A U.S. Senate investigation has intensified scrutiny of Tether's USDT stablecoin after Democratic investigators found that 84% of 846 cryptocurrency wallets sanctioned or targeted for seizure over links to Iran and its regional proxies had transacted exclusively or almost exclusively in USDT.

The findings were released on Sept. 28 by Sen. Richard Blumenthal, ranking member of the Senate Permanent Subcommittee on Investigations. The subcommittee said its analysis of blockchain transactions raised questions about the role of USDT in Iran's shadow banking network and referred its findings to the Treasury and Justice departments for further investigation.

The investigation found that 84% of the 846 wallets analyzed primarily used USDT, which investigators said allowed funds connected to Iran and affiliated networks to move through international cryptocurrency channels. The report examined wallets designated by the U.S. Treasury's Office of Foreign Assets Control and Israel's National Bureau for Counter Terror Financing between June 2021 and August 2026.

Investigation focuses on USDT's role in Iran

The subcommittee said its review identified USDT as a major payment mechanism within cryptocurrency-linked financial networks associated with Iran. Investigators said the transactions included efforts to move money into and out of the country and to support Iran's currency through activity involving the Central Bank of Iran.

The report also identified two sanctioned oil smugglers, Alireza Derakhshan and Arash Estaki Alivand, and said more than $603 million in USDT moved through networks connected to Hezbollah, the Houthis and Iranian financial institutions over four years.

Senate investigators further alleged that Tether did not consistently freeze wallets designated by counterterrorism authorities before 2024, and raised concerns over whether the company proactively blocks wallets that can be linked to illicit financial activity. The report said $34.6 million continued moving through sanctioned wallets after their designation. It also cited a May 2026 alert from the Financial Crimes Enforcement Network that identified stablecoins as part of Iran's broader shadow banking system.

Tether disputes Senate characterization

Tether rejected the suggestion that USDT functions as a safe haven for sanctioned entities and emphasized its cooperation with U.S. and international law enforcement.

The company said actions involving USDT during 2026 had resulted in approximately $550 million in Iran-linked assets being frozen. Tether said more than $344 million was frozen in April across two addresses after information was provided by U.S. authorities, while more than $130 million was frozen in July across four additional wallets, which the company said were subsequently connected by U.S. authorities to Iran's Central Bank.

According to Tether, its 2026 actions involving Iran-linked wallets demonstrate that the company can restrict USDT when authorities identify credible connections to sanctions violations or illicit finance. The company also said it works with more than 340 law enforcement agencies across dozens of countries and has supported thousands of investigations.

Tether Has Supported Nearly $550 Million in Iran-Linked USD₮ Freezes as U.S. Expands Sanctions Campaign
Read more:
— Tether (@tether) September 28, 2026

The conflicting accounts place the effectiveness of stablecoin compliance controls at the center of the dispute. The Senate report focuses on historical wallet activity and alleged gaps in enforcement, while Tether points to subsequent freezes and cooperation with authorities.

Stablecoins face wider regulatory scrutiny

The investigation comes as Washington increases pressure on financial networks linked to Iran and examines the use of digital assets in sanctions evasion. Blumenthal had previously sought information from Tether concerning its compliance procedures and the use of USDT by Iranian cryptocurrency exchanges. The latest Senate analysis expands that inquiry by examining blockchain transaction records associated with sanctioned wallets.

The case also highlights a broader challenge for stablecoin issuers. Blockchain transactions are publicly traceable, but identifying the people and organizations controlling wallets can require additional intelligence from exchanges, investigators and other market participants. Tether has argued that this transparency allows authorities and issuers to trace and freeze illicit funds more effectively than they can with cash, and said its cooperation with U.S. authorities has resulted in billions of dollars in assets being frozen across various investigations.

For the cryptocurrency industry, the dispute could increase attention on how stablecoin issuers monitor sanctioned addresses, respond to government designations and prevent continued transactions involving restricted entities. The competing claims also underscore the growing importance of issuer-level controls as governments assess whether dollar-pegged digital assets can be used to bypass traditional financial sanctions.

The Senate report does not establish a final legal finding against Tether. Its conclusions have instead been referred to federal agencies for further review, leaving the scope of any potential enforcement action dependent on subsequent investigations.