A recent report by blockchain researcher Bitrace has brought attention to the possible involvement of stablecoins in money laundering activities. This report, published on December 26 and translated by Wu Blockchain, examines two distinct scenarios in which stablecoins, specifically Tether (USDT), were utilized for illicit purposes.
The “Upward” Case
In the first scenario, known as the “upward” case, illicit actors sell stablecoins to money launderers at market prices. These launderers then repurchase another stablecoin at an inflated price, with the price difference serving as payment for the laundering services. According to the report, illegal USDT transactions may be priced at 8-10 Chinese yuan (RMB), resulting in a profit for the money launderers.
The “Downward” Case
The second scenario, referred to as the “downward” case, involves the use of stablecoins for legitimate purposes on platforms lacking comprehensive Anti-Money Laundering/Know Your Customer (AML/KYC) measures. Proxy payment platforms that accept USDT deposits and use fiat funds for various activities such as online gambling, fund settlements, live broadcasting gifts, e-commerce orders, and employee salaries are utilized. Weak AML/KYC verification on these platforms reduces the risk of “reverse freezing,” where accounts receiving crypto tied to criminal cases are frozen. Consequently, USDT may be sold at a discount of 0.05 to 0.3 RMB in such cases.
Bitrace’s report also highlights the tracking of frozen USDT by Tether and the OKX platform. The criminal group identified in the report utilized popular cryptocurrency trading platforms like FTX and Binance, as well as OKX, to transfer stablecoins to more centralized trading platforms, payment platforms, and even online gambling platforms. Notably, the report emphasizes that throughout both the upward and downward scenarios, the criminal group exclusively conducted transactions with stablecoins and remained detached from fiat currencies.
“This strategic decision aligns with our unwavering commitment to maintaining the highest standards of safety for our global ecosystem and expanding our close working relationship with global law enforcement and regulators,” said Paolo Ardoino, CEO of Tether.
While Tether has previously frozen funds associated with illicit activities, the company had been hesitant to freeze wallets interacting with the sanctioned protocol, Tornado Cash. Tether claimed that it had not received any requests from U.S. law enforcement to do so.
