The individuals behind the Tether and Bitfinex engaged in bank fraud and enabled terrorist financing, according to a bombshell new report.
On Friday, the Wall Street Journal issued an exclusive report that found individuals behind the Tether stablecoin and the Bitfinex digital asset exchange “used falsified documents and shell companies” to ensure access to banking services as far back as 2017. The WSJ based its reporting on “a cache of emails and documents,” the origin of which wasn’t specified.
The WSJ report begins in March 2017, when Wells Fargo cut off several Taiwanese accounts through which Tether was funnelling transactions. Tether’s then-chief strategy officer Phil Potter sought to calm users on a conference call, assuring them that Tether and Bitfinex would employ the “lots of sort of cat-and-mouse tricks that everyone in the industry has to avail themselves of” to get around “banking hiccups.”
Those feline-and-rodent tricks included having established business executives open new accounts under slightly modified company names. One such company was a Turkey-based firm called Deniz Royal Dis Ticaret Limited Sirketi. The account opened under its name was later flagged by the U.S. Department of Justice as having laundered money for an armed wing of Hamas, the Izz ad-Din al-Qassam Brigades, which the U.S. government has designated a terrorist organization.
In 2020, the DoJ revealed that around $80 million had been transferred between the Deniz Royal bank account and a Bitfinex account. The DoJ believes the Bitfinex account was used to accept crypto donations from al-Qassam supporters before being converted to cash and transferred to the Deniz Royal account.
The WSJ also recounted the infamous tale of Bitfinex’s deal with Panama-based payment processor Crypto Capital Corp (CCC). Bitfinex funneled over $1 billion through CCC despite the parties having never signed a formal agreement.
CCC became crypto’s primary shadow banker, using shell companies to open dozens of bank accounts to process transactions for a number of exchanges, including BitMEX, Kraken, the late QuadrigaCX and Bitfinex. But the scheme blew up in October 2018 when U.S. and European authorities got wise and froze around $850 million in CCC cash, nearly all of which reportedly belonged to Bitfinex.
This led to the infamous nine-figure ‘loan’ that Tether made to Bitfinex—both owned by the same parent, iFinex—while Bitfinex furiously opened at least nine new Asian bank accounts using more shell companies. Its fiat rails restored, Bitfinex cautioned customers not to divulge information regarding the new banking details, lest this “damage not just yourself and Bitfinex, but the entire digital ecosystem.”
Signature must be getting tired of the crypto publicity
Among the more intriguing details in the WSJ report is the role of New York-based Signature Bank, which, until this week’s dramatic implosion of California-based Silvergate Bank, was one of only two U.S. banks that handled a significant volume of transactions for crypto exchanges.
In 2018, Signature closed two accounts linked to Bitfinex/Tether and rejected a fresh Bitfinex application. Then came an application from AML Global, which claimed to be an ‘aviation fuel broker.’ The account would be under the control of Christopher Harborne, a U.K.-born tech investor with major ties to the Conservative party and who played a prominent role in financing the U.K.’s pro-Brexit movement.
Harborne told Signature he planned to use the account to hedge currency exposure by trading crypto, primarily on Kraken. Harborne neglected to disclose that he held a 12% stake in Tether/Bitfinex’s parent company under his alternate name Chakrit Sakunkrit—which Signature had flagged for suspicion of evading anti-money laundering controls. (Note that Harborne’s aviation fuel company was literally named ‘AML’, because crypto bros are just that clever.)
Signature quickly cottoned on that the AML account was receiving ‘huge inflows’ from Bitfinex, not Kraken. As one Signature exec observed: “Bitfinex was not mentioned anywhere in the paperwork that was provided. If they are buying/selling with Kraken, why is the money only coming in from Bitfinex?” The AML account was soon closed.
We wouldn’t want to argue that either
The WSJ report indicates that Tether insiders were all too aware of the legal lines they were crossing. Stephen Moore, an owner of Tether Holdings Ltd, was quoted in a late-2018 email discussing a major Tether trader in China who was trying to “circumvent the banking system by providing fake sales invoices and contracts for each deposit and withdrawal.”
Moore, who had signed these fake invoices/contracts, went on to say that Tether should back away quickly. “I would not want to argue any of the above in a potential fraud/money laundering case.” But with the knowledge that losing access to banking was “an existential threat” to Tether/Bitfinex’s survival, whatcha gonna do?
In July 2021, Bloomberg reported that the DoJ had sent ‘target letters’ to several Tether execs notifying them that the DoJ was investigating “whether Tether executives concealed from banks that transactions were linked to crypto.” The WSJ’s revelations were likely already known to the DoJ, which is presumably also probing far more recent shenanigans, now that Tether’s market cap exceeds $70 billion.
Even ostriches put up more of a fight
Tether issued a typically testy but extremely threadbare rebuttal on Friday, calling the WSJ’s report “wholly inaccurate and misleading,” while failing to identify which details were inaccurate/misleading. The post also slammed the WSJ for digging up “stale allegations from long ago,” after which the author probably began furiously researching what the statute of limitations is for terrorist financing.
Tether CTO and Olympic-caliber flop-sweater Paolo Ardoino tweeted that the WSJ report featured a “ton of misinformation and inaccuracies,” again, without any specifics on what the WSJ might have got wrong.
I’m at the PlanB anniversary in #lugano
So much energy and people excited to talk about #Bitcoin
While I was on on stage I heard some clown honks, pretty sure was WSJ.
As always ton of misinformation and inaccuracies. Poor guys, must be difficult be them but need better media.— Paolo Ardoino 🍐 (@paoloardoino) March 3, 2023
No doubt Ardoino’s pores are positively geyser-like as he contemplates the likelihood that former FTX boss Sam Bankman-Fried (SBF)—also formerly Tether’s largest customer—will rat Tether out to save his own skin from his ever-growing list of criminal charges, which now includes—surprise!—bank fraud. As more and more of SBF’s former associates plead guilty and agree to cooperate with prosecutors, SBF only has so many cards left to play—and Tether is his ace in the hole.
Follow CoinGeek’s Crypto Crime Cartel series, which delves into the stream of groups—from BitMEX to Binance, Bitcoin.com, Blockstream, ShapeShift, Coinbase, Ripple,
Ethereum, FTX and Tether—who have co-opted the digital asset revolution and turned the industry into a minefield for naïve (and even experienced) players in the market.
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