How a Cryptocurrency Helps Criminals Launder Money and Evade Sanctions
Through layers of intermediaries, stablecoins can be moved, swapped and mixed into pools of other funds in ways that are difficult to trace, experts say. By Aaron Krolik
"Smugglers, money launderers and people facing sanctions once relied on diamonds, gold and artwork to store illicit fortunes. The luxury goods could help hide wealth but were cumbersome to move and hard to spend.
"Now, criminals have a far more practical alternative: stablecoins, a cryptocurrency tied to the U.S. dollar that exists largely beyond traditional financial oversight.
"These digital tokens can be bought with a local currency and moved across borders almost instantly. Or they can be returned to the traditional banking system — including by converting funds into debit cards — often without detection, a New York Times review of corporate filings, online forum messages and blockchain data shows.
"A report released in February from Chainalysis, a blockchain analysis firm, estimated that up to $25 billion in illicit transactions involved stablecoins last year. And as more Russian oligarchs, Islamic State leaders and others have begun using the cryptocurrency, the rise of these dollar-linked tokens threatens to undermine one of America’s most potent foreign policy tools: cutting adversaries off from the dollar and the global banking system.
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"To test just how easily crypto can slip between the cracks of banking controls, I found a crypto A.T.M. in Weehawken, N.J., to convert cash into stablecoins.
"Soon after I fed two $20 bills into the machine, I received a notification on my phone that crypto had arrived in my digital wallet. A Telegram bot then guided me through the next step: using the stablecoins to generate a Visa payment card number with a balance that I could spend anywhere.
"A payment card functions very much like a debit card, though it is not tied to any of my bank accounts. In this case, the card I was issued did not require me to provide an address or identity check of any kind — in effect creating a degree of anonymity for my spending.
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"Tether, which has over $180 billion worth of stablecoins in circulation, is based in El Salvador and would not be covered by the new rules. The company holds more than $112 billion in U.S. Treasuries, and any law enforcement action against Tether could potentially risk destabilizing important financial markets.
"The picture is further complicated by political and financial ties surrounding Tether. The company has close connections to the family of Commerce Secretary Howard Lutnick, who is responsible for restricting exports of sensitive U.S. technology — restrictions that people can try to sidestep by making transactions with stablecoins like Tether.
"One of Mr. Lutnick’s sons, Brandon, is the chairman of Cantor Fitzgerald, which provides services to Tether, placing the family in a position where the company behind the world’s largest offshore dollar token intersects with a key federal enforcement role. Another son, Kyle, is executive vice chairman of the firm.
"Cantor Fitzgerald and the Commerce Department declined to comment."
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