A Senate report led by Senator Richard Blumenthal claims that Iran has turned Tether's USDT stablecoin into a "significant financial lifeline" for its shadow banking network, using it to evade international sanctions and fund terrorist proxy organisations. The report examined 846 sanctioned cryptocurrency wallets linked to Iran and determined that 84 percent used USDT exclusively or almost exclusively to transfer funds and shore up Iran's currency, whilst also allegedly purchasing drones and military equipment. Blumenthal has called on the Justice and Treasury departments to investigate Tether for potential sanctions violations and hold the company accountable.

Tether responded by stating that it has frozen approximately $550 million in USDT linked to Iran so far this year and remains "fully committed to supporting global efforts against illicit finance." The company argues that public blockchains provide authorities with greater visibility into fund movements than cash and that it acts when provided with credible information from law enforcement. However, the Senate report alleges that before 2024, Tether failed to "comprehensively and consistently freeze" wallets flagged by counter-terrorism agencies and continues to neglect proactive blocking of clearly illicit wallets. The findings come as the Justice Department separately investigates whether Binance violated sanctions on Iran, with accusations that traders funnelled $1.5 billion to the country in exchange for black-market oil.