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A new report from the UN Office on Drugs and Crime (UNODC) has named Tether as one of the “most popular” money laundering vehicles for criminals in East and Southeast Asia.
On Monday (January 15), the UNODC published a 105-page report on the nexus between casinos and cryptocurrency, describing them as “major drivers” of cyber fraud and underground banking in Asia.
“Online gambling platforms, and especially those that are operating illegally, have emerged as among the most popular vehicles for cryptocurrency-based money launderers,” says the report.
Thanks to white-label solutions across both industries, it has become increasingly easy for organised crime outfits to set up gambling and cryptocurrency businesses to launder their profits.
As these operations scale, they are fuelling a “rapidly growing” illicit digital economy and cyber fraud industry throughout the region, the report notes.
Tether’s USDT stablecoin earns special mention as the “preferred choice” among cyber fraudsters and money launderers, particularly USDT on the Tron blockchain.
Quoting law enforcement agencies that contributed to the report, the UNODC notes that USDT on Tron is preferred for its speed, anonymity, ease of use and low transaction fees.
The rise of USDT on Tron
Of the $95bn USDT currently in circulation, $50.8bn is issued on Tron and $44bn is issued on Ethereum.
When Tether first launched in 2014, USDT was available only on Ethereum. It was not until 2019 that Tether began issuing USDT on Tron, and very quickly Tron surpassed Ethereum as the stablecoin’s largest network.
The UNODC’s report covers the years 2019 to 2023, showing that the rise in USDT-based money laundering correlates with the stablecoin’s deployment on Tron.
However, the report also points out that there are other correlating factors during this period. For example, unemployment and economic decline due to the COVID-19 pandemic have helped fraudsters and money launderers recruit others who are short on cash.
Among organised crime groups, technological advances have also helped to keep fraudsters and money launderers one step ahead of the authorities.
For example, generative AI has allowed fraudsters to operate social engineering scams with “alarming success”, the report notes.
Likewise, fraudsters have become adept at using stolen data and sophisticated “masking” technology to bypass digital know your customer (KYC) processes.
USDT money laundering busts are rising
At the same time, law enforcement agencies in Asia have reported seizing an increasing amount of USDT linked to organised crime.
In 2022, police in China announced that they had dismantled a $1.7bn USDT-based money laundering network, following raids in 17 provinces and 63 arrests.
The network was found to be using USDT to launder the proceeds of illegal gambling operations and other criminal activities involving foreign and domestic groups.
The money launderers had also used Telegram, the instant messaging app, to recruit others to act as mules, instructing them to open accounts on crypto exchanges for channelling funds.
In a similar investigation between December 2021 and July 2022, police in China dismantled a separate cryptocurrency-based network that laundered a total of $5.6bn.
Tether has intervened in certain cases
In Tether’s defence, the report does mention one case from November last year in which the stablecoin issuer stepped in to freeze funds linked to criminal activity.
Following an investigation led by the US Department of Justice (DOJ), Tether voluntarily froze $225m in funds suspected to be linked to human trafficking and pig butchering scams.
Of the total, $9m was seized by the DOJ, which is now attempting to return the funds to the victims.
Last week, Vixio reported that towards the end of 2023, there was a sudden uptick in compliance-related activity and announcements from Tether.
Likely due to increased pressure following the Binance settlement, Tether went on a wallet blacklisting spree and also announced new partnerships with US law enforcement.
Tether’s response to UNODC
Given its public focus on compliance over the past few months, Tether said it was “disappointed” by the UNODC report and felt that it had been wrongly “singled out”.
It pointed to its recent collaborations with the DOJ, FBI and the US Secret Service, and noted that its “unparalleled” transaction monitoring capabilities now exceed that of commercial banks.
“Tether tokens, using public blockchains, make it possible to meticulously track every transaction, making it an impractical choice for illicit activities,” the company said.
“The UN’s analysis ignores the traceability of Tether tokens and the proven record Tether has of collaborating with law enforcement.”
Tether’s association with pig butchering continues
In most cases, however, Tether does not intervene to prevent its stablecoin being used by scammers and fraudsters, even when there is clear evidence to justify intervening.
A new study by Bitrace and ChainArgos, for example, maps out a single network of criminals that have used USDT to collect and launder the proceeds of pig butchering scams from victims in the US and China.
The study looks at five victims — three in the US and two in China — and demonstrates that the funds taken from the victims flow through the same crypto exchanges and into the same destination wallets.
The sums involved range from the tens to possibly the hundreds of millions of dollars, and the crypto exchanges involved include Binance, FTX, OKX, Coinbase, Huobi and others. Subsequent research has connected the same network to victims in ten other countries.
Patrick Tan, general counsel of ChainArgos, said that crypto’s “pig butchering” problem is much bigger than previously thought, and cannot be solved without international cooperation.
“Cryptocurrencies in general, and stablecoins in particular, are making it easier than ever to lure victims into scams,” he told Vixio.
“Governments need to increase cooperation, and banks, financial intermediaries, and payment service providers need to have the right tools to prevent themselves from aiding and abetting.
“Given the ability of stablecoins to operate outside of financial institutions, governments need to recognise that the old tools of supervision are inadequate to deal with the risks posed by new technology.”
