Deltec Bank & Trust, a renowned institution in the Bahamas, finds itself embroiled in a web of intrigue that ties it to one of the most recognized names in the cryptocurrency world, Tether.
As American authorities move swiftly, seizing funds amid heightened regulatory scrutiny, the interplay between traditional banking and cryptocurrency platforms becomes starkly evident. This unfolding story raises questions about some of the biggest players in the industry.
Authorities Seized Funds from Deltec Bank Amid Fraud Investigation
In a swift operation on July 17, United States authorities seized nearly $45 million from the accounts of Deltec Bank & Trust in the Bahamas. The New York-based Mitsubishi UFJ Trust and Banking Corporation (MUFJ) initially presented these accounts as custody accounts.
However, recent allegations suggest that fraudsters deceptively used these accounts to transfer funds from over 150 victims of pig butchering through dozens of shell companies, evading typical international transfer scrutiny.
In China, fraudsters meticulously cultivated the elaborate cryptocurrency investment wire fraud scheme, luring victims into a web of trust, only to financially “slaughter” them. The perpetrators approached victims with seemingly accidental texts, built rapport, transferred the conversation to the Telegram messaging app, and gradually guided them toward fake versions of legitimate trading platforms.
Victims initially witnessed significant profits and were then encouraged to invest more, and eventually, their funds vanished.
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The US began investigating this scheme in September 2022, with undercover agents interacting directly with the fraudsters. They were directed to imitation versions of notable exchanges, including the Singapore International Monetary Exchange (SIMEX) and the Australian Securities Exchange (ASX).
It is alarming to note that while some victims lost millions, certain US financial institutions displayed lax due diligence, with some allowing fraudsters to open new accounts immediately after restricting or closing their previous ones.
Deltec’s involvement, however, paints a convoluted picture. Having opened its custody account in September 2021, Deltec faced scrutiny from MUFJ by April 2023 due to suspicious transfers.
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Specifically, concerns arose from the unknown sources of funds and the absence of a clear economic business purpose. Transactions funneled through shell companies like Axis Digital Limited and GTAL did not help their case.
“Deltec Bank has been proactively cooperating with the related investigation of the US Attorney’s Office for the Eastern District of Virginia in order to provide information and assistance consistent with applicable laws. We believe that Deltec Bank has a legitimate claim, under US laws, that the cash seized from its account at Mitsubishi UFJ Trust and Banking should be returned, and it intends to assert such claim as part of the forfeiture process defined under US law,” a Deltec Bank representative said.
Sam Bankman-Fried, FTX, Alameda Research, and Deltec Connection
However, the cloud of suspicion around Deltec is not new. The firm is known for associating with prominent crypto entities such as Sam Bankman-Fried’s FTX, Alameda Research, and stablecoin giant Tether.
Bankman-Fried’s association with Deltec Bank has been scrutinized due to the intricate financial interconnections. A significant pivot point in this relationship was when Alameda invested $11.5 million under SBF’s leadership in FBH Corp.
Jean Chalopin, who controlled FBH Corp, also held the position of chairman at Deltec. Therefore, forging a direct link between SBF’s business ventures and the bank.
Read more: FTX Collapse Explained: How Sam Bankman-Fried’s Empire Fell
In a strategic move, FBH Corp acquired Farmington State Bank. What is noteworthy is that shortly after this acquisition, the bank underwent rebranding and emerged as Moonstone Bank.
Following the transition, Moonstone Bank saw a meteoric rise in its deposits, catapulting from an average sum of around $10 million to an astonishing $84 million.
This dramatic increase predominantly resided in just four new accounts. This relationship was a game-changer for FTX, which had historically faced hurdles with money transfers, especially from US customers to its operations in the Bahamas. FTX effectively bypassed traditional banking impediments by establishing ties with Moonstone Bank.
Deltec’s multifaceted role in the crypto arena does not end with its association with SBF and Alameda. The bank also held a pivotal position as the primary custodian for the reserves of Tether, a leading stablecoin.
Indeed, Tether’s colossal reserves at Deltec amounted to over $26.3 billion in March 2021, almost two-thirds of all the Tether issued at the time.
Tether Held Billions on Deltec Bank, But No One Is Talking About It
Alameda’s involvement in Deltec Bank is accentuated by the fact that it was one of the predominant recipients of Tether. This mosaic of financial interactions concerns industry leaders like Mark Yusko, CEO of Morgan Creek Capital Management, particularly when examining the transparency and legitimacy of the transactions and holdings.
“Do some research into Deltec Bank. It has been around for a very long time. Bad guys doing bad things. They are related to Tether, Sam, big links to Tether. If there is a link to bad people doing bad things and Tether were to have problems that would be bad for the industry and we would have another significant leg down,” Yusko stated.
Tether has faced numerous controversies and accusations. Yet, it has remained stable in the market. Yusko emphasized the interconnections between Tether and Deltec Bank and that “no one is talking about it.”
Read more: “A Mammoth House Of Cards”: Former SEC Official Blasts Stablecoin Tether
He highlighted media corporations’ power and influence in shaping the narrative and directing the public’s attention.
“This silly, but it is true. You know, why are we having more stories about UFOs all of a sudden? It happens all the time. If you control the media and someone was publishing a story or talking about something you did not agree with, you can drawn it out,” Yusko added.
Against this backdrop, Leah Attia, PR representative for Tether, dove deep into these allegations with BeInCrypto. She reaffirmed Tether’s unwavering commitment to its users.
“Tether has a healthy relationship with Deltec Bank & Trust, which is one of several banking partners we work with. The recent seizure of funds by US authorities from Deltec’s accounts is a specific event and does not impact Tether’s operations. The latest attestation published shows $90 million in bank deposits, which are obviously spread among various banking partners around the world. This cash exposure represents approximately 0.1% of the total asset held as reserves. Again Tether’s operations are not affected by it,” Attia asserted.
However, beyond these ties, Tether has been grappling with larger issues – trust, transparency, and audit. Yusko, among others, has hinted at Tether’s USDT risk of depegging and holding Chinese securities. Such allegations and concerns over Tether’s reserves have intensely scrutinized the stablecoin issuer.
Read more: Did Tether Influence Signature Bank’s Collapse?
Responding to these concerns, Attia stated:
“Obtaining financial audits has been a significant challenge for the entire digital token ecosystem, including stablecoins, due to the lack of clear regulatory guidelines in the cryptocurrency industry. Tether acknowledges this challenge and is determined to become the first stablecoin to achieve this milestone.”
Given Tether’s paramount role in the cryptocurrency ecosystem, any misstep could have broader implications. When asked about potential regulatory changes and Tether’s preparations, Attia underscored:
“New regulatory frameworks provide a clearer structure and establish a well-defined path for conducting stablecoin operations, ensuring more transparency and accountability. Tether maintains an ongoing dialogue with law enforcement agencies as part of our commitment to cooperation, transparency and accountability.”
Read more: Tether Partners Used Fraudulent Documents to Give Company Access to Bank Accounts, Says Report
Despite Attia’s willingness to clarify the recent allegations against Tether, the intertwined relationships with Deltec highlight the necessity for clearer regulatory frameworks and meticulous due diligence in the industry.
The full repercussions of the investigation remain undetermined. Yet, it offers a potent reminder for industry leaders and regulators to strengthen the structures supporting global economic stability.
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