On September 28th the minority staff of the Senate Permanent Subcommittee on Investigations released a report concluding that the largest dollar pegged stablecoin has become the primary payment rail for Iranian shadow banking, and Senator Blumenthal sent letters the same day to the Department of the Treasury and the Department of Justice asking what each agency has done about it. The staff looked at 846 wallets designated by the Office of Foreign Assets Control and by Israel’s counter terror financing bureau, and found that 84 percent of them transacted exclusively or nearly exclusively in that one token. Answers to the letters are due October 9th.
What matters for anyone in this business is the theory behind it. Nobody is accusing the issuer of moving the money. The criticism is that the issuer was slow and uneven about freezing wallets after governments designated them, that it did not act on wallets being advertised openly on social media, and that it kept direct relationships with exchanges that have well documented compliance problems. The report points to a set of wallets designated in June 2023 that were not frozen until March 2024, and calculates that more than 34 million dollars moved out in the meantime. It also treats the issuer’s own position that sanctions compliance is voluntary as part of the problem.
The other theme running through the report is jurisdiction. The argument is that an issuer with real United States ties, meaning American origins, custody relationships here, and reserves held in Treasury instruments, should be fully and directly subject to United States sanctions and banking law rather than pointing to a foreign domicile. The report also calls for proactive monitoring of partners and of partners’ customers, not just reactive freezing once a designation lands. That is a meaningfully higher bar than screening names against a list.