Tether Holdings Ltd. as a company may not have had direct access to the elusive US banking system, but it seems that it found a way to navigate through the maze with the help of Signature Bank.
Paving the Way
According to Bloomberg, Tether instructed its crypto clients to pay for its stablecoins by sending dollars to Capital Union Bank Ltd., its Bahamas-based banking partner, via Signature’s Signet payments platform. While the exact timeline of this setup is unclear, it was reportedly in place when Signature Bank was seized by regulators in the recent past.
The arrangement highlights the challenges that crypto firms face when trying to access the reluctant US banking system, even before Signature and other crypto-friendly banks collapsed in March. As a result, crypto firms have been searching for alternative options at smaller, more accommodating lenders.
Although Tether has never been sanctioned, it’s worth noting that banks are under regulatory expectations to know who’s accessing their products and services. If Signature was aware of and allowed this arrangement, it suggests a high-risk appetite on their part, according to Alma Angotti, a former senior enforcement officer with the Securities and Exchange Commission and Treasury Department.
In its response, Tether stated that its risk management practices enabled it to identify specific risks and weaknesses that others had missed, ensuring that its entities wouldn’t be affected by either direct or indirect exposure to Signature.
Signet was a payment network operated by Signature Bank that allowed crypto clients to send fiat dollars to each other to settle trades, even outside normal business hours, matching the 24-hour nature of crypto transactions.
Interestingly, US prosecutors were investigating Signature Bank’s work with crypto clients before regulators suddenly seized the lender. They were examining whether Signature took sufficient steps to detect potential money laundering by clients, such as scrutinizing people opening accounts and monitoring transactions for signs of criminality.
Capital Union Bank, one of Tether’s banking partners, has digital assets as one of its primary businesses, along with lending, wealth management, and trading and execution. It looks after Tether’s cash reserves, along with Deltec Bank & Trust Ltd., while Cantor Fitzgerald LP is a custodian for Tether’s Treasury-bill holdings.
For years, Tether has been trying to gain access to the US banking system, but without much success. Executives of Tether and Bitfinex had attempted to open accounts at Signature in 2018, but the bank closed two accounts tied to the companies and rejected another attempt.
Despite the ongoing US crypto clampdown, Tether has been flourishing. Its stablecoin value in circulation has increased by almost 20% this year, reaching nearly $80 billion, while the market value of its main competitor, Circle’s USD Coin, has shrunk by 27% to $32.5 billion in the same period.
