Drug cartels use cryptocurrency Tether to launder money, court documents reveal
Tether (USDT), currently the third-largest cryptocurrency by market capitalization, has been under intense scrutiny for several months due to federal investigations into its alleged role in facilitating cross-border money laundering. Now, a recent report by 404 Media highlights Tether’s growing use as a money laundering tool for Mexican drug traffickers, according to the U.S. Federal authorities.
This news comes at a pivotal moment, as President-elect Donald Trump has nominated Howard Lutnick, CEO of investment giant Cantor Fitzgerald, as his Commerce Secretary. Cantor Fitzgerald is the custodian of Tether, the biggest stablecoin. Lutnick, meanwhile, has been a vocal advocate for the potential benefits of stablecoins and asset tokenization, promoting how stablecoins could play a crucial role in strengthening the U.S. dollar and transforming the U.S. economy.
The recent report by 404 Media said that a money laundering organization tied to significant cocaine seizures within the United States, as well as cartels in Mexico and Colombia, has allegedly funneled tens of millions of dollars by leveraging cryptocurrency, particularly Tether, to move wealth swiftly across borders in recent years.
404 Media reviewed the court documents that indicate how cryptocurrencies have become an integral tool for large-scale drug trafficking operations in the 21st century. One revelation from the filings highlights that Tether is reportedly sold at a discount in Mexico, as its origin is often linked to proceeds from drug trafficking. This underscores the dual-edged nature of cryptocurrencies: while they offer efficiency and speed, they also present new challenges for law enforcement in combating illicit financial activities.
As per the report, a civil forfeiture complaint was filed by the government last week, seeking access to over $5 million worth of Tether stored in three cryptocurrency accounts allegedly tied to drug trafficking. However, the total amount of cryptocurrency flowing through at least one of these accounts is far greater than the sum being seized. As per the report, the user deposited $15.6 million in cryptocurrency across 452 transactions and withdrew nearly $15.7 million through 567 withdrawals. In total, more than $15 million in funds were transacted through this single account.
Why stablecoins like Tether are so controversial
Stablecoins like Tether (UST) and USDC (USDC) are cryptocurrencies whose value is tied to that of another currency or commodities like gold or any financial instrument.
The SEC, however, says that stablecoins fall under its jurisdictions and should be registered as securities. The financial watchdog has sued many stablecoin issuers, saying they violate laws designed to protect investors.
Stablecoin Tether acts as a digital dollar for crypto investors and becomes a medium for those investors to trade Bitcoin and other cryptocurrencies. Tether accounts for over 50% of the daily trading volume of Bitcoin and up to 70% of some other major cryptocurrencies.
At the time of writing, Tether is the third largest cryptocurrency by market capitalization, with a market cap of $132 billion. Circle’s USD Coin is the eighth largest cryptocurrency with a market cap of $38 billion, according to crypto tracking website CoinMarketCap.
