A new lawsuit filed in the U.S. District Court for the Southern District of New York has requested that the $344 million in USDT, which was previously frozen by Tether, be handed over to victims. This petition aims to fulfill court-ordered compensations stemming from Iranian-linked terrorist attacks. Charles Gerstein, the attorney leading the case, stands out as someone striving to enforce compensation claims that have remained unpaid for decades, using the infrastructure of cryptocurrency transfers.
Tether and U.S. Sanctions
Tether is known as the company behind USDT, one of the world’s largest stablecoins. The company blocked access to 344,149,759 USDT in two Tron wallets after the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) associated them with Iran’s Islamic Revolutionary Guard Corps. The plaintiffs are asking the court to authorize the transfer of these frozen funds into a new wallet managed by their legal representatives.
The list of creditors in the lawsuit includes survivors and families of victims from a 1997 Hamas suicide bombing in Jerusalem. Because Iran is said to have backed these attacks, the victims won billions of dollars in court-awarded damages in the U.S. But a significant portion of these awards has been impossible to collect for years.
USDT’s Technical Controls and Legal Proceedings
Unlike decentralized cryptocurrencies like Bitcoin and Ethereum, Tether maintains various administrative controls over USDT. This means Tether can freeze suspicious wallets, blacklist addresses, or even zero out balances and reissue tokens to a different address if necessary. The legal filing notes that Tether already used this authority to comply with OFAC sanctions. The current motion argues that these same controls could be used to transfer funds to American victims.
Legal documents submitted for the case highlight Gerstein’s view that the legal argument here is clearer than in the recent Arbitrum case linked to North Korea. In that incident, the issue of ownership of crypto assets tied to the Lazarus Group remained unclear. By contrast, in this case, OFAC has unmistakably designated the Tron wallets as connected to Iran’s Revolutionary Guard, making the assets part of a state-backed terrorism enterprise.
Key Points Presented to the Court
The plaintiffs argue that under existing U.S. law, assets used to finance state-sponsored terrorism and subjected to sanctions can be distributed to victims via court order. The filings point out: “Tether’s systems are technically capable of transferring the frozen USDT to the victims,” underscoring the company’s authority and control over its network.
The case file states that, “If crypto infrastructure can freeze sanctioned digital assets, then courts are able to issue orders to transfer those assets to victims.” This argument forms the core of Gerstein’s position.
This situation stands as a pivotal precedent in the debate over the legal and technical toolbox available in the U.S. when it comes to controlling cryptocurrencies. Both the boundaries of technical infrastructure and the enforcement of court orders are subject to legal scrutiny with this case.
