Democratic staff on the Senate Permanent Subcommittee on Investigations examined 846 cryptocurrency wallets sanctioned or targeted for seizure over links to Iran and its regional proxies and found that 84% transacted exclusively, or nearly exclusively, in Tether's USDT stablecoin, according to a report released by Senator Richard Blumenthal (D-CT).

USDT, the world's largest stablecoin by market capitalization, is designed to track the value of the U.S. dollar. Issued by El Salvador-based Tether, it functions as the default dollar stand-in across crypto markets and is widely used in economies where access to U.S. banking is limited.

Tether published a statement the same day, citing roughly $550 million in Iran-linked freezes this year, without addressing the report's findings.

Titled "Tethered to Terrorism," the analysis was prepared by Democratic staff on the subcommittee, where Blumenthal serves as ranking member. It draws on blockchain records for wallets designated by the Treasury's Office of Foreign Assets Control (OFAC) and Israel's National Bureau for Counter Terror Financing between June 2021 and August 2026. The headline figure rests unevenly on the two sets: 87% of the 757 wallets designated by the Israeli bureau transacted predominantly in USDT, against 57% of the 101 designated by OFAC. Blumenthal's office announced the findings in a press release describing how Tether props up Iran's shadow banking system.

Tether is a preferred payment system for terrorist organizations—operating as a superhighway for the Iranian government to evade sanctions, carry out hostile drone & missile campaigns, & commit human rights abuses. I joined @SquawkCNBC to discuss my new report. pic.twitter.com/Nnl20M589I

— Blumenthal (@SenBlumenthal) September 29, 2026

A second finding concerns scale. The subcommittee found that two sanctioned Iranian oil smugglers, Alireza Derakhshan and Arash Estaki Alivand, moved more than $603 million in USDT between 2021 and 2025 through a network that reached Hizballah, the Houthis and Iranian financial institutions. According to the report, there is evidence the same network was used to buy and sell drones and other military equipment.

On compliance, the report says that before 2024 Tether did not "comprehensively and consistently freeze" wallets designated by counter-terrorism agencies, and that in one case $34.6 million continued to move through sanctioned wallets after they had been designated. It notes that Tether has described its compliance with OFAC sanctions as "voluntary" and says it follows OFAC "guidelines" — a framing the subcommittee contrasts with the obligations imposed on banks. That contrast lands as U.S. stablecoin rules take shape: the GENIUS Act, signed into law in July 2025, created the first federal framework for payment stablecoins, requiring issuers to hold liquid reserves and comply with U.S. anti-money-laundering rules. The report also says Hamas shifted from Bitcoin and a mix of tokens toward promoting USDT.

Blumenthal has written to Treasury Secretary Scott Bessent and Attorney General Todd Blanche asking both departments to investigate Tether's anti-money laundering and sanctions compliance. He argues the administration's oversight of crypto firms has "undermined our own national security interests," and points to Cantor Fitzgerald, which owns 5% of Tether and holds a large share of its assets. The bank was run until recently by Commerce Secretary Howard Lutnick and is now controlled by his children. The report cites Bloomberg reporting from March that Tether lent those children money to buy out their father's stake when he divested upon his nomination.

The subcommittee wrote to Tether in June seeking information on its handling of Iranian transactions. The company confirmed receipt but had not replied by publication, the report says — one of the open threads, along with whether Treasury or the Justice Department open the investigations Blumenthal has requested.

Speaking to CNBC's Squawk Box on Tuesday, Blumenthal argued the stablecoin was "not just a path, it's a superhighway," not only for the Iranian government's sanctions evasion but for money laundering and trafficking more broadly. Enforcement by Treasury and the Justice Department, he said, had been "none, zero."

Tether published a statement the same day as Blumenthal's report, setting out its cooperation with law enforcement. It said actions involving USDT had frozen roughly $550 million across wallets U.S. authorities linked to Iran's central bank during 2026, including more than $344 million in April and over $130 million in July. Across all cases, it puts the total frozen at more than $4.9 billion, working with over 340 agencies in 67 countries.

"Public blockchains provide authorities with a level of visibility into the movement of funds that simply does not exist with cash," said Tether CEO Paolo Ardoino. The statement did not mention the subcommittee or its findings.

In May, FinCEN issued an alert describing Iran's use of stablecoins as including "minting and moving between large volume stablecoin issuers," while in August, Treasury widened its campaign, giving itself the power to sanction any foreign person operating in Iran's digital asset sector.