A new US Senate investigation has raised fresh questions about the use of Tether’s USDT stablecoin in Iran-linked financial networks, alleging that the token has become a major channel for moving funds outside traditional banking systems and around sanctions.
The 28-page report, titled “Tethered to Terrorism: Crypto and Iran’s Shadow Banking Network,” was released on Sept. 28 by Democratic staff of the Senate Permanent Subcommittee on Investigations, led by Ranking Member Richard Blumenthal. Investigators analyzed blockchain activity involving 846 wallets sanctioned or targeted for seizure because of their links to Iran and regional proxies.
KEY TAKEAWAYS
- The Senate investigation found that 84% of the 846 wallets analyzed transacted exclusively or almost exclusively in USDT.
- Among 757 wallets identified by Israel’s National Bureau for Counter Terror Financing, 87% predominantly used USDT.
- The report alleges that more than $603 million in USDT moved through networks associated with two sanctioned Iranian facilitators between 2021 and 2025.
- Investigators raised concerns about Tether’s handling of wallets linked to sanctions evasion and terrorist financing.
- Tether says it supported the freezing of about $550 million in Iran-linked USDT during 2026.
USDT DOMINATES IRAN-LINKED CRYPTO ACTIVITY
The Senate report points to USDT’s liquidity and widespread availability as key reasons for its use by Iran-linked networks. Unlike traditional banking transfers, stablecoin transactions can move across borders without relying on correspondent banking relationships. Of the 846 wallets examined, 84% conducted all or nearly all of their transactions in USDT. The figure was higher among wallets designated by Israel, with 87% of 757 addresses showing predominant USDT activity. Among 101 wallets designated by the US Treasury’s Office of Foreign Assets Control, the proportion was 57%.
The report says the network was used for transactions involving Iranian financial institutions and groups including Hezbollah and the Houthis. Investigators also identified activity they said was connected to the procurement of drones and other military equipment. One case cited in the report involved more than $603 million in USDT received by sanctioned Iranian nationals Alireza Derakhshan and Arash Estaki Alivand between 2021 and 2025. The investigators said the funds moved through a wider network connected to Iranian entities and regional proxies.
SENATE QUESTIONS TETHER’S COMPLIANCE PRACTICES
The investigation does not establish that Tether itself violated US sanctions or money laundering laws. Instead, Blumenthal asked the Treasury Department and Justice Department to examine whether Tether’s compliance practices were sufficient and whether the company may have breached applicable laws.
The report particularly criticized what investigators described as delays in freezing wallets associated with illicit activity. In one case, more than $34.6 million allegedly moved from wallets linked to Hezbollah before Tether froze the addresses. Blumenthal said the findings show how USDT can be used by Iranian networks to bypass conventional financial restrictions.
“My new PSI report exposes how Tether and its flagship token have become central to Iran’s shadow banking system,” Blumenthal said, arguing that the network allows Iran to finance regional proxies and procure military equipment. The investigation was also referred to Treasury Secretary Scott Bessent and Attorney General Todd Blanche for further examination. The Senate subcommittee’s document archive lists the report alongside letters sent to both officials on Sept. 28.
TETHER POINTS TO $550 MILLION IN FREEZES
Tether responded on the same day by highlighting its cooperation with US and international authorities. The company said actions involving USDT had resulted in approximately $550 million being frozen during 2026 across wallets identified by US authorities as connected to Iran’s Central Bank and Iranian sanctions networks. That included more than $344 million frozen in April across two addresses and more than $130 million across four wallets in July.
Tether CEO Paolo Ardoino defended the company’s ability to assist authorities, saying:
“Tether has consistently demonstrated that USD₮ is not a haven for sanctioned actors, terrorist organizations or criminal networks.”
Ardoino also argued that public blockchains provide authorities with visibility into financial movements that are not available with cash, allowing Tether to act when credible information is supplied by law enforcement. The company said its cooperation extends beyond Iran, noting that it works with hundreds of law enforcement agencies and has supported investigations involving sanctions evasion, fraud and terrorist financing.
WHAT THE REPORT COULD MEAN FOR STABLECOINS
The investigation adds another layer to the growing debate over how stablecoin issuers should monitor activity involving their tokens.
USDT’s dominance in the wallets examined by the Senate staff does not by itself establish that Tether knowingly facilitated illicit transactions. However, the findings could increase scrutiny of how issuers respond to suspicious activity, sanctions designations and requests from government agencies.
The report also highlights a broader feature of blockchain-based finance: the same public transaction records that can expose illicit networks can also allow investigators to trace and freeze assets after authorities identify the relevant wallets.
CONCLUSION
The Senate investigation has placed Tether’s USDT under renewed scrutiny over its use in Iran-linked financial networks. Investigators found that the stablecoin was the dominant asset among hundreds of sanctioned or seizure-targeted wallets and raised questions about the speed and consistency of Tether’s previous freezing actions.
Tether disputes the implication that USDT provides a safe haven for sanctioned actors and points to roughly $550 million in Iran-linked assets frozen during 2026. The next stage will depend on whether the Treasury and Justice Department pursue the investigation requested by Blumenthal and what those agencies determine about Tether’s sanctions and anti-money laundering controls.
