U.S. authorities have seized approximately $89 million from Capstone Limited, a payment processor that acted as a critical intermediary for offshore banks, including EQIBank, which held some of Tether's reserves. The seizure, which included $81 million from two Wells Fargo accounts and $2 million from a JPMorgan Chase account, along with nearly $1.2 million in cryptocurrency, stemmed from allegations that Capstone misrepresented itself as an IT business rather than a money services business to gain access to the U.S. financial system. Capstone allegedly facilitated crypto-for-cash schemes and moved hundreds of millions for various entities, including foreign financial institutions and their customers.
This incident has frozen a portion of Tether's reserves, although Tether claims it represents less than 0.034% of its total assets. Despite the seemingly small direct exposure for Tether, the situation has put EQIBank, licensed in Dominica, at significant risk of liquidation, as the seizure affected about 80% of its total cash holdings. The case, currently ongoing in California, raises broader concerns about the transparency of stablecoin reserves and the counterparty risk associated with offshore banking, especially given that Tether's attestations indicate most of its $190 billion reserves are in U.S. government bonds.
The seizure has brought renewed scrutiny to Tether's banking relationships, echoing past challenges. For instance, in 2017, Wells Fargo suspended U.S. dollar wire transfers for Bitfinex and Tether, leading to Tether being unbanked and unbacked for much of that year. Later, Bitfinex and Tether relied heavily on Crypto Capital Corp., a third-party payment processor implicated in money laundering. This recent seizure underscores the ongoing struggle for Tether and similar entities to maintain stable and transparent banking relationships, prompting questions about the concentration of their reserves outside traditional, regulated financial institutions.
