The company behind Tether, the world’s most popular and widely used stablecoin, wants to have its bitcoin-shaped cake and eat it too. More accurately, it has previously claimed it works with U.S. financial regulators, but at the same time mentioned it doesn’t facilitate U.S. customers, so it doesn’t have to comply with orders.
Which is why when the U.S. treasury department’s Office of Foreign Assets Control laid out a host of controversial sanctions tied to crypto mixer Tornado Cash’s accounts, Tether has kept on keeping on working with the sanctioned wallets, the equivalent of puffing out its chest and asking U.S. regulators “what’re ya gonna do about it?”
Earlier this month, Department of Treasury officials announced sanctions against the crypto mixer Tornado Cash, saying the service had been used to launder over $7 billion worth of illicitly-gained crypto in just three years, a good chunk of that being funds stolen by hackers tied to sanctioned nations like North Korea. Those sanctions effectively put a litany of wallets associated with Tornado on a do-not-do-business-with list.
Crypto proponents have had problems with this move, mainly complaining that, instead of sanctioning any individuals, the restrictions targeted a decentralized smart contract and the code surrounding it. Now the Washington Post reported Wednesday that, based on data from crypto intelligence firm Dune Analytics, the company behind Tether has not blacklisted any of the sanctioned crypto accounts tied to Tornado Cash.
In an email statement sent to Gizmodo, Tether said that so far, “OFAC has not indicated that a stablecoin issuer is expected to freeze secondary market addresses that are published on OFAC’s SDN List or that are operated by persons and entities that have been sanctioned by OFAC,” adding that no U.S. law enforcement official has put any request to them.
The company further claimed “Unilaterally freezing secondary market addresses could be a highly disruptive and reckless move by Tether.” They pointed to other (much smaller) stablecoins like Paxos which also hasn’t frozen Tornado Cash wallets.
Paolo Ardoino, the company’s chief technology officer, told WaPo that they have not yet been contacted by U.S. officials with any “request” to stop doing business with Tornado Cash’s wallets. He further added that they “normally compl[y]” with U.S. regulators’ requests.
This stance doesn’t exactly gel with what Tether has said in the past. The CTO said they are headquartered in Hong Kong and “does not operate” in the U.S. or onboard U.S. customers. As WaPo pointed out, Stuart Hoegner, a Canada-based lawyer who is general counsel for Tether and the crypto exchange Bitfinex, has previously stated that Tether is registered as a Money Service Business with the U.S. Financial Crimes Enforcement Network. Ardoino restated this around the time fellow stablecoin Ripple was targeted by the Securities and Exchange Commission in 2020, adding that they have “strict [know your customer]” applied to all Tether direct users.
Tether has had its run-ins with U.S. authorities before. Most recently, after the collapse of the Luna/Terra ecosystem—which fomented this most recent crash in the price of crypto—regulators made rumblings about the need to put stopgaps on stablecoins, which are supposed to be pegged 1-to-1 with the U.S. dollar and act as both a currency and collateral for different crypto trades. Tether had also found itself depegged from the dollar, despite being backed by reserve assets.
But Tether’s “come at me” stance might put them in the line of fire, according to experts and ex-heads of regulatory agencies quoted by The Washington Post. One unnamed former OFAC senior official told the newspaper that Tether seems to be testing the agency, and it’s “never a very good idea to test OFAC.”
It also puts another spotlight on just how much crypto proponents see OFAC’s move as both legally inconsistent and dangerous precedent for the entire scene. This past month, after Tornado Cash was sanctioned by the U.S., Dutch financial law enforcement arrested one of the mixer’s original developers, which users later discovered was Alexey Pertsev.
Crypto enthusiasts left their keyboards behind and reportedly protested in person in Amsterdam’s Dam Square last Sunday, according to CoinDesk. Protesters, which reportedly included Pertsev’s wife Xenia Malik, chanted “open source is not a crime.” This is a particular sticking point for the pro-Tornado Cash folks, as they say the creators behind the decentralized autonomous organization (DAO) running the program are not in charge of decisions. Dutch cops disagree, writing that founders have made significant profits thanks to crypto laundering activities. Still, Pertsev has not yet been officially charged with a crime.