The role of stablecoins as a tool for social vices has resurfaced, according to recent reports.
Insights from 404 Media show that Mexican drug cartels are increasingly using USDT as a tool for laundering drug proceeds.
The trafficking trend has become so intense that USDT is being sold at a discount in Mexico.
Meanwhile, stablecoin trading volumes/market cap skyrocketed in November 2024 amid rising Crypto demand.
USDT, the largest U.S. dollar-based stablecoin, has come under intense scrutiny lately due to its alleged role as a cross-border money laundering tool for drug cartels.
U.S. federal authorities now claim that criminal organizations, including the infamous Sinaloa cartel, are using the stablecoin to perform illegal operations.
The problem has become so severe that USDT is being sold at a discount in countries like Mexico.
Here are all the details of the ordeal and what it means for the crypto industry.
According to a recent investigation referenced by MSN and 404 Media, Mexican and Colombian drug cartels are increasingly favoring USDT as a means of cross-border transactions.
A confidential source cited by these reports revealed that the stablecoin is even being sold at a discounted rate in Mexico due to its association with drug revenue.
These Mexican groups reportedly sell USDT below its market value because of the stablecoin’s “tainted” source.
The discount creates an opportunity for buyers to accumulate the stablecoin at discounted costs before selling it again in Colombia.
Interestingly, these buys and re-sells occur through various channels, including crypto exchanges, P2P platforms, and OTC trades.
Over the years, USDT has increasingly been used among drug/human trafficking and terrorist organizations because of its role as a harder-to-trace means of transferring wealth across borders compared to fiat.
Court documents linked by 404 Media show how these cartels employ a network of front businesses, cash drop-offs, and Crypto transfers to launder vast sums of money.
Sometimes, these tranches of money can amount to as much as tens of millions of dollars.
These court documents show that authorities linked a single Binance account to these activities between May 2020 and September 2023.
The account reportedly processed over $15.6 million in Crypto through hundreds of deposits and withdrawals.
Binance account linked to money laundering.
The FBI uncovered another Crypto laundering operation from the Sinaloa Cartel in another investigation, with over $52 million in drug proceeds before 2021.
Overall, the scale of these activities shows that Crypto, particularly stablecoins like USDT, are a significant part of modern drug trafficking operations.
Why are Crypto and stablecoins like USDT appealing to criminals?
The answer might lie in their ability to enable quick and borderless transactions while bypassing traditional financial systems.
Stablecoins like USDT offer particular advantages because they maintain value relative to fiat currencies.
This alone makes them ideal for laundering large sums of money, as they significantly lower the risk of being traced or suffering from price volatility.
Drug cartels can also use stablecoins to sidestep banks and transfer money more efficiently.
The U.S. federal authorities argue that this characteristic of Crypto has cemented USDT's position as the top tool for drug proceeds.
Tether, the parent company of USDT, acknowledges that some illegal transactions occur in the secondary market.
However, it denies involvement. According to reports, a Tether spokesperson emphasized that the company actively collaborates with law enforcement agencies worldwide to fight this problem.
Tether claims it has implemented blockchain tracking tools and partnered with nearly 200 law enforcement organizations worldwide.
For example, the company reported collaborating with over 180 agencies in September to freeze nearly $2 billion in illegal assets from ~1,850 wallets across 45 jurisdictions.
While the company continues to distance itself from criminal activities, its spokesperson notes that Crypto's decentralized nature will always pose challenges for law enforcement.
Despite the controversies, stablecoins have seen massive growth in adoption as of late.
Per reports, November 2023 saw stablecoin trading volumes surge by 77.5% to $1.81 trillion, according to CCData.
The total stablecoin market cap also rose by 9.94% to an impressive $190 billion, a new all-time high for the sector since March 2022.
Increasing stablecoin metrics
This marks an impressive 14-month uptrend in trading activity, with Tether’s market cap increasing by 10.5% to $133 billion.
Other stablecoins like Circle’s USDC and Ethena Labs’ USDe also saw massive growth during the same period.
This rise in demand is fueled mostly by the ongoing rise in institutional/retail interest in crypto, even as the industry grapples with regulatory challenges.
Overall, USDT's position as the most popular stablecoin in the world and allegations of being a cross-border money laundering tool show the dual nature of crypto.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information but will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.