Tether Cryptocurrency Becoming ‘Preferred Choice’ Among Money Launderers And Scammers, UN Warns

Topline

Tether, one of the world’s most traded cryptocurrencies, has become a key tool for criminals, money launderers and scammers, according to a United Nations report published Monday, amid intensifying legal and regulatory scrutiny over how digital assets are being used to aid illicit activity.

Key Facts

Tether has fast become the platform of choice for money laundering and fraud operations across East and Southeast Asia, the United Nations Office on Drugs and Crime (UNODC) warned in a report on organized crime and illicit banking in the region.

Tether, which did not immediately respond to Forbes’ request for comment, is a company that runs a blockchain platform and issues digital tokens pegged to real-world currencies with the backing of its own financial reserves, most notably USDT, or tether, which is tied to the U.S. dollar one-for-one.

The agency said tether’s stability, ease of use, anonymity and low transaction fees has helped the digital token become a “preferred choice” for fraudsters and money launderers alike and intelligence agencies across the region say tether ranks “among the most popular cryptocurrencies” used by organized crime groups.

Its popularity is illustrated by the “surging volume” of cyber fraud, money laundering and underground banking cases, the UN said, including schemes like “sextortion,” a form of blackmail threatening to post sexual content or information about a person, and “pig butchering,” a socially engineered romance designed to “fatten up” targets before extracting money.

The UN said financial authorities and law enforcement have reported a rapid uptick in the use of “sophisticated, high-speed money laundering” teams specializing in tether in recent years, with criminals advertising their services on social media platforms like Facebook, TikTok and Telegram.

Online gambling platforms in particular have “emerged as among the most popular vehicles for cryptocurrency-based money launderers,”—especially those using tether—the report said, warning they are “fueling the intensification” of the region’s “rapidly growing illicit digital economy.”

Crucial Quote

“Organized crime has effectively created a parallel banking system using new technologies,” the UNODC’s Jeremy Douglas told the Financial Times. Douglas warned that “the proliferation of loosely or entirely unregulated online casinos together with crypto has supercharged the region’s criminal ecosystem.” Crypto regulations are “way behind or practically non-existent,” he warned. “Organized crime groups who use and feed off vulnerabilities and weaknesses know this.”

Key Background

Tether is a form of cryptocurrency known as a stablecoin. While the value of traditional crypto assets like bitcoin and ether, as well as well known and valuable “meme” currencies like dogecoin, can fluctuate wildly for little or no reason, stablecoins are pegged to other assets, notably to fiat money like the dollar, tangible assets like gold or through an algorithm. With this in mind, stablecoins are considered to be a relative haven of stability in the otherwise volatile and unpredictable crypto market. Tether claims to keep tether’s greenback peg stable by having sufficient levels of the currency in reserve, though it has been criticized for its lack of transparency over its holdings in the past and in 2021 was fined $41 million by the U.S. Commodity Futures Trading Commission for making misleading statements about its reserves. Growing levels of illicit behavior on digital platforms, a series of high profile scandals and failures within the industry and the increasing popularity of cryptocurrencies has led to increasing scrutiny on the sector from law enforcement, lawmakers and regulators. At present, the industry largely operates in the legal gray areas of existing financial frameworks and lacks any coherent or comprehensive guidance. While fears of its anonymity enabling criminal activity appear to be a key concern of lawmakers targeting crypto, the UN report cited data from blockchain analytics firms indicating “less than 1%” of all cryptocurrency payments are illicit.

Tangent

At the time of writing, tether had the highest daily trading volume of any cryptocurrency by a large margin. Over the past 24 hours, more than $29 billion of tether had been traded (bought or sold). By comparison, crypto titans bitcoin and ether—the second and third most traded tokens—had traded around $19 billion and $13 billion, respectively, in the same time period.

Big Number

$95 billion. That’s the total market capitalization of tether. This makes tether the third most valuable cryptocurrency by market cap. It is worth nearly double Binance’s BNB, which sits behind it in fourth place with $48.2 billion, but is a long way off the market capitalization of ether ($304 billion) and bitcoin ($834 billion). Overall, tether makes up around 5% of the total cryptocurrency ecosystem, worth approximately $1.76 trillion.