UNODC, TRM Labs and U.S. agencies warn of a ‘Tron‑based shadow banking network’ as investigators race to freeze wallets and tighten KYC

Washington & Tel Aviv — From the tunnels of Gaza to encrypted chatrooms in Malaysia, the dollar‑pegged stablecoin Tether (USDT) is fast replacing cash couriers and hawala brokers as the preferred conduit for terrorist finance. A 2025 Crypto Crime Report by blockchain‑intelligence firm TRM Labs estimates that extremist‑linked wallets moved at least US $228 million in USDT during 2024, a 240 percent jump year‑on‑year.

Much of the activity rides on the low‑fee, high‑speed Tron blockchain, where transfers cost fractions of a cent and traceability is muddied by thousands of look‑alike addresses. Analysts say USDT’s dollar parity offers militants a hedge against the volatility that once deterred them from using Bitcoin.

Recent seizures paint a stark picture. Israel’s National Bureau for Counter‑Terror Financing (NBCTF) has frozen more than US $1.7 million in Tether held by Hezbollah and Iran’s Quds Force since mid‑2023, while a March 2025 U.S.‑led operation seized dozens of Hamas‑controlled wallets funneling donations from Asia.

Stablecoins have also featured in OFAC’s evolving sanctions regime: an October 2023 designation targeted Gaza‑based operatives who laundered USDT through Russian exchanges.

FinCEN responded in April 2025 with a draft rule characterising certain convertible stablecoins as ‘primary money‑laundering concerns,’ obliging U.S. platforms to file enhanced Suspicious Activity Reports for transfers exceeding US $1,000 to high‑risk jurisdictions.

Tether Limited, the company behind USDT, has sought to prove it is part of the solution. In late 2023 it froze 32 addresses linked to militant groups in Israel and Ukraine, and in 2024 integrated Chainalysis’ ‘Sanctions Oracle’ to automate wallet screening.

Critics counter that reactive blacklisting occurs only after tips from law enforcement. Because anyone can create a Tron wallet anonymously, terror financiers exploit what Chainalysis calls “rapid‑peel chains”—a cascade of small transfers that splits funds into dozens of branches before landing on OTC desks willing to swap USDT for physical dollars.

The laundering cycle often ends on compliant exchanges in Asia or Latin America, where know‑your‑customer (KYC) checks are weak. Some platforms disguise USDT flows by routing them through cross‑chain bridges and privacy protocols such as THORChain or Sinbad.io.

Policy makers are weighing tighter guardrails: the EU’s MiCA framework will require stablecoin issuers to maintain on‑chain whitelist controls by 2026, while the United States is debating a bipartisan bill that would impose travel‑rule reporting on all dollar‑backed tokens.

Even so, investigators admit they are racing a nimble adversary. “USDT’s liquidity and dollar peg make it the PayPal of the dark economy,” a senior NBCTF analyst said. Until regulators and industry actors close the data gaps, the world’s third‑largest cryptocurrency may remain a double‑edged sword—fueling innovation on one side and extremist violence on the other.