter-terrorism financing agencies, finding that 84% only trade or almost exclusively trade USDT. Among the 757 wallets linked to Iranian terrorism financing identified by Israel, 87% primarily use USDT; in 101 OFAC-related Iranian wallets, 57% primarily use USDT, with most of the remainder also using USDT as the main currency. Circle's USDC was nearly absent from the sample, while Bitcoin appeared more frequently in earlier batches.
The report states that the Iranian regime and its proxies have shifted in recent years from using Bitcoin and multi-currency combinations to primarily relying on USDT for cross-border fund transfers and supporting exchange rates, operating through addresses related to the Iranian central bank. Blumenthal has called for investigations by the Treasury and Justice Departments into Tether. The report also indicates that Tether has not systematically frozen wallets named by counter-terrorism agencies before 2024, with some freezes taking weeks, and has not proactively blocked certain publicly fundraising or already named addresses; one example is the Iranian money laundering figure Babak Zanjani's publicly disclosed Iranian central bank wallet, which has not yet been blacklisted, and another is Gaza Now, named by OFAC in March 2024, which continued to publicly fundraise using USDT after being designated.
The report does not provide an exact percentage of USDT's role in Iranian government transactions. Some public reports state that Iran's shadow banking network handled approximately $20 billion last year, while others mention that the Iranian government conducted about $2 billion in crypto transactions last year, without breaking out the amount of USDT. The report also mentions that funds continued to flow out after designation, with one public report stating that at least $34.6 million was transferred from named wallets during the delay in freezing.
On the same day, Tether stated that it had assisted in freezing approximately $550 million in USDT related to the Iranian central bank and Iranian sanctions network by 2026, and claimed to continue direct cooperation with U.S. and other law enforcement agencies. The company disclosed that in April, it froze over $344 million based on OFAC and U.S. law enforcement information, and the next day OFAC designated the same address as an Iranian central bank digital currency identifier; in July, after the Treasury incorporated four TRON addresses into those designated by the Iranian central bank, it froze four wallets totaling over $130 million. The two amounts total approximately $475 million, with the remaining approximately $75 million being other smaller freezes within the year.
Tether stated that its wallet freezing mechanism aligns with the U.S. Specially Designated Nationals list and claimed to have assisted in over 2,900 investigations globally, freezing over $4.9 billion in illegal assets, of which over $2.4 billion was related to U.S. law enforcement. CEO Paolo Ardoino stated that USDT is not a safe haven for sanctioned entities, terrorist organizations, or criminal networks. On the market side, USDT, as the largest dollar stablecoin, provides high liquidity and a dollar-denominated channel that can be frozen but requires the issuer to execute; sellers are sanctioned funds and shadow brokers needing to bypass bank clearing, while buyers are foreign counterparties and exchange nodes accepting USDT settlements. The event is driven by the congressional report and law enforcement designations, with funds flowing to low-cost chain addresses like TRON before being frozen, benefiting intermediaries that can still complete exchanges, while Tether's compliance narrative and the sanctions provisions in U.S. stablecoin regulatory legislation are under pressure.
Source: Public Information
ABAB AI Insight
Tether's freezing authority has never been a decentralized commitment; rather, it is a single point switch for the issuer over ledger entries. The company has repeatedly responded to regulatory pressure in recent years with the same set of actions: first expanding connections with OFAC, the Justice Department, the FBI, the Secret Service, and Homeland Security investigations, then freezing large addresses all at once after being named and publicly reporting cumulative figures. The $344 million and $130 million freezes related to the Iranian central bank in April and July, respectively, follow the same path as previous assistance to U.S. law enforcement in seizing fraudulent funds and aligning with the SDN list, making compliance capabilities a demonstrable asset on the balance sheet rather than preemptively closing off issuance and exchange channels in high-risk jurisdictions.
In terms of capital pathways, the value of USDT lies in extracting dollar-denominated capabilities from sanctioned banking systems and reassembling them into tokens that can be quickly exchanged on chains like TRON. Iran needs dollar equivalents that can be used for imports, oil payments, and funding for proxy organizations; Tether needs global circulation and reserve interest. The report points out that Cantor Fitzgerald holds about 5% of Tether's equity and manages a significant portion of its U.S. assets, while former White House digital asset advisor Bo Hines took over as CEO of Tether's U.S. subsidiary just weeks after leaving office, creating overlaps in issuance, custody, and Washington personnel. Money does not flow directly from Tether to Tehran but is completed through existing exchanges, brokers, and wallet clusters for "off-bank dollar clearing"; freezes occur after addresses are named, indicating that resource mobilization prioritizes already established law enforcement cases rather than preemptively cutting off channels.
In comparison, this is more akin to HSBC and Standard Chartered being accused of "systemic knowledge and delayed execution" in sanction compliance cases rather than an FTX-style collapse. In terms of industry positioning, USDT has moved past the "alternative wire transfer" stage into the control phase of "who has the authority to shut down which address." USDC is nearly absent in the same sample of 846 wallets, indicating that competition among dollar stablecoins has stratified in sanction scenarios: more compliant, transparently freezeable currencies are actively avoided, while the most liquid and least frictional currencies are chosen as channels. Organizations like Hamas shifting from mixed Bitcoin usage to openly promoting USDT is a downstream version of the same logic.
Structural judgments belong to the intersection of regulatory changes and the transfer of pricing power. The mechanism is that after traditional SWIFT and correspondent banks isolate Iran from the dollar clearing network, pricing power does not disappear but shifts to issuers of dollar tokens that can be issued, frozen, and widely accepted in secondary markets. The congressional minority report's call for investigations by the Treasury and Justice Departments effectively reverts the question of "whether post-freeze counts as sanction enforcement" back into a legislative and enforcement issue. The more concentrated the channel, the more a single issuer's switch resembles a quasi-central bank tool; the later the switch is used, the more time the shadow network has to complete exchanges. If stablecoin legislation only addresses reserves and audits without writing preemptive interception standards for offshore wallets, pricing power will continue to reside with the most liquid issuer rather than with those writing the rules.
ABAB News · Cognitive Law
- The dollar that can be frozen is the real offshore dollar.
- Sanctions shut down banks, turning issuers into new clearinghouses.
- Post-freeze evidence proves the channel exists, not that it has been closed.