The Democratic minority of the U.S. Senate Permanent Subcommittee on Investigations, or PSI, published a report titled Tethered to Terrorism: Crypto & Iran’s Shadow Banking Network. Its authors said the USDT stablecoin had become a key tool in Iran’s shadow banking system.

PSI staff analyzed transactions involving 846 wallets that the U.S. Office of Foreign Assets Control, or OFAC, and Israel’s National Bureau for Counter Terror Financing had linked to Iran, Hamas, Hezbollah and the Houthis. The review covered June 2021 through August 2026.

According to the report, 84% of the addresses transacted exclusively or almost exclusively in USDT. The authors emphasized that the sample consisted of addresses previously identified by government agencies as linked to Iran and its regional networks, rather than all stablecoin activity.

“USDT has become a significant financial backbone for Iran’s shadow banking network,” the report says.

Hundreds of millions of dollars in USDT

Investigators separately examined two wallets they linked to the Central Bank of Iran. The wallets received nearly $50 million exclusively in USDT in April and May 2025. Soon afterward, the funds were transferred to Iranian exchanges Nobitex and Ramzinex or routed through a mixer, according to the report.

Three other addresses that the report linked to Modex Exchange Company received nearly $600 million in USDT over several months. Two additional wallets tied to Iran’s central bank held $344.2 million in USDT when OFAC imposed sanctions in April 2026.

PSI also said two sanctioned Iranian intermediaries, Alireza Derakhshan and Arash Estaki Alivandi, moved $603 million in USDT through their network from 2021 to 2025. Investigators linked that infrastructure to Iranian oil sales, the country’s financial institutions, Hezbollah and the Houthis.

Another part of the investigation examined the possible use of cryptocurrencies to procure drone components. PSI identified a $64,000 USDT transfer to a Chinese electronics supplier from an address funded by an Iran-linked wallet. The authors said the transaction alone did not prove the identity of the end recipient or establish which goods were purchased.

U.S. authorities had previously tightened oversight of Iran’s cryptocurrency channels. OFAC imposed sanctions on Shelbit and Aban Tether in August, while the Iranian exchange BitBank faced restrictions in September. Tether froze 131 million USDT in July on addresses linked to Iran.

Questions about ties to the Trump administration

The report also examined Tether’s ties to representatives of President Donald Trump’s administration. In a letter to Treasury Secretary Scott Bessent, Blumenthal cited Cantor Fitzgerald, a major Tether counterparty that owns 5% of the company, according to the document.

Commerce Secretary Howard Lutnick previously led Cantor Fitzgerald. Management passed to his sons after his departure. Bo Hines, a former executive director of the White House Council on Digital Assets, became chief executive of Tether’s U.S. division in 2025, weeks after leaving the administration.

Blumenthal questioned whether those relationships could have resulted in more lenient treatment of Tether by federal agencies. The report provides no evidence of such interference, and the senator asked the Treasury Department to review the matter.

Senators Elizabeth Warren and Ron Wyden had also raised concerns about ties between Tether and Lutnick following reports of a loan to a trust linked to his children.

In his letter, Blumenthal requested information about any Treasury Department investigations involving Tether and the agency’s contacts with the company, Cantor Fitzgerald, Lutnick and Hines. He requested a response by Oct. 9, 2026.

“I am asking the Treasury Department to conduct a thorough investigation into Tether’s AML practices and sanctions compliance,” Blumenthal said.

Tether rejects report’s characterization

Tether rejected the claim that USDT provides a safe tool for sanctioned entities. The company told Reuters that it works with U.S. authorities and helped freeze nearly $550 million in USDT linked to Iran in 2026.

“USDT is not a safe haven for sanctioned individuals, terrorist organizations, or criminal networks,” Tether CEO Paolo Ardoino said.

PSI said Tether’s measures were not systematic enough. The report alleged that some wallets continued moving funds after sanctions were imposed and that some addresses publicly linked to illicit activity were not blocked. In one such case, investigators said another $34.6 million flowed through wallets after the restrictions took effect.

Source: Incrypted