Circle, Coinbase Call For Terrorist Financing Charges Against Tether

February 19, 2024
Representatives of Circle and Coinbase have called for US regulators to take action against Tether, as the stablecoin’s links to terrorist groups come under scrutiny in Congress.

Representatives of Circle and Coinbase have called for US regulators to take action against Tether, as the stablecoin’s links to terrorist groups come under scrutiny in Congress.

On Thursday (February 15), executives from Circle and Coinbase appeared before the Subcommittee on Digital Assets, Financial Technology and Inclusion on Capitol Hill.

Caroline Hill, senior director of global policy and regulatory strategy at Circle, was asked whether regulators should take action against non-compliant, offshore firms that have ties to the US financial system.

Representative Wiley Nickel (D-NC) referred to Binance and Tether by name in his question as the “best examples of bad actors” in the crypto space. 

“When not using banks or cash to finance their operations, North Korea, Hamas and other terrorist organisations rely on unregulated offshore firms like Tether and Binance that have next to no compliance controls,” he said.

“How can Congress bolster the jurisdiction of US enforcement agencies, allowing them to extend their reach internationally?” he asked.

Responding, Hill said that as Tether and Binance have US “touch points”, US agencies already have the ability to launch enforcement actions against them, although there are proposals to expand this ability further.

“I personally believe that no company should be allowed to reference the US dollar without having those democratic values inside of the company,” she said.

“If Treasury thinks it needs additional authorities, then I think this committee should consider that.”

Nickel followed up by asking about Cantor Fitzgerald, the US asset management firm that serves as a custodian of Tether’s $72bn portfolio of US Treasury bills.

“Cantor's enabling of terror and illicit activities across the globe is unacceptable,” said Nickel. 

“Given Tether's nexus to the US financial system through Cantor Fitzgerald, does Treasury already have the authority to take action, and what should we be doing about American-regulated companies like Cantor?”

Hill responded: “I would think that the Treasury Department would have the authority to take action, given those US touch points.

“I hope that they're looking at this seriously given Tether's reputation, as well as the data that we've seen, that they are contributing to terrorist financing and other malign activities.”

Coinbase throws shade on Tether

Grant Rabenn, director of the financial crimes legal department at Coinbase, made similar points during his opening remarks to the committee.

Describing crypto regulation and enforcement as a “national security imperative”, Rabenn said it is vital for the industry to remain “onshore”.

“Sanctions evasion, terrorist financing and criminal activity is concentrated with offshore platforms,” he said.

“Law enforcement should use all of the extensive legal tools at its disposal to police those offshore actors today.

“If additional funding is needed so law enforcement can prioritise crypto, Congress should provide it immediately.”

All of the witnesses who testified to the committee said that crypto provides an inherent advantage to financial crime investigators due to the transparency of the blockchain.

Representatives from blockchain analytics firm TRM Labs and think tank Atlantic Council both made this point, as did Rabenn.

Going one step further, Rabenn said that if the US government were to properly invest in blockchain analytics to identify illicit activity, it could lead to “compliance on steroids” across the industry.

Last month, Representative Scott Fitzgerald (R-WI) opened a pathway towards this kind of investment by introducing the Combating Money Laundering in Cyber Crime Act.

If adopted, the bill would lead to the launch of a five-year multi-agency pilot involving the Financial Crimes Enforcement Network (FinCEN), the Department of Justice, the Department of Homeland Security and the Internal Revenue Service.

Under the pilot, these entities would be permitted to voluntarily share information related to illicit activity stemming from digital assets with the private sector.

Much illicit activity is identified but not acted on

To date, Rebenn noted that the Treasury’s Office of Foreign Assets Control (OFAC) has sanctioned about 560 crypto addresses.

However, by extrapolating from these 560 addresses, Coinbase has been able to identify more than 8m addresses with links to illicit activity, and can halt funds to these addresses in real time.

“While onshore regulated exchanges invest heavily in compliance to stop bad activity, criminals continue to seek out offshore platforms without those same robust anti-money laundering programmes and controls,” he said.

“Those offshore entities often play jurisdictional whack-a-mole, attempting to avoid tough AML rules and expecting that regulators won't care.”

Rebenn noted that Coinbase employs more than 400 staff in its compliance department, who are drawn from both government and traditional finance backgrounds.

In addition, blockchain analytics specialists provide crypto-specific compliance knowledge and expertise.

In contrast, Tether currently has 83 employees in total, as per the company’s LinkedIn profile.

“The US government should use all of its existing tools to go after these platforms,” he said.

“Many recent enforcement and actions in the crypto AML space are good news: accountability should happen.”

Actions count louder than words

Patrick Tan, general counsel of blockchain analytics firm ChainArgos, said that although it is noteworthy for Tether being mentioned by name in Congress, observers should not assume that charges are imminent.

"I wouldn't make too much of what you see on C-SPAN,” he told Vixio. “This is just US politics ticking along as usual."

Tan noted that, in Binance’s case, there were media reports of an ongoing criminal investigation more than a year in advance of the charges and settlement being publicly announced last November.

"If there was something rumbling, we would have heard by now," he said.

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