How cartels use USDT to launder millions

In a bustling Mexican marketplace, a digital transaction flashes across a smartphone screen. The transfer is swift, anonymous, and virtually untraceable—perfect for laundering millions. For Mexican drug cartels, cryptocurrency has become the latest frontier in moving illicit money across borders.

Recently, a Drug Enforcement Administration (DEA) investigation uncovered a striking revelation about a Mexican drug cartel's money laundering operations: members were using USDT for their illicit activities. Court documents revealed how the cartels exploited the speed and pseudonymity of cryptocurrency to funnel millions.

Tether (USDT) is the third largest cryptocurrency when it comes to market cap, only falling behind industry leaders Bitcoin and Ethereum. As a stablecoin, its value is directly linked to fiat money. In Tether's case, 1 USDT is equal to 1 USD. 

The investigation

A report by 404 Media analyzed court records to detail how drug traffickers turned to crypto for swift wealth transfers. According to a confidential informant, the trend involves cartels purchasing USDT from Mexican groups at a discount.

The stablecoin is then sold in Colombia through virtual currency exchanges, over-the-counter transactions, peer-to-peer (P2P) deals, or Casa de Cambios (currency exchanges). The discounted price in Mexico reflects its known origin as drug proceeds.

One recently filed civil forfeiture complaint—allowing federal authorities to seize suspected assets—highlighted the scale of the operation. Federal investigators sought access to more than $5 million in USDT held across three crypto accounts allegedly tied to drug trafficking.

However, investigators uncovered far more. A single Binance account received $15.6 million worth of crypto through 452 deposits between May 2020 and September 2023. Withdrawals from the same account totaled $15.66 million across 567 transactions. The court documents concluded that these high-value, frequent transactions suggested money laundering, with the user employing Binance to obscure the origin of funds.

The DEA's sources indicated that the account owner had been laundering drug money since at least June 2020. This individual allegedly used intermediaries to pick up cash and transfer it to destinations dictated by the cartel.

More than 20 laundering contracts were reportedly executed for the account owner, with funds flowing in from users in Colombia and Mexico. Binance has since off-boarded some of these users.

Industry response

As the investigation shines a spotlight on crypto’s dark side, Tether has defended its platform's proactive measures against illicit activity.

In an emailed statement to 404 Media, a Tether spokesperson emphasized the company’s transparency:
“Unlike fiat currency, which remains the dominant form of funding for criminal and terrorist efforts globally, Tether has the ability to track all transactions and halt USDT whenever it is used in any illicit manner, and we work with law enforcement to do exactly that.”

The spokesperson added that Tether collaborates closely with law enforcement worldwide to ensure accountability, stating, “Tether is proud to be the industry leader in combating illicit use of stablecoin technology.”

Crypto's role in cartel operations

Drug cartels have long sought innovative ways to move money without detection. From trade-based money laundering to offshore accounts, their methods have evolved alongside technological advancements. Cryptocurrency now offers a new tool for obscuring transactions.

Robert Almonte, a former US Marshal and deputy chief of the El Paso Police Department, explained how cartels have embraced crypto. Speaking to NewsNation, Almonte noted that cartels often employ professional money launderers who are paid based on the amount they move.

“It’s difficult to track cryptocurrency and its exchange,” he explained. “In many cases, these money launderers are moving it around several times before it reaches its final destination.”

While traditional fund transfers could expose cartels to detection, cryptocurrency’s speed and borderless nature make it a powerful enabler of illicit activity.

A technology with potential

Despite these risks, cryptocurrencies like USDT are widely used for legitimate purposes, such as enabling fast, low-cost remittances or providing financial services to people without access to traditional banking.

Industry leaders like Tether have also been proactive in working with law enforcement to combat illicit activity, highlighting the potential for transparency in blockchain-based systems.

As federal agents and blockchain companies collaborate to curb criminal use, the crypto industry has an opportunity to set new standards for accountability. With responsible innovation, cryptocurrency can continue driving progress while minimizing its potential for harm.