This week, the Permanent Subcommittee on Investigations, part of the US Senate, published a report on Iran and its use of crypto and shadow banking to evade financial sanctions. The report focused much of its information on Iran’s use of Tether, the issuer of USDT, the largest dollar-based stablecoin. Notably, the report points to Tether’s connections to the Trump administration, which led to “lenient oversight” of money laundering and illicit activity.
The report states that crypto is being used by Iran to support terrorism. The report also said it was concerned about Tether’s failure to freeze illicit wallets. On the day the report was released, Tether announced that it had frozen $550 million in Iran-linked USDT.
The report declares three findings:
- Tether has become a primary illicit international payment system for Iran, allowing it to circumvent international sanctions on its banks. Tether, and its U.S.dollar-pegged stablecoin (USDT), has become a primary cryptocurrency connected to the Islamic Republic’s money laundering schemes. Of the 846 wallets sanctioned for their association with Iran and its terrorist proxies, 84% have transacted exclusively, or nearly exclusively, in USDT. These activities include efforts by the Iranian government to move funds into, and out of, Iran and to prop up the country’s currency in the face of U.S.sanctions, including through the Central Bank of Iran.
- Tether serves as a central payment mechanism that interlinks Iran and its terrorist proxy organizations, undermining U.S. security interests in the region. Iran’scryptocurrency-based shadow banking network has processed significant volumes of funds and implicates various Iranian interests. For example, two sanctioned Iranian oil smugglers, Alireza Derakhshan and Arash Estaki Alivand, were able to move more than$603 million in USDT over a four-year period from 2021-2025 in a network that connectedto Hizballah, the Houthis, and Iranian financial institutions. These payments occur either through money launderers like Derakhshan and Alivand or through unregulated exchanges or intermediaries that routinely move hundreds of millions of dollars. These are effectively digital versions of hawala networks that have long concerned national security officials. In addition to supporting terrorist organizations, there is evidence that this shadow banking network is used for the procurement and sale of drones and other military equipment.
- Tether’s repeated failure to freeze illicit wallets and prevent abuse created the permissive environment under which Iranian shadow banking has flourished. Tether repeatedly failed to block wallets associated with Iranian exchanges, suspicious brokers, and terrorist organizations. Prior to 2024, Tether did not comprehensively and consistently freeze wallets designated by counter-terrorism agencies and continues to fail to proactively block clearly illicit wallets. This absence of deterrence invited abuse: terrorist organizations such as Hamas shifted from transacting in Bitcoin and a mix of cryptocurrencies to promoting USDT. Even where it has responded, Tether has at times taken weeks, or even failed, to blacklist illicit wallets altogether. The Subcommittee’s analysis shows that in one case, $34.6 million continued to move through sanctioned wallets after they had been designated. Indeed, late last year the most notorious money launderer in Iran posted a Central Bank of Iran wallet address on Twitter/X. Based on the Subcommittee’s review of blockchain records, Tether has yet to blacklist that address and similarly attributed addresses.
The report is available below.