Banking and Finance Law Daily Wrap Up, OVERSIGHT AND INVESTIGATION—Blumenthal report says Iran relies on Tether’s stablecoin for shadow banking, seeks Treasury and Justice probes, (Sep 29, 2026)

By Shashi Kant, BALLB, LL.M.

A Senate subcommittee minority report finds Iran and its proxies rely heavily on Tether’s dollar-pegged stablecoin to evade U.S. sanctions.

Senator Richard Blumenthal (D-Conn.), ranking member of the Senate Permanent Subcommittee on Investigations (PSI), has released a minority staff report finding that Tether and its U.S. dollar-pegged stablecoin, USDT, have become a primary international payment system for Iran and its regional proxies. In letters to Treasury Secretary Scott Bessent and Attorney General Todd Blanche, Blumenthal has asked both departments to investigate the company’s anti-money laundering and sanctions compliance practices. The report, titled “Tethered to Terrorism: Crypto & Iran’s Shadow Banking Network,” rests on a forensic analysis of blockchain transactions from 846 cryptocurrency wallets that were sanctioned or targeted for seizure because of their association with Iran and its proxies, according to the subcommittee.

Background. The report is a part of an ongoing PSI inquiry into the role of cryptocurrencies in illicit finance. The subcommittee wrote to Tether on June 4, 2026, seeking information on the use of USDT in Iranian shadow banking. According to the report, Tether confirmed receipt of that letter but had not responded as of publication.

Wallet analysis. The subcommittee found that 84 percent of the 846 wallets transacted exclusively, or nearly exclusively, in USDT. The wallets were drawn from designations issued between June 2021 and August 2026 by the Treasury Department’s Office of Foreign Assets Control (OFAC) and Israel’s National Bureau for Counter Terror Financing (NBCTF), the report says. The report states that USDT became the preferred cryptocurrency for Iranian shadow banking and its proxies between 2023 and 2024, displacing Bitcoin and other tokens.

Central Bank of Iran. According to the report, two Central Bank of Iran (CBI) wallets identified in leaked letters received nearly $50 million, exclusively in USDT, in April and May 2025. The report says the CBI moved the funds within days to Iranian exchanges or to a mixer. The subcommittee also identified three wallets that a brokerage called Modex Exchange Company used to fund the CBI. Those wallets took in $575 million in USDT from April to June 2025, according to the report.

Proxy networks. The report states that two Iranian oil smugglers sanctioned by OFAC, Alireza Derakhshan and Arash Estaki Alivand, received $603 million in USDT over four years. The subcommittee says their network connected to Hizballah, the Houthis, and Iranian financial institutions. The report also cites evidence that the network is used to buy and sell drones and other military equipment.

Freezing practices. Before 2024, Tether did not comprehensively and consistently freeze wallets designated by counter-terrorism agencies. When the NBCTF designated 39 wallets tied to a Hizballah money launderer in June 2023, Tether froze only five of them until March 2024, the report says. The subcommittee found that the delay allowed more than $34.6 million in USDT to move out of those wallets after the seizure notice. According to the report, Tether also has not blacklisted CBI wallet addresses that Babak Zanjani, whom the report calls Iran’s most notorious money launderer, posted on Twitter/X in December 2025.

Administration ties. In the letters, Blumenthal states that federal prosecutors in the Southern District of New York reportedly opened an investigation into Tether in October 2024. He writes that since President Donald Trump returned to the White House, cryptocurrency investigations and enforcement actions “have been dropped, settled on meager terms, or even reversed.” The letters state that Cantor Fitzgerald, formerly run by Commerce Secretary Howard Lutnick and now controlled by his children, owns 5 percent of Tether. According to the letters, Cantor Fitzgerald also holds a substantial portion of Tether’s more than $100 billion in U.S. assets. “The Trump Administration’s glaring lack of oversight of cryptocurrency issuers has undermined our own national security interests,” Blumenthal said.

Information requests. Blumenthal urges each department to take the strongest appropriate action if it finds that Tether violated the Bank Secrecy Act, the International Emergency Economic Powers Act, or other federal law. The letters ask both departments to respond by October 9, 2026. They ask whether either department took any action to narrow, pause, deprioritize, or close an inquiry involving Tether. Both letters also seek communications with Tether, the Lutnick family, and Cantor Fitzgerald.

Companies: Cantor Fitzgerald; Modex Exchange Company; Tether

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