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The world’s most widely used stablecoin has a sanctions problem, and the US Senate just put numbers on it.
A report released by Democrats on the Senate Permanent Subcommittee on Investigations (PSI) on September 28, 2026, lays out evidence that Tether’s USDT has become the backbone of Iran’s sanctions-evasion infrastructure. The 28-page document, titled “Tethered to Terrorism: Crypto and Iran’s Shadow Banking Network,” found that 84% of 846 assessed sanctioned crypto wallets linked to Iran transacted primarily in USDT.
Among wallets connected specifically to terrorism financing, that number climbs to 87% out of 757 wallets analyzed.
The scale of the problem
Iran’s Central Bank has reportedly accumulated at least $507 million in USDT, a reserve that effectively gives the sanctioned nation access to dollar-denominated liquidity without touching the traditional banking system.
Sanctioned oil smugglers alone transferred over $603 million in USDT between 2021 and 2025, according to the report’s findings. Iran conducted approximately $2 billion in cryptocurrency transactions in 2025, with USDT dominating the flow. The investigation also identified connections to Hezbollah, the Lebanese militant group designated as a terrorist organization by the US.
The subcommittee has referred its findings to both the Treasury Department and the Justice Department for further investigation.
Tether’s response, and why the Senate isn’t satisfied
Tether disclosed that it has been collaborating with US authorities and froze nearly $550 million in USDT associated with Iran in 2026. That includes $344 million frozen in April and over $130 million in July.
But the Senate report argues it’s not enough, and not fast enough. Investigators criticized Tether for slow responses in freezing certain wallets and for failing to proactively block others. The lag between identification and action, the report suggests, created windows that allowed funds to move before freezing orders could take effect.
The report notes that USDT’s dominance over alternatives like Bitcoin in Iranian networks suggests that the stablecoin’s combination of dollar stability, high liquidity, and widespread acceptance outweighs the risk of eventual freezing for illicit actors.
Regulatory fallout and market implications
On June 2, 2026, four Iranian crypto exchanges were sanctioned for connections to the Islamic Revolutionary Guard Corps (IRGC) and money laundering.
Competing stablecoins like USDC, which is issued by Circle and has positioned itself as the compliance-first alternative, could benefit from a regulatory crackdown on Tether. Circle has long emphasized its US regulatory alignment, and a report linking USDT to terrorism financing sharpens that competitive distinction.
The irony is worth noting: the very feature that makes USDT useful to regulators, centralized control over token movement, is the same feature that makes it a target for criticism when that control isn’t exercised fast enough.
Disclosure: This article was edited by John Chen. For more information on how we create and review content, see our Editorial Policy.
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