Trump’s Transition Team Is Tethered To Thievery (And Worse)

This is part two in a series about the broligarchy. Part one, “Of Tech Bros And Trumpers” covered the ways in which international money laundering and decentralized finance enrich venture capitalists.

“Opportunity makes a thief.”

                            - Francis Bacon

Howard Lutnick is perhaps best known as the CEO of Cantor Fitzgerald, a financial services company that up until the morning of September 11th, 2001 occupied the particularly inauspicious real estate at the tippy-top of 1 World Trade Center. Up until that morning Lutnick’s name was not well known outside of Wall St. circles but in the weeks that followed the public got to know him as the guy who stopped the paychecks of all his recently vaporized employees before the smoke had even cleared from the smoking crater that used to be two of the world’s tallest buildings. Lutnick’s company’s action left the families of his employees without expected income just as they were grappling with the sudden and massive trauma of losing a loved one in a terrorist attack.

I share that factoid not because it’s particularly germane to the topic we’ll be covering here but because it effectively sets the stage as far as what kind of person we’re talking about when we talk about Howard Lutnick. These days Lutnick should be well known for managing “many” of the $118 billion dollars belonging to a company whose name appears in criminal indictments the world over. Pig butchering fraudsters, fentanyl traffickers, slave traders, Russian oligarchs, North Korean hackers, Hamas, and Hezbollah have all relied on the full faith and credit of this pile of money to ply their trade while skirting the laws created to prevent them from opening the kind of plain vanilla checking accounts the rest of us non-terrorists take for granted.

The company whose money Lutnick is holding is named Tether. It is far and away the single most important company in the rolling tsunami of fraud and cringe sometimes called “the cryptocurrency market”.

What kind of company is Tether? Here’s a good mental model that will get you most of the way to understanding their business plan. Envision an enormous bank account that is simultaneously shared by every kind of criminal the world over. Think organized crime groups of many and varied ethnicities, drug cartels, terrorists, rogue nuclear states, money launderers, offshore casino operators, and so on. Then:

• Tether is the accounting system that enables this cast of supervillains to share the bank account, keeping track of who owns how much of the money in the account at any given time.

• Howard Lutnick’s company Cantor Fitzgerald is the bank.

Tether makes money because this bank account earns interest. A whole lot of interest, paid directly by the United States Treasury into Tether’s pocket, none of which is ever passed on to Tether’s customers (the people sharing the bank account) as would be expected in any normal financial operation that involved taking custody of customer money. By many metrics Tether is one of the most profitable companies in human history, often reporting more quarterly income than Goldman Sachs.

It would be reasonable to wonder whether these impressive profit margins are related to the fact that Tether’s name keeps showing up in criminal indictments all over the world, perhaps most noticeably in the American and Chinese court systems.

Anyways while that’s not exactly how the Cantor/Tether setup works – for instance Cantor is not technically a bank and what’s in the shared account isn’t cash but instead “cash equivalents” as well as gold, bitcoins, and worse – that’s an pretty reasonable way to think about it. The difference between the mental model just described and what is really going on with Tether, Cantor, and an army of the world’s most wanted supervillains is mostly just nomenclature.

Anyways back to Howard Lutnick. In addition to his work as CEO of Cantor Fitzerald Lutnick has recently taken a keen interest in politics, holding at least one star-studded fundraiser for Donald Trump at his home in the Hamptons. This fundraising activity appears to have paid off handsomely seeing as how Lutnick was just appointed to be Co-Chair of the Trump transition team, a title he shares with Linda McMahon from World Wrestling Entertainment (WWE).

This article proposes that it would be reasonable for an American citizen to be Somewhat Concerned about the fact that a man who manages money for an offshore company which by all appearances seems designed more to avoid criminal prosecution than to serve its customers could well end up choosing who will be in charge of things like the Department of Justice and the armed forces should Donald Trump be reëlected. And if you think this is just a partisan perspective I will note that even in our polarized times a large and diverse group of people from both sides of the political aisle agree that Tether’s role in international criminal finance is Very Concerning.

So if Tether is an accounting system then how does it actually manage the accounts? A good mental model is that of a poker chip. Poker chips are, in their own way, an accounting system. When you enter a casino you give your money to the cashier in the cage. In exchange you are given poker chips along with the promise that you can bring those chips back to the cage and cash them in for real money at some time in the future. Your account balance in this system is the number of chips in your pocket. When you acquire more chips your balance increases, when you (inevitably) lose chips gambling your balance decreases, and if someone hits you in the face with a metal pipe and steals all your chips then your balance falls to zero.

This is a pretty good way to understand Tether’s token, usually referred to by the four letter symbol USDT. In our simplified scenario USDT is the poker chips, Tether is the cashier where you buy those poker chips, and the army of rigged gambling parlours that make up the cryptocurrency market is the casino.

What specifically happens when you give Tether your U.S. dollars is that Tether takes those dollars and puts them in an account at Cantor Fitzgerald. They then give you an equal amount of USDT “tokens” on a blockchain along with not-quite-a-promise that they will give you $1 for every USDT token you bring back to them in the future.

(EXAMPLE)

1. If you give Tether $100 you will receive 100 USDT tokens.

2. If you give Tether 100 USDT tokens they (almost) promise to give you $100.

Once you have exchanged your real money into cryptocurrency you and your newly purchased USDT tokens are loosed into the Hobbesian jungle of international criminal finance. It’s a place where the life of your capital is likely to be nasty, brutish, and short, but if you can come up with a good enough scam or rob enough people you can get incredibly rich.

It is worth noting that Tether is not the only poker chip vendor. It is, however, by far the biggest one, claiming to manage more than three times as many dollars as its only competitor of any size (a company named Circle). This size disparity may or may not be related to the fact that Circle is an American company that at least tries to create the illusion that it complies with existing financial regulations. If you are the kind of cryptocurrency user who might be negatively impacted by that compliance – if, let’s say, you were an Iranian money launderer who was well known for violating the current sanctions regime imposed by the United States government, a sin which would get normal banks a corporate death sentence and the executives of those banks a trip to prison – you might prefer to just not go near anything that has even a whiff of legal compliance. Therefore you might always choose Tether when presented with a choice of poker chip vendors.

At least, theoretically.

Or if you were, say, an Iranian cryptocurrency exchange allowing Iranians of all stripes to access dollar backed tokens you might also prefer some poker chip vendors over others.

It would not be unreasonable to conclude from the above evidence that no one in either political party in America cares about sanctioning the Iranian regime despite a lot of sturm und drang from both sides. Trump in particular made a lot of noise the Iran nuclear deal not being tough enough on the mullahs. Now the head of his transition team is holding American assets that back tokens with which Iranians transact freely with what are functionally U.S. dollars.

And while I was unable to confirm it I will mention that I have heard rumors from very good sources that the Iranian Revolutionary Guard, one of the most aggressively sanctioned entities on the planet, uses Iranian crypto exchanges to distribute funds to its proxies in the region like Hezbollah (much to the chagrin of Iranian crypto bros who both do not like the theocratic government and also know this could put their business in a dangerous place).

You may be wondering how this is all legal. The short answer is that for now Tether and Cantor Fitzgerald can afford enough lawyers with Ivy League degrees and without a conscience to let them pretend that cryptocurrency is so newfangled and “innovative” that the myriad laws preventing other financial institutions from doing business with criminals, terrorists, and rogue nuclear states do not apply to them.

The legal argument goes something like this:

“We, Tether, really only have around 300-400 customers who give us money and to whom we have given casino chips. Once our chips are out in the world we pay no attention to who might be holding them and what those people might be doing with them. In addition should any of our 300-400 customers repeatedly keep arriving with billions of dollars in cash we will never ask any questions about where that cash came from. All of this is fine because we are but a lowly casino chip vendor and definitely not a bank, money transmitter, currency exchange, or any other kind of financial business currently regulated by the government of any country larger than a small Caribbean island.”

Thus it may not surprise you to learn that enormous quantities of Tether’s USDT tokens keep showing up in the hands of fraudsters, drug dealers, Russian oligarchs, terrorists, Chinese kleptocrats, and so on. To individuals in this vaunted cast of characters USDT on a public blockchain is pretty much as good as a checking account. As an example consider a situation where I, a Cambodian slave trader, would like to buy a slave from you, the owner/operator of a scam factory where this slave currently plies her trade. All I have to do is transfer the appropriate number of USDT tokens from my blockchain address to yours. The uncensorable and peer to peer nature of blockchains ensures that no government can stop our transaction. And if you don’t have a blockchain address yet you can set one up right there on the spot in minutes. It’s more or less like opening a U.S. dollar bank account except without all the pesky paperwork and background checks.

Because in some sense the real bank account – the one that has to do the paperwork – is already open. The dollars that back the USDT tokens I exchanged for your slave are sitting in an American financial institution called Cantor Fitzgerald.

It is perhaps worth pausing for a moment to note that several of Tether’s customers have become quite famous in the last few years.

• Tether’s biggest customer, a young man by the name of Sam Bankman-Fried, appears to have bought $40 billion worth of USDT from Tether prior to becoming quite famous in 2022 when his company FTX turned out to be one of the largest frauds in corporate history. He is currently serving a 25 year sentence in a federal penitentiary.

• Alex Mashinsky, a customer to whom Tether “loaned” $1 billion USDT tokens in exchange for bitcoins (which very importantly is not how this is supposed to work – USDT is supposed to only be issued in exchange for actual U.S. dollars), became famous around the same time as Bankman-Fried when his company Celsius Network turned out to one of the larger frauds in corporate history even if it didn’t put up FTX numbers. Mashinsky’s riminal trial starts in a few weeks. If convicted he could end up spending 25 years in a federal penitentiary.

• Zhao Dong, both a Tether customer as well as a shareholder, was arrested and sent to prison in China in 2021 for running an organized money laundering ring.

• Pavel Durov, the CEO of popular social media app Telegram, was recently arrested as he stepped off his private jet onto French soil. Details are still coming out but as of time of writing it appears he will be charged with a host of crimes related to the fact that Telegram refused to police its users even when those users turned out to be organized crime figures, fraudsters, and child abusers.

Any patterns you are noticing about Tether’s customers are probably just a coincidence. Additionally I will point out that while not as famous as the men just listed one of Tether’s other shareholders, a man named Christopher Harborne, managed to make the news as the single largest donor to the Brexit campaign.

This video of storied fund manager Hugh Hendry discussing Tether at a bitcoin event is a good approximation of how most competent financial professionals view Tether.

The frightened “Is it OK to let him say this publicly?” look on the face of the interviewer pretty much sums up how everyone in the crypto industry views anyone publicly questioning Tether’s legitimacy.

There is very little left to say about how obviously sketchy Tether is that has not been said over the course of the past 7 years by an army of financial ournalists, attorneys general, regulators, United States senators (even the most militantly pro-crypto senators), offices of the United Nations, American treasury secretaries, and on and on and on. To date the best characterization of Tether is Zeke Faux’s description from a 2021 Bloomberg article titled “Anyone Seen Tether’s Billions?”

“It was hard to believe that people had sent $69 billion in real U.S. dollars to a company that seemed to be practically quilted out of red flags.”

It was hard to believe then. Today, as the number approaches $120 billion and Tether becomes at least theoretically one of the largest pools of capital in the entire world outside of things like the sovereign wealth fund of Saudi Arabia, it has become harder and harder to believe.

The incredible nature of Tether’s claims to solvency has given rise to a spectrum of opinions ranging from “Tether Truthers” who think that there’s just no real money there (and thus Tether is the largest fraud in history) to those who believe that it doesn’t matter if the money is there or not as long as people keep believing it’s there (a commonly held opinion among crypto bros). Of course many crypto bros, along with an army of Filipino “PR people” in Tether’s employ, wax philosophical on social media about Tether’s trustworthiness even though technically the record shows very plainly that Tether has repeatedly lied about its assets in the past.

I’m not here to re-litigate the issue of Tether’s solvency but if you want my opinion anyways I tend to think that at a minimum most of the money backing Tether at least exists. There are, however, still some questions I consider to “extremely open”. Questions like:

1. Does all of the money exist or just most of it?

2. Has Tether loaned out or otherwise encumbered whatever money they do have?

3. Does Tether actually have control of the money?

4. Has the U.S. government or E.U. already frozen any of Tether’s money?

Some day the world will get answers to those questions. If they are the wrong answers it will be an extinction level event for crypto, thousands of times more destructive than the collapse of FTX. The fact that the probability seems quite high that at least some of the answers will be the wrong ones is why most people in the cryptocurrency industry do not ask questions about Tether And they would rather you didn’t ask any either.

If you’re the kind of sicko who really wants to read more about the mechanics of how a dubious shadow banking systems for criminals the world over actually works here’s some links:

While all those links provide important info about Tether the best way to understand the vibe of Tether is to watch Tether’s now CEO (then CTO) sweating his way through a CNBC interview while attempting to explain why Tether “can’t disclose” any information about where all the money is.

When you finish watching consider the fact that this guy is nominally running one of the biggest investment funds in the entire world. More than the GDP of some countries.