U.S. Commerce Secretary Nominee Howard Lutnick Faces Tether Scrutiny

U.S. Commerce Secretary nominee Howard Lutnick faced questions about his firm’s involvement in Tether amid concerns over its reserves and allegations of illicit finance during a Senate Commerce Committee hearing.

Tether and Cantor Fitzgerald

During the hearing, Ranking Democrat Sen. Maria Cantwell questioned Lutnick about Cantor Fitzgerald’s relationship with Tether, which they have acted as custodian for since late 2021. USDT is currently the largest stablecoin by market capitalization and is utilized globally.

Tether has been scrutinized by regulators over its alleged reserves, particularly regarding the one-to-one dollar backing for USDT. The firm has consistently denied these allegations.

In 2021, the U.S. Commodity Futures Trading Commission stated that Tether “falsely represented that it would undergo routine audits to demonstrate that it maintained ‘100% reserves at all times,’” even though Tether reserves were unaudited. Tether paid a $41 million civil penalty and agreed to stop further violations of the Commodity Exchange Act.

Additionally, Tether and Bitfinex agreed to pay an $18.5 million fine to conclude a probe led by New York Attorney General Letitia James, which alleged the companies misled clients about liquidity issues after the 2016 Bitfinex hack. Tether has published attestation reports but remains criticized for their legitimacy compared to formal audits. Lutnick stated that he believes U.S. dollar stablecoins “should be audited” and fully backed by U.S. Treasuries.

Concerns about Illicit Finance

Lutnick was nominated by Trump to lead the Commerce Department after the election. Should he be confirmed, he plans to divest from his firm and focus on job creation and economic innovation. He will also participate in a newly-established crypto working group aimed at regulating digital assets.

During the hearing, Cantwell raised illicit finance concerns regarding Tether’s use by criminals in North Korea and Russia. Lutnick countered by stating that criminals also utilize traditional currencies like the dollar and euro, analogizing that blaming Tether is akin to blaming Apple for criminals using iPhones.

Response to Warren’s Letter

Ahead of the hearing, Sen. Elizabeth Warren sent a letter to Lutnick inquiring about his ties to Tether, asking for financial details and discussions with the Trump administration about the firm. Warren raised concerns that Lutnick’s family connections might present conflicts of interest, considering the influence he would have if confirmed as Commerce Secretary.

Warren expressed worries over Tether’s connections to illicit finance and highlighted past statements by Tether regarding their collaboration with law enforcement to combat criminal activity. However, Tether has asserted that there is no evidence of violations concerning sanctions or the Bank Secrecy Act.

Moreover, some Republicans have also questioned Tether’s involvement in supporting terrorism financing. In 2024, reports emerged indicating U.S. investigations into Tether related to potential violations of anti-money laundering laws. Tether CEO Paolo Ardoino responded, asserting that there was “no indication that Tether is under investigation.”