In July, Howard Lutnick, the pugnacious boss of broker Cantor Fitzgerald, regaled an audience of crypto devotees in Nashville with tales of his early days exploring the world of digital currencies.
“I met every criminal who’s now in prison,” the 63-year-old joked, referring to his encounters with various youthful crypto executives now serving lengthy jail sentences for fraud. “And then,” he said, “I met the people who owned Tether.”
In contrast to other industry players, Lutnick said, Tether’s co-founder Giancarlo Devasini, an Italian-born former plastic surgeon, was able to prove he was running a legitimate business.
Since then the business has boomed. Profits at Tether, which now administers the most traded cryptocurrency in the world, surged to $5.2bn in the first half of this year.
Despite only having around 100 employees, those earnings put Tether on a similar scale to some of the world’s largest banks — a billion more than Barclays and a billion less than Morgan Stanley — largely derived from interest on its reserves accumulated by taking in dollars in exchange for tokens.
But at the same time, according to enforcement officials, prosecutors and information from multiple current and recent indictments, Tether has cemented its place as the go-to cryptocurrency for international criminals.
The eye-popping constellation of gangsters and sanctions evaders using Tether includes cocaine cartels, North Korean hackers, Iranian and Russian spies, and fentanyl smugglers.
Lutnick, meanwhile, who over three decades built Cantor Fitzgerald into one of the biggest dealers of US government debt, is about to join the US government as one of Donald Trump’s top lieutenants.
On the way back from Nashville, Lutnick was given the role of co-chair of the Trump transition team, giving him influence over critical positions, including some that oversee crypto regulation, such as the head of the Securities and Exchange Commission and Commodity Futures Trading Commission. Trump has since nominated crypto advocate Paul Atkins to run the SEC.
Under Lutnick’s leadership, Cantor Fitzgerald has taken a stake in Tether of an undisclosed size, while also taking on the responsibility of managing a significant portion of Tether’s reserves, now primarily held in US Treasury bills. In part bolstered by Lutnick’s support, the amount of tether in issuance has grown from $83bn in the middle of last year to more than $138bn this month.
Lutnick recently launched an initiative with Tether to lend clients dollars secured against Bitcoin. In October, he told the FT that he expected to increase its size in increments of $2bn. “I expect it to be very large over time — tens and tens and tens of billions,” he said.
He also recently boasted about handling $10bn in tether redemptions in 2022, describing it “as no big deal for us” because Cantor dealt with trillions of dollars of Treasuries.
Yet Tether also continues to feature regularly in international criminal cases. Its main advantage is that its token tether is a so-called stablecoin, pegged to the US dollar, meaning customers do not have to worry about the value of the crypto changing in the middle of a transaction.
Earlier this month, a UK-led criminal investigation revealed a multibillion-dollar money laundering ring based out of Moscow, London and Dubai that had allowed villains ranging from European cocaine kingpins, Russian spies and sanctioned oligarchs to move assets around the world using tether.
“It used to be that bitcoin was the crypto du jour; it’s now stablecoins and US dollar-tether,” said Sal Melki, head of illicit finance threats at the UK’s National Crime Agency.
Recent law enforcement operations in the US, EU and UK have also shown tether being also used by the US-sanctioned Irish crime family the Kinahan cartel — which has been linked to multiple contract killings — as well as by Iran’s Revolutionary Guards, Hamas and Hizbollah.
Tether has strongly defended itself against accusations that it facilitates global criminal activity, pointing out that its use by criminals is so-called secondary market activity where bad actors trade its tokens between themselves. It also says that it collaborates with 195 law enforcement agencies across 48 countries to root out abuses.
When news of the multibillion-dollar Russian money laundering scheme broke, it said that it “unequivocally condemns the illegal use of stablecoins and is fully committed to combating illicit activity”.
“With tether, every action is online, every transaction is traceable, every asset can be seized, and every criminal can be caught,” Tether said in a statement. “The fact that this operation was shut down is testament to the traceability and apprehension of criminals and their illicit use of [tether]”.
For Tether’s critics, however, the stablecoin supported by Lutnick is simply a tool for criminal actors and geopolitical enemies of the US and its allies to circumvent money laundering controls.
“There’s no reason to have stablecoins but for engaging in illegal activity,” said one former US federal prosecutor. Criminals are “a large segment of the market [Tether] is trying to hit, the same way there are all those sketchy banks who claim to do KYC”.
Tether was the stablecoin most used for illicit activity globally last year, according to a report by TRM Labs, blockchain intelligence company and commercial partner of Tether, with an estimated $19.3bn worth of its trades — or 1.63 per cent of total transactions — used for illicit means.
“It is the most used crypto token in the world, supported by every exchange, and it is pegged to the US dollar, so there is no price volatility,” said Snir Levi, founder and chief executive of Nominis, a crypto wallet intelligence platform. “The volumes traded are huge, so it is easy to move large amounts of money without standing out.”
Earlier this year, the UN’s office on drugs and crime said that Tether has become an integral part of the exploding global industry of scams known as “pig butchering”, or confidence tricksters that often cultivate fake online romantic relationships to lure victims into transferring away their savings.
In April Wally Adeyemo, US deputy Treasury Secretary in the Biden administration, warned that cryptocurrencies were allowing North Korean hackers “to acquire, launder, and store illicit revenue”.
Russia, he added, was “increasingly turning to alternative payment mechanisms — including the stablecoin tether — to try to circumvent our sanctions and continue to finance its war machine”.
Emails leaked by Iranian opposition groups provided evidence of how US-sanctioned companies have embraced tether as a way to continue doing business. In March 2023, for example, an employee at Safiran Airport Services, a Tehran-based airline transportation company, received a sensitive request from Moscow.
Alexander Lukashenko, the dictator of Belarus, was preparing a state visit to Iran. A woman named Elena wanted to know if Safiran could arrange diplomatic clearance for the presidential plane, book five-star hotel rooms for his entourage, and handle other logistics.
The Safiran employee said they could help. The only problem would be how the Belarusians would pay. The Iranian company was cut off from the international banking system, having been sanctioned by Washington in 2022 for transporting Iranian-made drones to Russia for its war in Ukraine.
The Iranian company, however, had a solution to offer. “Dear Elena,” the Safiran employee asked, “Please check if you can pay tether.”
In March, the US Treasury sanctioned a Lebanon-based Syrian money launderer called Tawfiq Muhammad Sa’id al-Law, who it said had provided digital wallets to Hizbollah, the Lebanese militant group designated as a terrorist organisation by the US.
These wallets, the Treasury said, had received funds from the Iranian Revolutionary Guards-Quds Force. Chainalysis, a blockchain analysis company, later published research that showed all of the funds that moved through al-Law’s cryptocurrency wallet were in tether.
The growing ability of investigators to track tether transactions like those of al-Law may eventually lead to global criminals moving towards different methods to launder their money. Last year Hamas’ Al-Qassam Brigades stopped accepting donations in cryptocurrency, saying that it had become too easy for governments to find and prosecute donors.
“The FBI and other law enforcement has vastly improved its ability to figure these things out,” said Josh Naftalis, a former US federal prosecutor. “The reality is that law enforcement is able to look at the blockchain and generally figure out who’s transacting.”
None of these concerns appear to have dented Lutnick’s evangelising for Tether’s potential to transform global finance. He has strongly defended Tether in a similar manner to the scrappy style that defined his rise in both American finance and now politics.
According to multiple sources familiar with his career, Lutnick’s trajectory has been fuelled by a relentless desire to prove his critics wrong — a characteristic that appears to have drawn him towards Tether.
“He’s got a huge chip on his shoulder,” said a person who has dealt with him over decades.
These qualities, combined with his early support for Donald Trump during a period when most financiers distanced themselves from the former president, have cemented Lutnick’s role as a trusted figure in Trump’s inner circle.
He has known Trump for years, and in 2008 appeared on his NBC show The Celebrity Apprentice. Last month Trump nominated him as commerce secretary. Lutnick’s relationship with Trump stems from their shared outsider status in New York’s financial and real estate spheres.
“That anti-establishment reputation has certainly brought them closer,” said a former Trump administration official. “Trump knows that Howard is 1,000 per cent a good soldier and loves that.”
While he has plenty of critics, Lutnick is also respected in the industry for rebuilding Cantor Fitzgerald after the catastrophic loss of 658 employees in the 9/11 attacks.
Lutnick, whose brother died in the Twin Tower attacks, has railed against the idea that Tether is responsible for financing terrorism. “We would never ever be associated with a company that had anything to do with jihad,” he told the audience in Nashville.
Additional reporting by Suzi Ring and Nikou Asgari