Money Launderers, Fraudsters Flocking to Tether: UN Report

Digital money is energizing Southeast Asian organized crime as a method for money laundering and as a way of reaping new revenue, warn experts who say the Tether plays a heavy role in the rapidly evolving state of law-breaking in Myanmar, Thailand and elsewhere.

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Cryptocurrency has “supercharged” the criminal business environment across Southeast Asia, with organized crime groups “converging where they see vulnerabilities” – and crypto has proven one of the points of least resistance, said Jeremy Douglas, regional representative for Southeast Asia and the Pacific at the Untied Nations Office on Drugs and Crime.

“As the world moves to the digital space so do criminals,” he told Information Security Media Group.

Organized criminal syndicates in Southeast Asian for decades have used black market casinos to launder stolen funds. The “explosion of under-regulated online gambling platforms and crypto exchanges has changed the game,” Douglas said. The technology-driven revolution in underground banking has enabled criminals to carry out fast, anonymized transactions, commingle funds and offered new business opportunities for organized crime, he said.

That’s especially true in the case of illicit online gambling platforms, the U.N. report said. Fraudsters enter illicit funds into the online gambling platform to launder the money through in-game points that are they cash out later or place in new bets, elsewhere. “Once the money in the gambling account is paid out in a desired currency and jurisdiction, it can effectively be given legal status and integrated into the formal financial system and economy,” the report said.

Tether, a stablecoin pegged to the U.S. dollar, is at the center of regional fraud, including sextortion and social engineered romance scams called pig butchering, the United Nations warned in a Monday report.

Tether is almost always the crypto coin of choice for fraudsters involved in pig butchering across the world, said Erin West, deputy district attorney at Santa Clara county, specializing in cybercrime. Criminals use Tether because the cryptocurrency is tied to the value of the U.S. dollar: when criminals move massive amount of funds, they don’t want to incur the risks of volatility that comes with cryptocurrency like Bitcoin, Ethereum or even privacy coins such as Monero and ZCash. “What they really want to do is just move money, and Tether enables them to move money without value fluctuation and maintain the value of the stolen funds,” she told ISMG.

The cryptocurrency also has lower transaction fees, and the perception among bad actors is Tether transactions made on the Tron blockchain are harder to trace compared to Bitcoin, said Ari Redbord, global head of policy and government affairs at TRM Labs. “There is also a network of brokers located across Asia and globally that convert USDT for fiat allowing North Korea and other cybercriminals to off-ramp funds even in the wake of increased compliance at large global exchanges,” he said – referring to Tether by its acronym.

In a response to the UN report, Tether said it is “disappointed” in the UN’s assessment, stating that the organization should have noted “its role in helping developing economies in emerging markets.” Tether collaborates with federal law enforcement and has frozen more than $300 million in the last few months, it said. “The UN’s analysis ignores the traceability of Tether tokens and the proven record Tether has of collaborating with law enforcement.”

Tether itself has already been on the law enforcement and regulatory radar in the past few years. Illicit actors including North Korea and terrorism financiers have recently migrated from bitcoin to other cryptocurrencies, specifically Tether on the Tron blockchain. A TRM Labs study found that Bitcoin was the exclusive currency for terrorist financing in 2016, but by 2022, it was all but replaced by assets on the Tron blockchain.

The U.N. report references several law enforcement agencies operations that have dismantled money laundering networks responsible for moving illicit Tether funds, including an operation by Singaporean authorities last year that recovered $737 million in cash and crypto. Tether in November 2023 froze $225 million of its tokens connected to a pig butchering and human trafficking syndicate in southeast Asia, as the result of an investigation by the United States and crypto exchange OKX.