What do Hamas, fentanyl, North Korea, China, and the U.S. debt have in common?
They are all funded in part by a cryptocurrency called Tether. And it is a growing problem.
According to the Wall Street Journal, Tether is now the world’s most heavily traded cryptocurrency by volume. The stablecoin, also known as USDT, maintains a 1:1 exchange ratio with the dollar. Traders use it to stash their cash, easily invest in other cryptocurrencies or swap it into traditional currencies such as the dollar. It is the main way Hamas has been funded by Iran and other terrorist sympathizers around the globe. Blockchain analysis shows that wallets seized by the Israeli government for being connected to Hamas received some $41 million in cryptocurrency between 2020 and 2023, according to Israeli blockchain firm Bitok. More than 99% of that came in tether, Bitok said.
It has been showing up in illicit finance, according to criminal indictments, blockchain analysis and sanctions evasion notices. In the past year, the Journal reports, it has been used to finance Hamas, pay Chinese fentanyl suppliers, fund North Korea’s nuclear program, and to buy sanctioned Venezuelan oil for sanctioned Russian oligarchs. Some of it, Peter Schweizer adds in the most recent episode of The Drill Down, has even been used to buy portions of the US debt.
So, what’s the problem? Tether is chosen by bad actors like the Mexican drug cartels, the North Koreans, and Hamas because it is deliberately hard to trace the source of its transactions and the recipients.
“Tether’s everywhere you don’t want to be,” quips co-host Eric Eggers.
“The problem is it creates all kinds of opportunity for financial crimes and nefarious transfer of funds,” Schweizer explains. “And, as we know throughout history, whether it’s World War Two or more recently the war against Iraq, part of the way you fight a war is to prevent your enemies from being able to finance themselves.”
Tether is not completely untraceable, but in the money moving world it’s the closest thing there is. That is why the world’s bad guys use it.
The company’s business has come under more scrutiny, along with other stablecoin digital currencies. But stablecoin issuers including Tether, Circle, and others have spent well over a million dollars lobbying lawmakers on Capitol Hill since the start of 2022, according to recent data.
It goes farther than just hiring lobbyists. Tether has hired former members of Congress and senior regulatory officials as lobbyists as well. More than 200 ex-government officials were now working in crypto firms. Former Comptroller of the Currency (acting) Brian Brooks served as the CEO of Binance US and invested in crypto startup Solidus Labs. He is now the CEO of the Bitcoin mining firm Bitfury.
Schweizer said this is because there is a regulatory turf war going on over a basic question: is cryptocurrency a security, or a commodity? Who should take the regulatory lead on regulating cryptocurrencies like Tether – the Securities Exchange Commission (SEC) or the Commodities Futures Trading Commission?
“[The cryptocurrency companies] want to get ahead of any kind of restriction or regulation,” Schweizer said. “We all get it that there are tiresome restrictions and regulations from the government. But I have to say, banking secrecy laws and banking disclosure requirements I don’t consider meddlesome restrictions.”
He adds that the lack of clarity has its upside –for the people who go through that revolving door between government and the cryptocurrency sector. Bureaucrats and regulators on the make will set the rules, then leave government and sell their expertise in working with those rules in the private sector.
“The regulator becomes the navigator,” is how Eggers describes it. It’s a common concern in Washington.
To hear more of The Drill Down podcast – click here.
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