Tether’s USDT Implicated in $2B Illegal Foreign Exchange Scheme in China – Regulation Coming?

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Jimmy Aki

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Jimmy Aki

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Jimmy has nearly 10 years of experience as a journalist and writer in the blockchain industry. He has worked with well-known publications such as Bitcoin Magazine, CCN, and Blockonomi, covering news...

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May 14, 2024

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Chinese police in Sichuan province apprehended some suspects of an underground banking scheme on May 15 for allegedly facilitating illicit foreign exchange transactions involving about $2 billion worth of Tether’s USDT.

According to a report from Baijiahao.baidu, the Sichuan police arrested the suspects for allegedly using USDT to evade national foreign exchange supervision while providing illegal settlement channels.

Tether’s USDT Used to Evade National Foreign Exchange Supervision

The operation resulted in the shutdown of a major underground banking scheme involved in smuggling operations worth 13.8 billion Chinese yuan, equivalent to about $1.9 billion. USDT was revealed to have been the conduit for the illicit transactions.

The scheme spanned 26 provinces across China, including municipalities and autonomous regions. The police arrested over 90 suspects associated with the scheme.

The police in Sichuan, China, which was once the center of Bitcoin mining, uncovered an underground bank case involving more than 1.9 billion US dollars, using USDT to smuggle medicines and cosmetics and help customers purchase assets overseas. 193 suspects were arrested.…

— Wu Blockchain (@WuBlockchain) May 15, 2024

Stablecoins like USDT are often exploited to bypass foreign exchange supervision due to their price stability and anonymity of cryptocurrency, making them suitable for storing and transferring funds without the risk of price fluctuations.

This latest arrest of suspects using illicit foreign exchange transactions follows a similar event in the arrest of Cartier’s heir, Maximilien de Hoop Cartier, by the US Department of Justice (DoJ).

The DoJ’s indictment revealed that Hoop Cartier allegedly collaborated with a Colombian drug cartel to import 100 kilos of cocaine and laundered hundreds of millions of dollars, primarily through over-the-counter (OTC) USDT stablecoin trades.

Is The Regulation of Tether’s USDT Imminent?

This is not the first time malicious entities have been linked to using USDT to launder money.

A United Nations Office on Drugs and Crime report highlighted the USDT as a key tool used by money launderers and fraudsters.

Ripple CEO Brad Garlinghouse further fueled speculation by suggesting that the US government is targeting Tether in an interview on the World Class podcast.

Garlinghouse admitted uncertainty about the company’s potential regulatory fallout, however, despite its big influence in the cryptocurrency market.

These comments elicited a strong response from Tether CEO Paolo Ardoino, who fired back at Garlinghouse, labeling him an “uninformed CEO” and highlighting Tether’s proactive collaboration with global law enforcement agencies to combat illicit activities.

An uniformed CEO, leading a company being investigated by the SEC, launching a competitive stablecoin (cui prodest), is being reported spreading fear about USDt.

Let me give you an update on Tether USDt ecosystem safety.

USDt is the most used stablecoin in the world, with…

— Paolo Ardoino 🤖🍐 (@paoloardoino) May 13, 2024

Ardoino said that Tether has partnered with 24 agencies in over 40 countries, successfully blocking wallets in response to 198 requests in the last year and 339 requests in the last three years.

Despite these developments, the US government’s anticipated regulatory scrutiny of Tether may be unfounded.

Earlier this week, on May 14, Tether froze $5.2 million worth of USDT due to its association with phishing scams. Additionally, Tether has partnered with Chainalysis to develop monitoring and analysis tools to identify wallets associated with illicit or sanctioned addresses.