Tether follows all applicable Sanctions measures in respect of its primary market customers’ accounts (which have all been KYC verified) 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. Furthermore, Tether scrubs all crypto deposits into and withdrawals from the wallets it controls. Tether will freeze deposits into its wallets where funds are received from a sanctioned address and will not send funds to a sanctioned address.
As well, Tether works closely with law enforcement worldwide to assist in investigations, including freezing addresses. We are in almost daily contact with key law enforcement officers and pride ourselves on the timeliness with which we respond to their requests. When Tether receives an applicable/legitimate request from a verified law enforcement agent to freeze a privately held wallet, the Company complies with the freeze (we do not freeze wallets of exchanges/services). So far, OFAC has not indicated that a stablecoin issuer is expected to freeze secondary market addresses that are published on OFAC’s SDN List or that are operated by persons and entities that have been sanctioned by OFAC. Further, no US law enforcement agency or regulator has made such a request despite our near daily contact with US law enforcement whose requests always provide precise details.
We have already stated that this is the protocol we are following.
Unilaterally freezing secondary market addresses 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 and other government agencies might interfere with ongoing and sophisticated law enforcement investigations. In fact, in our dealings with law enforcement we are sometimes made aware of addresses potentially related to crime and are 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 has not been contacted by US 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 US authorities, being in contact with them almost on a daily basis. For example, we have been cooperating on various freezes with US law enforcement, including in the last 2 weeks after the OFAC public disclosure about Tornado Cash, and no specific request has been put to us related to freezing relevant Tornado Cash addresses. We would expect the same process of detailed communication and coordination even in this case. It is also worth mentioning that Tether is not a US person, does not operate in the United States or onboard US persons as customers. However, Tether does consider OFAC Sanctions as part of its world-class compliance program.
We’d like to note that other digital asset providers, for example Paxos, a NY-regulated stablecoin that issues BUSD and USDp, and accounting for ~$20B of the total cryptocurrency market capitalization, haven’t frozen Tornado Cash wallets. We believe that, if made without instructions from US authorities, the move by USDC to blacklist Tornado Cash smart contracts was premature and might have jeopardized the work of other regulators and law enforcement agencies around the world. It should also be noted that DAI, an algorithmic stablecoin that accounts 36% of its reserves in USDc (around 3.4B USD) also didn’t proceed with any freeze.
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