Iran uses stablecoin Tether to evade sanctions, fund regional proxies, drone purchases, per today's report from Senate Permanent Subcommittee on Investigations:
Crypto and stablecoin proponents will often push back on criticism that criminals make use of these assets by arguing that, on an absolute dollar basis, far more illicit funds flow through traditional banking systems and payment rails than via crypto and stablecoins.
And while that is likely true, it elides the reality presented in news story after news story: whether state actors (Russia, Iran, North Korea), or criminal groups, those looking to engage in illicit transactions increasingly favor stablecoins and, specifically, Tether (USDT).
A new report from the Senate Permanent Subcommittee on Investigations out today (9/28/2026) adds context to how Iran uses Tether has a lynchpin in its shadow banking system.
The report analyzed 846 wallets that have been sanctioned or targeted for seizure, finding that 84% of them transacted exclusively or primarily in Tether.
The ability to create near limitless, anonymous wallets and to move funds effectively instantaneously and irreversibly have made crypto a favored financial mechanism for bad actors.
Stablecoins solved key drawbacks of bitcoin, namely, the original cryptocurrency's highly volatile value in dollars. And while Tether (the company) has the technical ability to "freeze" or destroy funds, the company is often limited and reactive in its approach to doing so, the Senate report argues. Tether, which is nominally based in crypto-friendly El Salvador, "has stated that its compliance with OFAC sanctions is “voluntary” and that it follows “OFAC guidelines," the Senate report says.
Owing to these favorable attributes, Tether "became a primary cryptocurrency for Iran, Hamas, Hizballah, and the Houthis beginning in 2023 and has expanded in scale since," the report says.
Tether's role in Iran's shadow banking system, the report says, is enhanced by crypto exchanges like Bybit, Kyrrex, OKX, Gate, and Binance, and through "over the counter" exchanges and hawala networks.
The consequences of these financial flows aren't hypothetical. The Senate report links Tether as a funds transfer mechanism to Iranian proxies in the region, including Hizballah, the Houthis, and Hamas. Tether has also been used to make payments to secure components necessary to manufacture drones, the report says.
The report concludes by arguing that "[s]tablecoin issuers with a significant nexus to the United States, particularly those that offer dollar-denominated stablecoins, should be subject to American sanctions law rather than being allowed to hide behind foreign jurisdictions."
Stablecoin issuers like Tether must be held accountable for repeated failures to prevent illicit finance and sanctions violations by law enforcement, the Department of Justice, the Securities and Exchange Commission, and OFAC, the report argues.