Image from Wallpaper Vip via License: Public Domain

Tether, the issuer of the largest stablecoin USDT, freezes the largest amount of USDT onchain to date in connection with a “pig butchering” scam. The company firmly positions itself as a representative of law and order.

On November 20, Tether, the issuer of the USDT stablecoin, boasted about its cooperation with law enforcement.

“The largest company in the crypto ecosystem,” as Tether now confidently calls itself, together with the OKX exchange and Chainalysis helped law enforcement with an investigation. The outcome of the investigation resulted in Tether “proactively and voluntarily” freezing approximately 225 million USDT. These USDT were in self-custody wallets and belonged to an “international human trafficking syndicate in Southeast Asia” that was behind a global wave of “pig butchering” fraud.

Never before has Tether frozen such a large amount of USDT. The fact that the tokens were not on an exchange, but in wallets that stored the keys themselves makes the case interesting. The USDT is governed by a smart contract that Tether has access to. The company can use blacklists to freeze every Tether in circulation and possibly also give other addresses access to them, such as the victims of “pig butchering”.

This discipline of cybercrime is a mix of marriage fraud and investment fraud: The fraudsters look for a victim via social media and dating apps, then set up a profile that matches them, get in touch with them and entice them with messages and messages Phone calls around the finger. While you gain the Pig’s trust, the scammer talks about a cryptocurrency investment portal in order to slowly get him to invest larger amounts. If the pig is slaughtered (“slaughter”), the platform is exposed as a fake.

But Tether does not reveal how a “human smuggling syndicate” is connected to this purely online fraud. Does it exploit young women to chat with the victims or even meet them? Or does this type of “romance scam” simply fall within his area of ​​expertise?

Perhaps the US Department of Justice (DoJ) announcement, which appeared a day later, on November 21st, will provide an answer.

The DoJ says it has seized Tether that has been traced to crypto addresses linked to an organization that ripped off more than 70 victims through “pig butchering.” However, not 225 million USDT were confiscated, but only nine. It is possible that only a portion of the USDT frozen by Tether could be proven to have criminal origins.

The ministry grandly comments that the access has shaken “the financial infrastructure of an organized network of fraudsters.” It gives some details about the websites involved – supposed exchanges that “in reality did not exist” – about the money laundering that followed the scam – “the funds were quickly laundered through dozens of cryptocurrency addresses and exchanges and other blockchains, a technique called ‘ Chain Hopping’ – and about the actors involved in the detection and follow-up – the FBI, the FTC (Federal Trader Commission), the Secret Service (USSS) San Francisco. But what role a human trafficking ring played remains unclear.

Maybe Tether has laid it on a bit thick? But why? To justify yourself to the community? To somehow continue to seem anarcho-capitalist while throwing yourself on your back before the state?

The wording of Tether’s press release could indicate this. Tether repeatedly asserts that it investigated “proactively” and froze the tokens “voluntarily”. This sets an example of “how industry players work with global law enforcement to effectively stop criminal users.” This makes Tether, comments CEO Paolo Ardoino, the “new standard for security in the crypto space.” A bit of pandering reads already figured it out here, right?

It follows “stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols, in accordance with the Bank Secrecy Act and best practice among financial institutions,” the press release continues. In addition, Tether checks all customers against OFAC financial sanctions databases and proactively works with law enforcement to “prevent unlawful actions by investigating suspicious transactions in the secondary market.”

“Secondary market” here means the USDT, which is not in the wallets of those who ordered it from Tether, but has flowed into the ecosystem via further transactions. The identification of owners (KYC) of Tether only occurs at the beginning of this process, at creation, but not on the secondary market. By separating these two areas, Tether is probably trying to evade some of the responsibility. Because if Tether were to introduce general KYC, the stablecoin would most likely collapse overnight.

A day later, Tether published another press release, on November 21st. In it, the company “remains steadfastly committed to combating illegal activities, supporting their victims and assisting law enforcement.” In order to “preserve the integrity of the financial ecosystem,” Tether has now hired “the United Stated Secret Service.” Platform “and is working on doing the same with the FBI.” Whatever that means in concrete terms, it does indicate intensive cooperation.

The Secret Service is actually known for protecting the President of the United States and his family. It was founded in 1865 to combat counterfeiting. After the assassination of President William McKinley in 1901, he took over the protection of the head of state. Today he is primarily responsible for financial crime, including a wide range of fraud models. In mid-2022 he set up a “Cryptocurrency Awareness Hub” where you can also report crypto fraudsters.

With the close cooperation with the USSS and FBI, Tether, to draw a conclusion here, may become an agent of dollar control by US institutions. This may be the price that Tether has to pay in order to continue to operate without fear of war with the USA. Tether is proactive in investigating crimes, freezing suspicious balances, and integrating US authorities onto its platform. Much like a dollar bank — except that Tether simulates more user autonomy while being able to exercise much greater control.


Leave a Reply