Key Takeaways
- A recent lawsuit has accused Tether of unfairly freezing USDT wallets.
- According to Riverstone Consultancy, Tether froze $45 million at the request of a local Bulgarian police department.
- The case could shape how stablecoin issuers process law enforcement requests.
Earlier this year, Tether CEO Paolo Ardoino boasted that no other company “has such a breadth of collaboration with law enforcement.”
However, a recent lawsuit accuses the stablecoin issuer of being a little too friendly with law enforcement.
The plaintiff, Riverstone Consultancy, is seeking the release of $45 million USDT Tether allegedly frozen at the request of a Bulgarian police department.
The suit accuses the defendant of a breach of fiduciary duty for failing to follow the correct legal process for such requests.
Tether Over Frozen USDT
According to the complaint, when Tether notified Riverstone of the wallet freeze, the stablecoin issuer failed to provide evidence that it had the legal right to do so.
Instead, the plaintiff was directed to contact the Bulgarian police. Yet upon reaching out to the law enforcement department, Riverstone’s attorney was stonewalled, the company claims.
“Tether did not follow the proper procedures to freeze the assets,” the suit charges.
The lawsuit argues that cross-border requests to seize or freeze assets must be made through official channels, specifically the Bulgarian national authorities and the relevant foreign affairs liaison.
“Tether violated these procedural requirements by freezing the USDT in the Wallets based solely on a simple request from a Bulgarian local police department,” it states.
The Rush for Compliance
Among stablecoin issuers, Tether is particularly motivated to respond promptly to law enforcement requests.
The company’s anti-money laundering (AML) enforcement has routinely come under fire for supposed shortcomings critics claim enable illicit USDT usage.
For example, in 2023, U.S. Senators called for a Justice Department investigation after it was reported that Hamas had used USDT to evade sanctions.
By not doing enough to prevent this, Tether may have provided “material support and resources to support terrorism,” they argued.
Against this backdrop, Tether has doubled down on AML compliance in recent years. But has the company gone too far?
Legal Implications of Tether vs. Riverstone
If law enforcement requests aren’t processed correctly, it opens up the international AML system to abuse.
In most jurisdictions, bank accounts can only be frozen if there is evidence they belong to a sanctioned entity or if a judge has issued a warrant. Why should stablecoin balances be any different?
Riverstone’s lawsuit suggests Tether may have overstepped in the rush for AML compliance.
If a jury agrees that this is the case, it could have consequences for how stablecoin issuers handle law enforcement requests more broadly.
Compared to the banking sector, there is limited case law addressing the rights of stablecoin holders and the question of what they are owed by issuers. As global AML frameworks evolve in response to new stablecoin regulations, such questions will only become more important.
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James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
