The report, citing unnamed sources, claimed that the U.S. Attorney’s Office in Manhattan was scrutinizing whether Tether had been used by third parties to facilitate illegal activities such as drug trafficking, terrorism financing, and hacking. It also suggested that investigators were examining whether Tether had indirectly supported sanctioned entities, including Russian arms dealers and groups like Hamas.

The Bitcoin price fell steeply to just over $65,000 after a Wall Street Journal revealed federal investigations in Tether / USDT. Source: Brave New Coin Bitcoin Liquid Index

The news sent immediate ripples through the cryptocurrency market, highlighting the crucial role Tether plays in the digital asset ecosystem. Bitcoin, the world’s leading cryptocurrency, experienced a noticeable dip in price, falling from around $67,000 to $65,000 in the wake of the report. This brief but significant drop underscored the market’s sensitivity to any negative developments surrounding Tether, given USDT’s widespread use as a stable store of value and a medium of exchange within the crypto space.

Transparency Concerns and Expansion Plans Amidst Regulatory Scrutiny

Paolo Ardoino, Tether’s CEO, swiftly responded to the allegations, vehemently denying them on X  and through a company blog post. He labeled the WSJ report as “old noise” and “irresponsible,” emphasizing that Tether had seen no evidence of a federal probe. Ardoino also highlighted the company’s proactive cooperation with law enforcement agencies, stating that Tether regularly works with authorities to prevent the misuse of USDT for illicit activities and has assisted in apprehending cybercriminals and fraudsters.

However, the incident has reignited concerns about Tether’s transparency and regulatory compliance, issues that have dogged the company for years. Critics have long questioned the adequacy of Tether’s audits and the composition of its reserves, which are supposed to back the value of USDT on a 1:1 basis with the US dollar. 

A recent report by Consumers’ Research further fueled these concerns, accusing Tether of failing to conduct a full audit of its dollar reserves and raising questions about its operations in countries like Venezuela and Russia, where it may have been used to circumvent international sanctions.

Despite the ongoing scrutiny, Tether continues to pursue ambitious expansion plans, aiming to solidify its position as the dominant player in the stablecoin market. The company is reportedly exploring a move into the commodity sector, potentially leveraging its stablecoin to facilitate trade and financing in this traditionally opaque market. Tether also recently partnered with the Tron network to launch a dedicated financial crime unit, the T3 Financial Crime Unit, focused on combating cybercrime and enhancing the security of its platform. Some observers have questioned the logic of the Tron partnership choice, however, given Tron founder Justin Sun’s recent SEC fraud charges.