USDT circulated through 87% of 757 crypto wallets "implicated in Iranian terrorism financing," according to a 28-page Senate investigation released Monday by Sen. Richard Blumenthal, the top Democrat on the Senate Permanent Subcommittee on Investigations.

The report analyzed blockchain transaction data from 846 sanctioned or blocked wallets tied to Iran. It concluded that Tether's stablecoin now anchors "Iran's shadow banking system," a parallel financial architecture the regime uses to move dollars outside the U.S.-dominated banking system.

"My new PSI report exposes how Tether and its flagship token have become central to Iran's shadow banking system, allowing the Iranian government to fund its regional proxies, commit human rights abuses, and pursue hostile drone and missile programs as they defy our sanctions regime," Blumenthal said in a statement.

What did the report find about Tether's compliance?

Democratic investigators said Tether has "failed repeatedly to freeze and block wallets" even when presented with public evidence of illicit activity. The report singled out wallets that bore "strong indicators of illicit finance" yet remained active, including those with documented ties to Iranian entities and organizations the U.S. designates as terrorist.

"Outside of sanctions or seizure notices, Tether has also failed to act on wallets that bear strong indicators of illicit finance, despite ample information about their ties to Iranian entities or terrorist organizations being in the public domain," the investigators wrote.

Tether's relative liquidity and adoption by Iranian crypto exchanges help explain the regime's preference for USDT over other dollar-pegged tokens, the report argued.

How much has Tether frozen so far?

Tether on Monday published a statement saying it had helped freeze $550 million in USDT linked to Iran over the past year. The figure, drawn from Tether's own disclosure, frames the scale of the network the Senate investigators sought to document.

"Tether has consistently demonstrated that USD₮ is not a haven for sanctioned actors, terrorist organizations or criminal networks," said Paolo Ardoino, CEO of Tether. "Public blockchains provide authorities with a level of visibility into the movement of funds that simply does not exist with cash, and Tether can act when credible information is provided by law enforcement."

What is Tether's connection to the Trump administration?

The report also mapped ties between Tether and senior U.S. officials. Before becoming Commerce Secretary, Howard Lutnick led Cantor Fitzgerald, which acts as custodian for Tether's reserves; his sons now run the firm. Bo Hines, previously the executive director of the White House Crypto Council, has joined Tether as CEO of its U.S. operation.

"Given Tether's deep connections with the Trump Administration, its continuing use by the Iranian regime raises questions as to whether Tether has received lax enforcement and lenient oversight over its anti-money laundering obligations from relevant federal authorities," Blumenthal said.

What enforcement steps are next?

Blumenthal sent letters to Attorney General Todd Blanche and Treasury Secretary Scott Bessent urging investigations into potential sanctions and banking law violations. The response from DOJ and Treasury — and any resulting enforcement actions — will set the bar for how stablecoin issuers handle compliance with the U.S. sanctions architecture going forward.