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Tether middleman companies attempted to circumvent banking system rules

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The businesses who control the most popular cryptocurrency were having trouble keeping their access to the global financial system as of late 2018. Documents reveal that some of their backers used shady middlemen, forged paperwork, and shell corporations to re-enter the fray.

One of these middlemen, a significant Chinese trader of tether, was attempting to “circumvent the banking system by providing fake sales invoices and contracts for each deposit and withdrawal,” according to an email from Stephen Moore, one of the owners of Tether Holdings Ltd., that was obtained by The Wall Street Journal.

The emails reveal that Mr. Moore advised them to give up trying to open the accounts because utilizing the fictitious sales invoices and contracts that he had signed was too hazardous. He wrote,

In a possible fraud/money laundering prosecution, I would not want to argue any of the foregoing.

Tether operates Bitfinex, one of the biggest cryptocurrency exchanges in the world, and its sister business, Tether, controls tether, the $71 billion stablecoin that is the most popular cryptocurrency. In a complaint, the companies said that losing access to the financial system posed “an existential threat” to their operation.

WSJ’s assessment of a stockpile of emails and documents reveals a persistent effort to maintain contact with the financial sector. The businesses frequently concealed their true identity behind other corporations or people.

Occasionally, using third parties resulted in issues, such as the seizure of assets worth hundreds of millions of dollars and connections to a recognized terrorist organization.

According to a person familiar with the situation, the US Law Department has been looking into Tether. The United States attorney’s office in Manhattan has been in charge of the investigation.

Sam Bankman-Fried, the former CEO of the insolvent cryptocurrency exchange FTX, was charged last week by that agency with conspiring to commit bank fraud for opening a U.S. bank account in the name of a seemingly unrelated company, in addition to 11 other offenses. In response to earlier accusations, Mr. Bankman-Fried entered a not guilty plea and said he had not engaged in fraud.

Office of the U.S. Attorney declined to comment. The Justice Department didn’t seem to be aggressively looking into Tether, according to Tether, which claimed that company regularly had open communication with law enforcement agencies last year.

It is unknown if the investigators are focusing on Tether’s attempts to open bank accounts in the year 2018. Bloomberg News has previously reported on the Tether investigation.

Existential danger to their business

For Tether, access to the financial system is crucial. Tether’s value is tied to the dollar, unlike many other volatile cryptocurrencies. Tether serves as many investors’ equivalent of a money-market account at a brokerage. Because of this function, Tether is a significant point of entry and exit for cryptocurrency investing as well as a vital supply of liquidity in the crypto industry.

According to CoinMarketCap, the cryptocurrency trades more frequently than both bitcoin and ether put together.
When Wells Fargo & Co. stopped processing transactions from multiple Taiwanese accounts that Tether was utilizing in March 2017, Tether’s efforts to maintain bank access became essential.

The action resulted in “an existential danger to their business,” according to a complaint Tether and its sister firms filed against the bank. The lawsuit was quickly dropped.

A few weeks later, Phil Potter, the now-retired chief strategy officer of Tether, attempted to assuage concerned consumers on a conference call by claiming that Tether and Bitfinex had always discovered a workaround. On the phone recording, Mr. Potter remarked,

There have been a lot of type of cat-and-mouse tricks that everyone in the sector has to avail themselves of.

According to the documents, the companies opened new accounts by employing seasoned businessmen and changing their company identities. Chrise Lee, an executive of television set-top box manufacturer Hylab Technologies Ltd., held the accounts in trust in Taiwan. Yet, documents reveal that Hylab Holdings Ltd. was used to open the accounts. A request for comment from Mr. Lee was not answered.

According to one of the documents, a further account on a list of multiple ones formed in Turkey under the name of a business called Deniz Royal Dis Ticaret Ltd Sirketi. According to an affidavit submitted by the Justice Department, that account was reportedly used to launder funds raised by the armed Izz ad-Din al-Qassam Brigades of Hamas. The United States government has branded the al-Qassam Brigades as a terrorist group.

The account was utilized as evidence in 2020 when the Justice Department stopped an al-Qassam Brigades operation that accepted bitcoin donations and converted them into fiat money. According to court filings and sources familiar with the situation, the scheme allegedly used a black-market money-transmitting company that used an account at Bitfinex and conducted more than $80 million in transactions with the Deniz Royal account.

According to blockchain analytics company Chainalysis, U.S. investigators seized more over $1 million that was reportedly connected to the al-Qassam Brigades, with the majority originating from the money-transmitting company that did business with Deniz Royal. Right now, the case is being handled in secret.

In addition, according to court documents, Bitfinex transferred more than $1 billion into Crypto Capital Corp., a Panama-based payment processor, despite the absence of a written contract between the parties. Currently inactive, Crypto Capital.

In order to establish networks of bank accounts that served as an unauthorized money transmission business for cryptocurrency companies, Crypto Capital often used shell corporations. According to federal court records, banks in the U.S. were informed that the accounts would be largely utilized for real estate transactions.

The plan for Crypto Capital was failing by October 2018. As a result of criminal investigations into bank fraud and potential money laundering, authorities in the U.S. and Europe seized almost $850 million of the companies’ funds. Tether lost its peg to the US dollar, customers had problems withdrawing money, and Bitfinex borrowed money from Tether to close a hole in its balance sheet.


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