Iran uses Tether to evade sanctions.
The obvious conclusion?
Crypto needs to behave more like banks.
Except there's a problem.
The banks aren't exactly stopping it either. 🧡
A new investigation from Democratic staff of the U.S. Senate Permanent Subcommittee on Investigations examined 846 crypto wallets sanctioned or targeted because of links to Iran and its regional proxies.
According to the report, 84% transacted exclusively or predominantly in USDT. Investigators argue that Tether has become an important component of Iran's shadow banking infrastructure, including networks connected to sanctioned entities and regional proxies.
That's serious.
And it shouldn't be dismissed with the usual: "But criminals use banks too."
They do.
But that doesn't make illicit stablecoin activity irrelevant.
It does, however, raise a much more uncomfortable question.
Only days before this report, an investigation found that a Kremlin-backed network managed to move $6.9 billion through the international banking system, using front companies, forged documents and accounts touching major global banks.
Banks operating under decades of AML rules, KYC requirements, sanctions screening and enormous compliance departments.
So perhaps we're asking the wrong question.
Instead of: “How do we make crypto comply like banks?”
Maybe we should also ask: “How effective is the compliance model we're trying to copy?”
Because AML isn't free.
Banks spend enormous resources identifying customers, monitoring transactions, screening sanctions and producing compliance documentation.
Those controls can stop illicit activity.
They can also make illicit finance more difficult and expensive.
But clearly, they don't eliminate it.
And compliance has another consequence we don't discuss enough: the higher the fixed cost of participating in financial markets, the easier it becomes for large incumbents to absorb it and the harder it becomes for smaller competitors to enter.
Regulation designed to keep bad actors out can therefore also become a moat around the institutions already inside.
That doesn't mean abolishing AML.
And it certainly doesn't mean ignoring Iran's use of USDT.
It means we should stop pretending the choice is between: "regulated banks = clean" and "crypto = illicit".
The evidence is considerably messier.
Bad actors don't have ideological loyalty to blockchains or banks.
They use whatever financial infrastructure works.
The interesting question for the next generation of financial regulation isn't whether we should fight illicit finance. Obviously we should. It's whether we can design systems that fight it more effectively, more proportionately and at a lower cost than the system we inherited.
Because if we're rebuilding financial infrastructure anyway... perhaps we shouldn't automatically rebuild every inefficiency with it. 🧡