Chinese authorities have uncovered a massive $2 billion illegal foreign exchange scheme involving Tether's USDT token. Regulatory measures are reportedly being considered in response to the investigation.

Chinese police in Sichuan province apprehended several suspects involved in an underground banking scheme on May 15. The suspects were accused of facilitating illicit foreign exchange transactions involving approximately $2 billion worth of Tether's USDT tokens.According to a report by Baijiahao.baidu, the Sichuan police arrested the suspects for allegedly utilizing USDT to circumvent national foreign exchange supervision and provide illegal settlement channels.The operation shut down a major underground banking scheme responsible for smuggling operations worth 13.8 billion Chinese yuan, roughly equivalent to $1.9 billion. It was revealed that USDT had been utilized as the conduit for these illicit transactions.The scheme spanned 26 provinces across China, encompassing municipalities and autonomous regions. Over 90 suspects were apprehended in connection with the operation.Stablecoins like USDT have become susceptible to manipulation due to their price stability and the anonymity offered by cryptocurrency, making them suitable for storing and transferring funds without the risk of price fluctuations.This latest arrest of suspects involved in illicit foreign exchange transactions follows a similar incident involving the arrest of Cartier's heir, Maximilien de Hoop Cartier, by the US Department of Justice (DoJ).The DoJ's indictment revealed that Hoop Cartier allegedly collaborated with a Colombian drug cartel to import 100 kilos of cocaine and laundered hundreds of millions of dollars through over-the-counter (OTC) USDT stablecoin trades.Instances of malicious entities employing USDT for money laundering have been previously reported. A United Nations Office on Drugs and Crime report identified USDT as a prominent tool utilized by money launderers and fraudsters.Ripple CEO Brad Garlinghouse further fueled speculation about targeted regulatory action against Tether, suggesting in an interview that the US government is focusing on the company. While expressing uncertainty about the potential consequences, Garlinghouse stated that Tether significantly influences the cryptocurrency market.Tether CEO Paolo Ardoino responded to Garlinghouse's comments, accusing him of being uninformed and emphasizing Tether's collaborative efforts with global law enforcement agencies to combat illicit activities. Ardoino disclosed that Tether has partnered with 24 agencies in over 40 countries and successfully blocked wallets in response to 198 requests in the past year and 339 requests over the past three years.Despite these measures and pronouncements, doubts linger about the legitimacy of the US government's anticipated regulatory scrutiny of Tether. Recent actions taken by Tether, such as freezing $5.2 million worth of USDT due to phishing scams, and partnering with Chainalysis to develop monitoring tools, suggest that the company is proactively addressing these concerns.