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Further reading

It appears that Tether has entered into a stand-off with the US government’s Office of Foreign Assets Control, or Ofac.

As our banking-industry readers will know, Ofac is part of the US Treasury Department, and not the type of regulator with whom you want to get into a disagreement.

Still, Tether published a statement Wednesday that said it hasn’t frozen secondary-market wallets tied to Tornado Cash, a “virtual-currency mixer” that OFAC’ed around and found out. The Tornado currency mixer is a privacy tool; money on the blockchain has a public trail of transactions, and Tornado Cash in effect scrambles the trail of any particular token of cryptocurrency. So it is easy to see why these mixers would be an attractive venue for money laundering.

Ofac said earlier this month that Tornado has been used to launder around $7bn, and put it on the US government’s list of Specially Designated Nationals and Blocked Persons (SDN) List. For context, another name on the list (helpfully sorted by country here) is Vladimir Putin.

This is the reasoning Tether provides for its decision not to freeze Tornado-Cash-linked addresses:

So far, Ofac has not indicated that a stablecoin issuer is expected to freeze secondary market addresses that are published on OFAC’s SDN List or that are operated by persons and entities that have been sanctioned by Ofac. Further, no US law enforcement agency or regulator has made such a request despite our near daily contact with US law enforcement whose requests always provide precise details.

The logic behind this is confusing to us. Unless we’ve misunderstood something, they appear to be arguing that because they haven’t been contacted specifically by Ofac about its SDN List, they don’t need to block the addresses that appear on it.

We do not get the impression that Ofac is the type of regulator who calls and asks nicely when it wants something done. The US Treasury Department is the agency that took down Al Capone. The US’s global sanctions regime was described by Adam Tooze (in a blurb of the recent book about sanctions from Nicholas Mulder) as “neoliberalism’s ultimate weapon.”

In any event, Tether adds that it “is not a US person, does not operate in the United States or onboard US persons as customers. However, Tether does consider Ofac Sanctions as part of its world-class compliance program.”

With a ~$68bn stablecoin that is explicitly pegged to the US dollar — the primary tool of US sanctions — we certainly hope it considers them!

Elsewhere on Thursday . . .

— Crypto vs sports betting (Stephen Diehl)

— “These arguments have nothing to do with how much you care about unemployment, or how much you care about the unemployment of disadvantaged groups,” [Summers] continued. “They only have to do with technical judgment.” (NYTimes $)

— Construction doesn’t scale. (Brian Potter)

— A few puzzling charts from former Alphavillain Matt Klein.

— Sam Trabucco is leaving Alameda Research (Twitter)

— Biden announces student-loan debt relief of $10,000 per borrower, up to $20,000 for Pell Grant recipients. The US suspended student-loan payments during the pandemic and won’t start requiring them until the end of this year. (NY Times $)

— A long read from WSJ about “Jerome Powell’s dilemma” ahead of his Jackson Hole comments on Friday. The dilemma is avoiding a recession while being seen to control inflation, even though some factors driving global inflation are out of the Fed’s control. (WSJ $)

— The Texas government says BlackRock is boycotting energy companies. In order to keep contracts with the state’s pension funds in the future, the asset manager will need to include a statement saying it doesn’t boycott energy companies. (FT)

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