An article from the Wall Street Journal claims that crypto companies behind Tether (USDT) reportedly used fake paperwork and shell companies to get bank accounts after the stablecoin’s then-banking partner, Wells Fargo, halted services for several of Tether’s Taiwanese accounts.
However, at the outset it looks terrible, especially from the AML compliance perspective. Let’s break this down into what it really means and what may be the reason.
Stephen Moore, one of the owners of Tether Holdings Ltd. said they were trying to “circumvent the banking system by providing fake sales invoices and contracts for each deposit and withdrawal,” in an email viewed by The Wall Street Journal.
Another account used by Tether and Bitfinex was opened in Turkey under a company called Deniz Royal Dis Ticaret Limited Sirketi. This account was allegedly used to launder money raised by Hamas’s armed Izz ad-Din al-Qassam Brigades, according to an affidavit filed by the Justice Department. The al-Qassam Brigades is designated a terrorist organization by the U.S. government.
Meanwhile, Bitfinex moved more than $1 billion into a Panama-based payment processor called Crypto Capital Corp., despite the lack of a written agreement between the companies according to court records. Crypto Capital is now defunct but previously used shell companies to open networks of bank accounts that worked as an unlicensed money transmitting business for crypto companies.
Tether and Bitfinex executives also tried to open an account at New York’s Signature Bank controlled by Christopher Harborne, who owned roughly 12% of both Tether and Bitfinex under another name, Chakrit Sakunkrit. The account was soon closed after the bank realized the account was connected to Bitfinex.
In total, Bitfinex and Tether were able to open at least nine new bank accounts for shell companies in Asia over nine days in October 2018, according to the documents.
These events prove that shell companies are still very much in use in the crypto industry, so identifying the ultimate beneficial owner is really important for corporate KYC to prevent bad actors from opening accounts under alternative names or corporate structures.
At the same time, there is a huge problem with crypto / web 3 companies opening banks accounts and getting fiat rails by the established financial institutions. It is proving impossible. As always banks are between the rock and hard place in this situation because they are obliged to manage the risk related to KYCC (KYC of a client of a client) and the risk of ‘de-risking’.
Gatenox helps with these issues, as our Hub automatically collects and analyzes data, as well as presents the shareholding structure in a graphical format so that it is easy to see if there are gaps or anomalies in beneficial ownership information.