Transparency Update – FSS Report
As many are aware, Tether and related parties have been the subject of scrutiny over the course of the past several months. We have spent our time largely disregarding these allegations, instead letting our efforts, and the continued faith of our community of users, speak for themselves. Whilst we recognise our own lack of engagement with the greater community, it is our belief that much of the speculation and negative reporting has been the result of misunderstandings of how Tether functions.
To address allegations head on, we wish to make a few things clear: All Tethers in circulation are fully backed by USD reserves. Full stop. Memoranda, consulting reports, industry leaders, cryptocurrency pioneers, and competitors have all confirmed this. Reserves have always, and will always, match the number of Tethers in circulation.
Tether and Bitfinex have both, since day one, maintained strong, open relationships with banks, financial institutions, regulators, government agencies, and law enforcement. We are not alone here; this is standard practice for any globally compliant financial platform with millions of users around the world.
Users of Tether on Bitfinex and Tether are all fully verified according to a strict compliance system developed in collaboration with regulators, law enforcement agents, and industry experts. Some writers posit an industry rife with money laundering and fraud. If this is the case—and we believe it is not—the state of affairs does not originate with Tether. All issued, redeemed, and existing Tethers, including all transactional histories, are publicly auditable by means of the tools provided at Omnichest.info and Etherscan.io. Until global assurance advisors resolve the complexities associated with the completion of digital asset audits, the (immutable and verifiable) blockchain will have to do.
Tether represents one of the most widely used digital tokens in this space and has contributed significant value to this industry. Tether was developed to bring stability and speed to an otherwise volatile space, and we continue to stand by its importance in doing so.
Earlier this year Tether engaged Freeh, Sporkin & Sullivan LLP (FSS) to review bank account documentation and to perform a randomized inspection of the numbers of Tethers in circulation and the corresponding currency reserves.
FSS is a Washington-based law firm providing legal, investigative and monitoring services to organizations around the world. Established by three former federal judges – including a former Director of the FBI – with decades of experience adjudicating at the highest levels of the U.S. government, FSS has extensive knowledge of matters pertaining to governance, compliance, and business integrity.
As part of the engagement, FSS was tasked with investigating the U.S. Dollar (USD) balances in accounts owned or controlled by Tether at its banks, including randomised selections of the appropriate confirmation dates, and reporting to Tether as to the results of such inquiries. Further to the engagement, FSS selected the date for balance confirmations without any form of prior notice to, or consultation with, Tether.
FSS requested and was granted authorization to perform unlimited examinations of the balances at Tether’s banks, had communications with authorized representatives of those institutions, and reviewed hundreds of pages of relevant documents. Among other things, FSS requested and received the following:
- Tether’s anti-money laundering (“AML”), Bank Secrecy Act, and Office of Foreign Assets Control Program;
- Tether’s AML/Anti-Terrorist Financing Risk Advisory Report from 2018;
- Extensive documentation on Tether’s account registration process and procedures and its AML system and compliance policies;
- An unredacted consulting report issued by a professional services firm retained by Tether;
- Complete account opening paperwork and materials concerning Tether’s accounts with its banks;
- Tether’s banking policy, banking access policy, and internal controls, including as they relate to the issuance of new Tethers;
- Financial information related to Tether;
- Tether’s registration as a money services business with and under the Financial Crimes Enforcement Network;
- Documentation and materials with respect to Tether’s personnel and its corporate structure; and
- Materials concerning the number of issued and outstanding Tethers, both historically and currently.
To inform its review, FSS conducted comprehensive in-person examinations and telephone interviews of key personnel at Tether and its banks. These in-person examinations took place in Washington, D.C. and elsewhere inside and outside of the United States. Interviewed personnel included Chief Compliance Officers, Chief Technology Officer, Account Relationship Managers, Chief Operating Officers, General Counsels and others.
The FSS report, based on a random date balance inspection and a full review of relevant bank account documentation, confirms that all Tethers in circulation as of June 1, 2018 are fully backed by existing USD reserves. It is important to note that unlimited, unhindered access to Tether’s bank accounts was provided to FSS for their review – the June 1st date was selected by FSS with no input from either Tether or its banking partners, and FSS did not provide notice until the final report was submitted.
In the face of some recent coverage, we have stood by the fact that all circulating USD Tethers are backed by USD reserves, and we are pleased to be able to present independent verification of this. We are by no means finished with our transparency efforts at Tether. However, it is our hope that this report helps address concerns whilst we continue to discuss these issues with potential assurance advisors.
Recent reports have opened our eyes to the fundamental lack of understanding surrounding Tether, the issuance and redemption mechanisms, and the compliance procedures that we have built. To mitigate this, we will be taking additional steps aimed at opening up Tether to the general public and clearing away any uncertainty that may exist.
We have a community of supporters who know us, who have grown with our team over the past 6 years, and who have stood by us amidst this flurry of accusations. We are eternally grateful for the support that the community continues to show us.