The facts
The Senate Permanent Subcommittee on Investigations released a report on September 28 on Tether and Iran's shadow banking network, and its findings are brutal. PSI investigators ran a forensic analysis of blockchain data from 846 cryptocurrency wallets sanctioned or targeted for seizure over ties to Iran and its regional proxies. Of those 846 wallets, 84% transacted exclusively, or nearly exclusively, in USDT, Tether's dollar-pegged stablecoin. The report calls Tether's role in Iranian shadow banking "unprecedented and pervasive", saying the company has effectively handed Iran a high-liquidity international payment system that the United States has spent years trying to deny it.
The specifics are worse. Two sanctioned Iranian oil smugglers, Alireza Derakhshan and Arash Estaki Alivand, moved more than $603 million in USDT over four years from 2021 to 2025 through a network connected to Hizballah, the Houthis, and Iranian financial institutions. The report describes these as effectively "digital versions of hawala networks". There is evidence the network was used for drone and military equipment procurement. Hamas, the report notes, shifted from transacting in Bitcoin and a mix of cryptocurrencies to promoting USDT.
Then there is Tether's compliance record, which reads like a confession. Prior to 2024, Tether did not comprehensively and consistently freeze wallets designated by counter-terrorism agencies, and it continues to fail to proactively block clearly illicit wallets. In one case, $34.6 million kept moving through sanctioned wallets after they had been designated. Late last year, the report says, the most notorious money launderer in Iran posted a Central Bank of Iran wallet address on Twitter/X, and based on the Subcommittee's review of blockchain records, Tether has yet to blacklist that address. In May 2026, during the ongoing war with Iran, the Treasury Department's FinCEN issued an alert naming stablecoins and large-volume stablecoin issuers as a leg of Iran's shadow banking network. The report also flags Tether's substantial U.S. nexus, through its founding in California, its relationship with Cantor Fitzgerald, and its U.S. Treasury holdings, and warns about the Trump Administration's "undue leniency for cryptocurrency firms" after dropping investigations and settling cases.
Our take
Let's give Tether credit where it's due: most companies have to choose between being a legitimate business and being the preferred bank of a terrorist-sponsoring theocracy, and Tether said why not both. The Senate just documented, wallet by wallet, that 84% of Iran's sanctioned crypto operation runs on USDT. That is not a company with a compliance problem. That is a company that IS the compliance problem, the way a screen door IS the security problem on a submarine.
The detail that should end careers is the Twitter one. Iran's most notorious money launderer posted a Central Bank of Iran wallet address on Twitter/X, in public, where anyone with an internet connection could see it, and Tether still hasn't blacklisted it. Tether's entire anti-money-laundering apparatus was defeated by a tweet. Not a sophisticated hack, not a shell company maze, a tweet. Their compliance department apparently consists of a guy named Compliance who has never opened the app.
And the excuse will be the usual crypto gospel: blockchains are transparent, they cooperate with law enforcement, they're victims of their own success. Bullshit. When Hamas ditches Bitcoin specifically to promote your coin, when $34.6 million sloshes through wallets you've already been told are sanctioned, when the Treasury has to issue an alert during an actual war naming your product category, you don't get to play the surprised landlord. You built the building, you collected the rent, and you left the back door open for anyone carrying a rocket launcher.
The report also notes the Trump Administration's undue leniency toward crypto firms, which is the other half of this filthy equation. Tether gets to be Iran's shadow bank and America's regulatory blind spot at the same time. Founded in California, palling around with Cantor Fitzgerald, holding U.S. Treasuries, and moving money for the Houthis: it's the full American dream, if the American dream were written by a sanctions evader with a marketing department. Tether didn't just fail to stop Iran's shadow banking. For years, Tether WAS Iran's shadow banking, and the only thing unprecedented about it is that anyone bothered to write it down.
