A recent examination of transactions involving Tether (USDT) by blockchain researcher Bitrace has uncovered instances of money laundering impacting stablecoin prices. Bitrace’s findings shed light on two scenarios in which stablecoins are utilized for money laundering, affecting their market prices.
Money laundering and stablecoins: Unveiling the two scenarios
Bitrace’s report highlights two distinct scenarios of money laundering involving stablecoins: the “upward” and “downward” cases.
In the “upward” case, bad actors initially sell a stablecoin, such as USDT, to money launderers at the market price. Subsequently, these same bad actors repurchase the stablecoin at an inflated price, effectively using the price difference as payment for the laundering services rendered.
According to Bitrace, illegal USDT transactions within this scenario may price the stablecoin at 8-10 Chinese yuan (RMB).
In contrast, the “downward” scenario involves the use of stablecoins for legitimate purposes on platforms lacking comprehensive Anti-Money Laundering/Know Your Customer (AML/KYC) measures.
Proxy payment platforms accept USDT deposits and employ fiat funds to facilitate various transactions, such as topping up online gambling platforms, settling member funds for investment platforms, making gifts on live broadcasting platforms, placing orders on e-commerce platforms, and even paying salaries to employees.
Due to the weaker AML/KYC verification on these platforms, “downward” stablecoin sellers face a reduced risk of “reverse freezing,” which refers to freezing accounts associated with criminal activities. In such cases, USDT may be sold at a discount ranging from 0.05 to 0.3 RMB.
Tracking money laundering
Bitrace’s report includes observations regarding the tracking of money laundering activities involving USDT. The criminal groups involved in these scenarios conduct all their transactions exclusively with stablecoins, avoiding exposure to fiat currency.
Bitrace tracked instances where USDT was frozen by Tether and the OKX platform as illustrative examples. These criminal groups used both well-known cryptocurrency trading platforms like FTX and Binance, as well as OKX, to transfer stablecoins to more centralized trading platforms, payment platforms, and even online gambling platforms.
The report also touches upon the legal aspects of cryptocurrency transactions in the United States. Article 12 of the Uniform Commercial Code, which is currently in the process of adoption by state legislatures, aims to protect users’ claims to digital assets accepted in good faith, even if these assets were previously linked to criminal activities.
Additionally, Bitrace notes that Tether has collaborated with the U.S. Federal Bureau of Investigation (FBI) to work with law enforcement agencies to address illegal activities within its platform.
