Senate investigation finds Iran used Tether stablecoin to bypass sanctions

The findings originate from a single party's investigation and do not signal any forthcoming action, so the immediate market impact may be limited to reputational damage for stablecoin issuers such as Tether. Because Tether commands roughly 60% of the stablecoin market, any US directive to enforce swifter freezes would affect crypto liquidity rather than USDT's dollar peg. The oil connection is particularly significant: the report links Iran's token use to ongoing crude sales to China and other allies, meaning stricter supervision of these payment routes could heighten supply tightness while Brent is around $105.

Senate Democrats describe Tether's dollar-linked token as a central means for Iran to dodge sanctions, though blockchain data hints that Tehran's dependence might be diminishing.

Key takeaways from the report:

• A report released Monday by Senate Democrats on the Permanent Subcommittee on Investigations alleges that Iran used Tether's USDT stablecoin to evade US sanctions and finance proxy groups including Hezbollah, based on a copy seen by the Wall Street Journal.
• The report studied around 850 wallets sanctioned by the US and Israel for Iran connections and discovered that 84% traded wholly or almost wholly in USDT.
• The panel passed the report to the Justice and Treasury departments.
• Representing about 60% of the stablecoin market's value, Tether is criticised by the report for failing to freeze USDT in sanctioned wallets quickly, despite having the technical capability.
• Blockchain analytics hint Iran may be reconsidering its approach: USDT's proportion of transactions in Iran-linked wallets dropped from 72% in 2024 to 67% in 2025.
• Tether did not comment on the report, although it has cooperated with law enforcement in freezing wallets linked to the regime.

Monday's report from Senate Democrats, as initially disclosed by the Wall Street Journal, asserts that Iran leveraged Tether's USDT to circumvent US sanctions and finance proxies like Hezbollah. Issued by the Permanent Subcommittee on Investigations, the document claims the dollar-pegged token has become a principal payment tool for the Iranian regime and was forwarded to Justice and Treasury officials.

Around 850 wallets sanctioned by the US and Israeli governments for ties to Iran were examined in the report, with 84% using USDT exclusively or predominantly. Connecticut Senator Richard Blumenthal described the conclusions to the Journal as showing Tether and USDT are pivotal to what he termed Iran's shadow banking system, supporting proxy groups and drone and missile programmes despite sanctions. Tether issues USDT, controlling about 60% of the stablecoin market's value. Pegged to fiat currencies, stablecoins exhibit less volatility than other crypto assets, suiting them for payments and for money laundering.

The report offers multiple examples. Leaked materials, previously reported by the Journal, suggested an Iranian firm brokered tens of millions of dollars in USDT purchases for the Central Bank of Iran. Public blockchain analysis later connected some of that USDT to North Korea's $1.5 billion hack of Bybit. Citing an Iranian media report, the document claims the efforts were intended to bolster the rial and continue oil sales to allies such as China. The report further criticizes Tether for not rapidly freezing USDT in sanctioned wallets, despite having the ability to do so. Tether appeared in many recently sanctioned wallets, including those linked to the Central Bank of Iran in July and a network accused of enabling Iranian oil sales.

Evidence exists that Iran is adjusting its strategy. TRM Labs, a blockchain analytics firm, observed USDT's transaction share in Iran-tied wallets decline from 72% in 2024 to 67% in 2025, with August representing 14% of on-chain volume. Tether did not comment on the report, though it has previously assisted law enforcement in freezing certain regime-linked wallets. The Treasury Department has escalated its economic actions against Iran since US military strikes earlier this year, including an August initiative called Operation Economic Outcast.

Focus now rests on whether Justice and Treasury pursue the referral, if Tether issues a public statement, and if stricter controls on stablecoin payments alter Iran's ability to transfer funds and sell oil.