Tether's USDT has become the primary cryptocurrency used across an Iranian shadow banking network that moves funds linked to Iran and regional proxy organizations, according to a preliminary report (PDF) by the U.S. Senate Permanent Subcommittee on Investigations.

USDT is a dollar-pegged stablecoin issued by Tether and the largest stablecoin in circulation. It moves across public blockchains where every transfer is permanently recorded and traceable from wallet to wallet, even when the holders remain unidentified — the property that made the subcommittee's wallet-level analysis possible.

The subcommittee analyzed blockchain transactions involving 846 cryptocurrency wallets that had been sanctioned or targeted for seizure because of their association with Iran, Hamas, Hezbollah, and the Houthis. Its analysis found that 84% of those wallets transacted exclusively or nearly exclusively in USDT.

The concentration was even higher among wallets identified by Israel's National Bureau for Counter Terror Financing. Of 757 wallets linked to Iranian terrorism financing, 87% predominantly transacted in USDT. Among 101 wallets designated by the U.S. Treasury's Office of Foreign Assets Control (OFAC), 57% predominantly transacted in USDT. Bitcoin was the next most-used asset, appearing at rates of 7% and 19% for the two groups, respectively.

According to the subcommittee, USDT became the overwhelmingly dominant cryptocurrency in the wallets it examined from 2023 onward. USDC appeared in only a small number of transactions, while other assets — including Solana, Dogecoin, Shiba Inu, and XRP — appeared at negligible levels in the analyzed sample. USDT was the only stablecoin significantly represented in the sample. That concentration tracks USDT's broader standing as the most widely used dollar-pegged token on public blockchains.

Central Bank of Iran Wallets and Iranian Exchanges

The investigation identified two wallets attributed to the Central Bank of Iran that received nearly $50 million in USDT during April and May 2025. According to the blockchain analysis, the funds were subsequently transferred within days to Iranian exchanges, including Nobitex and Ramzinex, or to a cryptocurrency mixer.

The subcommittee also identified three wallets associated with the Modex Exchange Company that received nearly $600 million in USDT over several months, including funds from known Iranian money launderers. Separately, the report said the three Modex-associated wallets received $575 million in USDT between April and June 2025.

Two additional wallets linked to the Central Bank of Iran contained $344.2 million in USDT when they were sanctioned byAC in April 2026.

Sanctioned Facilitators Received $603 Million in USDT

The report examined wallets belonging to Iranian nationals Alireza Derakhshan and Arash Estaki Alivand, who were designated by OFAC in September 2025 over their role in an international network of front companies facilitating Iranian oil sales and military procurement.

The subcommittee's analysis found that the two men received $603 million in USDT over four years, operating almost exclusively in Tether. Less than 1% of the volume was conducted in USDC and Ether. The funds generally entered through exchanges located outside the United States or through repeated multi-million-dollar USDT transfers from unattributed wallets.

The report said the network was connected to Iranian financial institutions and regional proxy organizations, describing the transactions as part of a broader network capable of moving billions of dollars annually.

Cryptocurrency Linked to Military Procurement

The investigation also examined cryptocurrency transactions associated with the procurement of components for Iranian military equipment.

The report cited a U.S. civil forfeiture case involving $584,741 in USDT linked to Mohammad Abedini, an Iranian national whose company produced navigation systems found in Shahed drones.

The subcommittee also identified a January 2026 transaction in which a Chinese electronics supplier received $64,000 in USDT from a wallet funded exclusively by the Iran-linked Modex Exchange Company. The supplier advertised drone-related components, including semiconductors of the type found in Shahed and Geran drones.

The report cautioned that the transaction did not establish the final recipient or the components ultimately purchased, but said it demonstrated the potential use of cryptocurrency for procurement connected to Iranian military purposes.

Delayed Freezing of Designated Wallets

A major finding concerns Tether's ability to freeze USDT held by designated wallets. According to the report, Tether has a blacklist function embedded in USDT that allows it to prevent wallets from withdrawing funds, and it can also destroy funds held in a wallet. Because USDT transfers cannot be reversed once confirmed on-chain, that blacklist is effectively the issuer's principal lever for enforcing designations after funds have moved.

The subcommittee found that between 2021 and May 2023, Tether did not appear to freeze wallets designated by Israel's counterterror financing authority, despite orders identifying addresses controlled by Hamas.

In one case, Israel designated 39 wallets in June 2023 as associated with Hezbollah financier Tawfiq Muhammad Sa'id Al-Law. Tether initially froze five of the wallets but did not freeze the remaining 34 until March 2024. The subcommittee's blockchain analysis found that more than $34.6 million in USDT moved out of those wallets after the designation but before the freezes took effect, including through Binance, Paribu, and BTCTurk.

The report also found that wallets associated with Gaza Now continued receiving USDT after the organization was sanctioned by OFAC in March 2024. It said publicly posted wallet addresses continued receiving contributions in 2025 without being frozen.

The investigation further identified Central Bank of Iran wallet addresses that were publicly posted by Iranian money launderer Babak Zanjani in December 2025. According to the report's review of blockchain records, those addresses had not been blacklisted by Tether as of September 2026.

The findings arrive amid a shifting U.S. policy landscape for stablecoins: the GENIUS Act, signed into law in July 2025, established the first federal licensing and reserve framework for payment stablecoin issuers, with anti-money-laundering obligations attached.

Key Findings

The report's investigation found that:

• USDT was the dominant cryptocurrency across the 846 Iran-linked wallets analyzed.
• 87% of 757 wallets identified by Israel as linked to Iranian terrorism financing predominantly transacted in USDT.
• 57% of 101 OFAC-designated wallets predominantly transacted in USDT.
• Two Central Bank of Iran wallets received nearly $50 million in USDT in April and May 2025.
• Three Modex-associated wallets received $575 million in USDT between April and June 2025.
• Iranian oil and military procurement facilitators Derakhshan and Alivand received $603 million in USDT over four years.
• More than $34.6 million in USDT moved out of 34 Hezbollah-linked wallets after their designation but before Tether froze them.
• USDT was the only stablecoin significantly represented in the subcommittee's analyzed sample.

Conclusion

The report concludes that USDT became a primary cryptocurrency for Iran, Hamas, Hezbollah, and the Houthis beginning in 2023, with its use expanding thereafter. It links that expansion to what it describes as delays and failures by Tether to freeze wallets associated with money laundering and terrorism financing.

The subcommittee labeled the report preliminary, and its blockchain review extends only through September 2026 — leaving open the freeze status of the publicly posted Central Bank of Iran addresses and the final recipients of the procurement-linked payments, which the report itself flagged as unestablished.