FBI details how USDT is laundered through Binance

Tether (USDT) is a convenient tool for romance and confidence scams due to its relative stability, speed, convertibility, and international transmissibility. Additionally, a recent civil forfeiture action by the US Department of Justice emphasizes how money launderers frequently choose USDT due to these characteristics.

Three offices of the FBI plus the Royal Thai Police have described a so-called “pig butchering scheme” that stole over 2.5 million USDT from US victims.

Pig butchering scams to make USDT

Pig butchering is a crypto reinvention of a decades-old internet scam. This relationship-based scheme begins with making romantic or business contact with a victim, convincing them to deposit crypto assets into an offshore exchange or wallet, assuring them that the funds are safe, luring additional deposits with story-telling, and finally stealing the funds.

Many victims believe they are helping their romantic partner cover travel or medical expenses. Others receive fake account statements or website logins that appear to show their money compounding.

In the end, the proceeds of pig butchering crime is often tether, an asset outside the banking system that has been worth $1 for most of a decade. It allows scammers to easily hold and account for the proceeds of their crime in a USD-like value.

In 2022 alone, proceeds of pig butchering exceeded $2 billion. Bloomberg’s Zeke Faux wrote a book about the disturbing trend, including on-the-ground reporting from Asian pig butchering compounds.

Read more: Big Brother surveillance dystopia is now reality at Binance

Tether can also wash through opaque sequences of on-blockchain and off-blockchain hops that obfuscate the ultimate destination of the criminal proceeds. A new court filing in the US District Court for the District of Columbia reveals one such alleged laundering operation.

According to a US Attorney, two accounts at Binance illegally received 2,546,415 USDT after passing through a series of money laundering steps intended to sever the link between a pig butchering scheme and the cash-out-like withdrawal attempt. Through no fault of Tether nor Binance, the scammers believed Binance accounts were a convenient tool to obfuscate the proceeds of their scheme.

Using Binance accounts to launder USDT

In addition to dozens of hops through on-blockchain wallets and mixers, the US Attorney demonstrated “a succession of USDT transactions through multiple layers of other Binance accounts—indicative of money laundering and of attempts to conceal the source of funds.” The civil forfeiture action noted that these off-blockchain transfers of USDT within Binance’s ecosystem “are not recorded on the public blockchain… Such layering makes it extremely difficult for investigators to trace funds, both forward to determine the final cash-out point but also backward to determine the original source of the funds from other victims.”

Flow of funds diagram from the forfeiture action.

By combining on-chain and off-chain laundering of these dollar-like crypto assets, the schemers hoped to hide their cash-outs from tracing to the victim’s deposits. Unfortunately for those scammers, forensic researchers at the FBI and Royal Thai Police were able to deconstruct their USDT scams, trace the funds back to the victim, and file a court order to freeze and forfeit those criminal proceeds.

Again, the civil action regarding the 2.5 million USDT does not allege wrongdoing by the stablecoin issuer Tether nor by the exchange operator, Binance. As of publication time, neither Binance, Binance founder CZ, Binance CEO Richard Teng, Tether, nor Tether CEO Paolo Ardoino have commented on the civil forfeiture action on their blog nor X accounts.

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