Former FBI Director Louis Freeh Talks Tether Investigation
Former FBI Director Louis Freeh and his son Justin gave an interview with Yahoo Finance shedding light on their law firm’s recent investigation of Tether. New details were revealed about how the investigation was carried out and the nature of the company’s banking relationships.
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Tether Looked to Clear Its Name With Report
The findings of the work done by Washington, D.C.-based law firm Freeh, Sporkin & Sullivan, LLC (FSS) were released in June. A report was issued which showed that each USDT issued was backed by one U.S. dollar on the day FSS examined the accounts, June 1st.
The issue of whether tethers are truly backed by U.S. dollars continues to be called into question, though Tether has steadfastly maintained it is the case.
The timing of new tether issuances, which has reached at least $1.75 billion USD in 2018, has raised red flags for many. Two researchers at the University of Texas at Austin published a paper in June in which they argued that tether issuances were being used to manipulate the market price of bitcoin.
Tether was subpoenaed by the Commodity Futures Trading Commission (CFTC) in December last year, and their accounting firm Friedman LLP severed ties with the firm.
The investigation by FSS was widely seen as an attempt by Tether, which is linked to crypto exchange Bitfinex, to clear its name and rebuild confidence in USDT.
However, FSS made it clear in the report, which was released publicly, that the:
“confirmation of bank and tether balances should not be construed as the results of an audit and were not conducted in accordance with Generally Accepted Auditing Standards.”
In the end, the report left many observers unsatisfied, though it was seen as at least a step towards greater transparency for Tether.
Freeh, Sporkin & Sullivan Interviewed Tether Personnel, Reviewed Documents
In the interview, the Freehs offered new information about FSS’s work for Tether, which lasted 90 days and had “two-and-a-half individuals” working on it full-time. Louis Freeh said that FSS partnered with several investigators on the job, including a computer forensics and cryptocurrency specialist, as well as a former assistant director of the FBI who ran the agency’s cyber programs.
Louis Freeh again made it clear in the interview that the investigation wasn’t an audit, but did say that Tether didn’t know when his firm would be checking their bank balances:
“The most essential part was that on a given day of our choosing, unknown to the client, and unknown to the banks with which it is dealing, we would appear at the financial institutions and get a certified, verifiable declaration by the institutions with respect to how much cash and dollars they had on hand.”
Justin Freeh said that the investigation was just one part of a “robust compliance program” that Tether was creating in order to improve its credibility. He noted that FSS’s work went beyond just checking bank balances, as they also interviewed key personnel and reviewed hundreds of pages of documents relating to Tether’s adherence to anti-money laundering procedures, the Bank Secrecy Act, and their Office of Foreign Assets Control policies.
Tether Has Two Banks, Names Unknown
Louis Freeh said that FSS didn’t talk to Wells Fargo, Tether’s former bank, but did say that the company currently worked with two banks that are “very, very well known.” The banks were not publicly named.
Yahoo Finance’s Daniel Roberts also noted that a partner at FSS, Justice Eugene Sullivan, had a relationship with one of the banks, raising conflict of interest issues. But Louis Freeh said that the firm minimized Sullivan’s involvement in the process. Sullivan didn’t interview any bank employees.
Where to From Here?
About a month after the report was published, Tether hired a new Chief Compliance Officer, Leonardo Real, formerly an anti-money laundering quality control manager at the Bank of Montreal. The firm appears to be continuing on its path of increased transparency. Having said that, Tether and Bitfinex remain quite opaque in many aspects of their financial operations.
Have your say. Is the embattled company trying to improve its image, and if so, is it succeeding?
Images via Pixabay