Tether’s Vetting Fails as USDT Aids Sanctions Evasion

During 2019 and 2020, Tether’s tokens in circulation surged from under $2 billion to over $20 billion. The ICIJ obtained documents from this period, offering a rare look at Tether’s direct buyers, records that contradict Tether CEO Paolo Ardoino’s 2023 assurance to Congress about sophisticated financial institutions level vetting.

Who Was Buying USDT Directly

Nikita Krasnov, a Russian man sanctioned in 2024 for a sanctions evasion scheme, purchased approximately $1.16 million in newly minted USDT in 2020. This transaction had not been previously reported.

The investigation also identified firms later named as money laundering vehicles, including entities linked to North Korean hackers and the Sinaloa Cartel:

• Hong Kong shell companies later tied to North Korean intelligence operatives conducted over $100 million in deals with Tether
• Lucky DC Trade Pty Limited bought nearly $47 million in USDT in 2020, with its director indicted in 2022 for money laundering
• Tomorrow Good Limited purchased over $66 million in USDT in 2019, later appearing in a 2024 indictment against Sinaloa Cartel members

Tether sold tokens to these customers years before their alleged crimes became public. Alison Jimenez, an anti-money laundering expert, told ICIJ that due diligence must prevent onboarding future criminals, which requires understanding wealth sources and business nature to detect suspicious activity in the first place. Many customer identities in these records were obscured by shell companies registered in offshore tax havens.

Familiar Names in the Buyer List

Alameda Research, co-founded by Sam Bankman-Fried, purchased over 4.1 billion USDT directly from Tether. Alameda, a crypto hedge fund, venture capital firm, and market maker, played a key role in circulating USDT throughout the ecosystem.

Justin Sun, founder of the Tron blockchain, bought over $214 million worth of USDT from Tether between April 2019 and March 2020. Sun has since faced accusations from the SEC for selling unregistered securities. Other customers, including Nexo Capital, Zhao Dong, and UKDE, also faced regulatory fines, arrests, or consumer warnings years after their direct Tether purchases.

Tether’s Response and the Regulatory Backdrop

Tether maintains it assists law enforcement and freezes billions in illicit funds, and government investigators reportedly find that assistance valuable in crypto investigations. Despite these claims, the ICIJ findings raise questions about how proactive that vetting actually was at the point of sale.

The scrutiny lands on top of past regulatory action, including a $41 million fine from the Commodity Futures Trading Commission in 2021 for misleading statements about Tether’s dollar reserves.

Hashlytics Take

The gap here isn’t that Tether worked with law enforcement after the fact. It’s the distance between “sophisticated financial institutions” level vetting and a buyer list that includes shell companies later tied to North Korean intelligence and a cartel indictment. Freezing funds once a name shows up on a sanctions list is reactive, not preventive, and reactive compliance is exactly what due diligence exists to avoid. If Tether wants the vetting claim to hold up, the burden is showing what onboarding actually looked like in 2019 and 2020, not just what happens after regulators or journalists find the receipts.