Author: Dr. Angelika Hellweger
15 January 2024
2 min read
With a UN report highlighting criminals’ use of the stablecoin Tether, Angelika Hellweger outlines the positives and negatives of such cryptocurrencies.
Stablecoins are cryptocurrencies that are either pegged to a real world currency, like the US dollar or Euro, or to the price of a commodity, such as gold. They have gained popularity in recent years as they provide an alternative to the high volatility of the most popular cryptocurrencies, including Bitcoin, and are more likely to hold their value. In addition, stablecoins are particularly useful for quick cross-border transactions made at minimum cost.
But while many users appreciate these qualities, a considerable number of people also use stablecoins for their illegitimate dealings. A United Nations report has warned that Tether, one of the world’s most traded stablecoins pegged against the US dollar, has become an increasingly popular tool for criminals. It is being heavily used by organised crime groups, money launderers and fraud operations across East and Southeast Asia.
This popularity has, according to the UN, been demonstrated by the rapidly-increasing amount of cyber fraud, money laundering and schemes such as sextortion; which involves blackmail relating to the posting of sexual content. Tether is also being used in pig butchering, the practice commonplace on dating apps where fraudsters develop relationships with the victims, convince them to invest in cryptocurrency controlled by scammers and take victims’ money after promising huge financial returns.
The UN said financial authorities and law enforcement agencies have seen a swift rise in Tether’s use by sophisticated, high-speed money laundering teams. Criminals are even advertising their services on social media platforms such as TikTok, Telegram and Facebook, with crypto-based money launderers making increasing use of online gambling platforms.
Although Tether itself has the capability to freeze funds – and has reportedly frozen a total of US $835 million since its launch in 2014 - the impact of this has been limited in relation to the movement of billions it has been involved in.
In addition to the UN report, Chainalysis released its annual crime report. This confirmed the sobering facts and figures and also mentioned sanctions evasion as another area of concern. It determined that, in 2023, stablecoins were used in 70% of crypto scam transactions, 83% of crypto payments to sanctioned countries like Iran and Russia, and 84% of crypto payments to specifically-sanctioned individuals and companies.
The largest single category of stablecoin-enabled crime was sanctions evasion. In fact, across all cryptocurrencies, sanctions evasion accounted for more than half of the $24.2 billion in criminal transactions Chainalysis observed in 2023 - with stablecoins representing the vast majority of those transactions.
It is expected that stablecoins will be high on the agenda of regulatory authorities. The US Treasury has announced its intention to seek authorisation for expanded oversight of US dollar stablecoin issuers located outside of the US.
Furthermore, new legal requirements for stablecoins are looming. The implementation of these legal requirements will be intensely scrutinised by the regulators. In mid-2024, new requirements for stablecoin issuers in the European Union will come into effect via the EU’s Markets in Crypto-asset (MiCA) regulation. Other jurisdictions such as the UK, Hong Kong and Singapore, will also continue to progress legislative and regulatory efforts around stablecoins across the year.
Angelika is a specialist in international, high-level economic crime investigations and large-scale commercial disputes. She has widely-recognised expertise in representing corporates and conglomerates in Europe, the Middle East, Africa and United States.