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The investigation, which is said to be led by the Manhattan US attorney’s office, is believed to be focused on the use of Tether’s stablecoin by criminal actors linked to the drug trade, terrorism, fraud and other types of cybercrime.

Quoting sources “familiar with the matter”, the WSJ also claimed that the US Treasury is considering sanctioning Tether due to widespread use of its stablecoin by other sanctioned entities.

The report lists Hamas financiers and Russian arms dealers as key customers of Tether, as well as North Korean state actors, Mexican drug cartels and Chinese fentanyl producers.

Sanctions against Tether would generally prohibit US individuals and businesses from doing business with the company, and would also lead to the freezing of Tether’s assets.

Within two hours of the WSJ report being published, Tether responded with a statement of its own, dismissing the article as “rank speculation”.

“It is wildly irresponsible for WSJ to write articles with reckless allegations with such certainty, when no authorities have gone on the record to confirm these rumours, and no sources are named,” the company said.

“The article also carelessly glosses over Tether’s well-documented and extensive dealings with law enforcement to crack down on bad actors seeking to misuse Tether and other cryptocurrencies.”

Tether CEO Paolo Ardoino added in a  posted on X: “At Tether, we deal regularly and directly with law enforcement officials to help prevent rogue nations, terrorists and criminals from misusing USDT.

“We would know if we are being investigated, as the article falsely claimed. Based on that, we can confirm that the allegations in the article are unequivocally false.”

Speaking with  prior to the publication of the WSJ article, Ardoino claimed that Tether has received “thank you letters” from the US Department of Justice (DOJ).

"We may not be the best in presenting ourselves, but what matters is that we onboarded the FBI, we onboarded the US Secret Service,” he said. “We think we are doing the best we can."

Tether’s outsized role in the crypto universe

Tether is currently the world’s  by a huge margin, with more than $120bn in circulation. It is four times larger than its closest rival, Circle’s USDC, which currently has $35bn in circulation.

Although it has been in business since 2014, Tether has never been audited, so doubts remain over the credibility of its financial statements.

In its latest “”, which provides a snapshot of the company’s unaudited reserves, Tether claims to have almost $85bn in US Treasury bills backing its stablecoin.

Approximately $105bn of Tether’s reserves are said to be in “cash equivalent” and other low-risk assets, while the remainder is made up of high-risk assets including Bitcoin ($4.8bn) and precious metals ($4.9bn).

Tether’s key 'touchpoint' in the US

Cantor Fitzgerald, an asset management firm based in New York, is a custodian of Tether’s US Treasury bills.

Ardoino has previously said that Cantor has been a custodian since early 2021, although the exact proportion of Tether’s assets that are managed by Cantor is unknown.

In January, an unnamed source with “direct knowledge” of the matter told  that Cantor manages the “vast, vast majority” of Tether’s assets.

Around the same time, Cantor CEO Howard Lutnick said the company holds “many, many” of Tether’s assets.

During an interview at the World Economic Forum (WEF) in Davos, Lutnick responded to calls for Tether to produce an audit, dismissing it as unnecessary.

"I've seen a whole lot, and the firm has seen a whole lot, and they have the money," he said. "There has always been a lot of talk, 'Do they have it or not?' So I'm here with you guys saying we've seen it, and they have it."

������covered by 91����ԭ��, Cantor’s role in Tether’s offshore stablecoin operation has previously come under scrutiny from US lawmakers.

In February, during a US Congressional hearing on sanctions evasion and terrorist financing activity in the crypto sector, Cantor was named as a key “touchpoint” between Tether and the US financial system.

“Cantor's enabling of terror and illicit activities across the globe is unacceptable,” said Representative Wiley Nickel (D-NC). “Given Tether's nexus to the US financial system through Cantor Fitzgerald, does Treasury already have the authority to take action?”

The hearing ended with several Congressmen and expert witnesses, including executives from Circle and Coinbase, calling on US prosecutors to consider criminal charges against Tether.

Four months later, US presidential favourite Donald Trump announced that he has hired Cantor CEO Lutnick as the co-chair of his transition team.

The move means that Lutnick will have significant influence in the selection of more than 4,000 presidential appointees should Trump win the election.

Speaking with CoinDesk, Ardoino rejected the notion that Lutnick’s new role could present conflict of interest issues. "We don't expect any political favours by anyone," he said.

What happens next?

Whatever the result of the US election, the crypto industry will be seriously affected if the US criminally charges or imposes sanctions against Tether.

Trades from Tether into other crypto-assets, or vice versa, make up the vast majority of all crypto trading volume, with up to $190bn of Tether changing hands each day.

An asset freeze of Tether’s reserves would likely have catastrophic effects on crypto market liquidity, volatility and prices, although Tether’s customers do not appear to be too worried about this possibility.

On the day the WSJ report was published, data from blockchain intelligence firm ChainArgos  that Tether customers collectively redeemed only $3m of stablecoins.

Raising further doubts over the credibility of Tether’s numbers, other blockchain analysts pointed out that, in the past seven days, Circle has processed $2bn in .

“It beggars belief that Tether's customers, upon hearing that the US DOJ and Treasury Department might freeze all your money any minute now, would only redeem 0.003 percent of the USDT in existence,”  one analyst.