Tether to freeze wallets of sanctioned addresses on secondary market

by Dec 10, 2023CryptoNews0 comments

Tether, the company behind the largest stablecoin in the crypto market, has announced that it will cooperate with law enforcement and regulators in the U.S. by implementing a voluntary policy of freezing wallets on the secondary market that are sanctioned by the Office of Foreign Assets Control (OFAC). According to the company’s statement, Tether follows all applicable sanctions measures in respect of its primary market customers’ accounts, which have all been verified by know-your-customer (KYC) procedures, and will freeze the funds in a fiat or cryptocurrency customer account where a Tether customer is a positive match for a name in a sanctioned persons list. Moreover, Tether checks all crypto deposits into and withdrawals from the wallets it controls and will freeze deposits into its wallets where funds are received from a sanctioned address and will not send funds to a sanctioned address. In addition, Tether works closely with law enforcement worldwide to assist in investigations, including freezing addresses. Tether said that it has not been contacted by U.S. officials or law enforcement with a request to freeze the addresses sanctioned by OFAC, but as noted above, Tether normally complies with such requests from U.S. authorities, being in contact with them almost on a daily basis. For example, Tether has been cooperating on various freezes with U.S. law enforcement, including in the last two weeks after the OFAC public disclosure about Tornado Cash, a cryptocurrency mixer that masks transactions between wallets, and no specific request has been put to Tether related to freezing relevant Tornado Cash addresses. Tether said that freezing secondary market addresses without the verified instruction of law enforcement and other government agencies could be a highly disruptive and reckless move by Tether. Even if Tether recognizes suspicious activities on such an address, completing a freeze without the verified instruction of law enforcement might interfere with ongoing and sophisticated law enforcement investigations. In fact, in Tether’s dealings with law enforcement, it is sometimes made aware of addresses potentially related to crime and is specifically instructed not to freeze the addresses without the explicit request from law enforcement as this could alert suspects of the law enforcement investigation, cause liquidations or abandonment of funds and jeopardize further connections that might have been established. Tether’s wallet-freezing policy comes after the Treasury Department sanctioned Tornado Cash on Aug. 8, citing the software’s role in laundering more than $7 billion worth of virtual currency since 2019, including $455 million stolen by notorious North Korean hacker organization the Lazarus Group. In its decision, the department’s OFAC added Tornado Cash to its specially designated nationals list, along with 38 Ethereum addresses associated with allegedly illicit activities that employed the service. Some of those wallets held two different stablecoins: USDC, associated with the company Circle Internet Financial, and Tether. According to Yaya Fanusie, an adjunct senior fellow focused on blockchain technology at the Center for a New American Security, the presence of the stablecoins created a clear compliance responsibility for Tether and Circle. “They have to take some action,” he told Fortune. “[They’re] central issuers, so [they] need to control it.” In an Aug. 9 blog post, Circle CEO Jeremy Allaire wrote that the company had complied with the sanctions, with both Circle and the consortium that issues USDC, Centre, blocking the related addresses. Tether’s wallet-freezing policy is a proactive step in its security measures and shows its willingness to cooperate with law enforcement and regulators in the U.S. However, it also raises questions about the implications of such actions for the users and the industry, as well as the challenges of complying with different legal and regulatory frameworks in different countries and regions.

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