Stop the Next Epstein; Stop Stablecoin “Rewards”

Congress’ new crypto law transfers wealth from community banks and may open the door to the next Jeffrey Epstein.

By Bartlett Naylor

A loophole in a cryptocurrency law Congress approved last summer may help finance the next Jeffrey Epstein.  This overlooked snafu may permit Interest payments on stablecoins., potentially financing sex traffickers, cartels and sanctioned regimes

Stablecoins are crypto where one dollar buys one token. The new law claims interest payments on stablecoins are banned, making the product less attractive than a traditional, FDIC-insured bank account. But major stablecoin issuers are sidestepping the ban by offering “rewards” to purchasers — some of which exceed bank deposit rates.

This is not conjecture and where there is smoke there is fire. The Monster Jeffrey Epstein flirted with cryptocurrency to finance his human trafficking operation, as revealed by the trove of 20,000 documents released by the House Oversight Committee. He also lived near Howard Lutnick, who led Cantor Fitzgerald, as it held the underlying assets for the Tether stablecoin cryptocurrency, which is the largest. Where is Lutnick now? He is now Trump’s Commerce Secretary.

Epstein ultimately remained with traditional finance, using JP Morgan Chase as they failed to ask any questions

The next Epstein may, and the current human traffickers do, favor stablecoins.

Human traffickers already prefer stablecoins because they offer fast, cross-border, semi-anonymous transfers — perfect for hiding illicit proceeds.

 

The trend is unmistakable:

• The State Department’s  2021 Trafficking in Persons reportnoted that human trafficking networks increasingly use cryptocurrency to launder the proceeds of their crimes.
• The Wall Street Journal reported that Russian oligarch networks, Iranian financial networks, the terrorist group Hamas, the Maduro regime in Venezuela, and international drug cartels evaded sanctions by using stablecoins to conduct cross-border transactions that would be much more difficult, if not impossible, through conventional banking channels.
• The New York Times reported reported that at least $28 billion linked to criminal activity has flowed through crypto exchanges in just the last two years.
• Georgetown researchers reported that in 2024, illicit transactions with one form of crypto, namely stablecoins, passed $51 billion, up from $46 billion in 2023.

 

In crime generally, crypto makes for fast, cross-border, largely anonymous transactions. “At least $28 billion tied to illicit activity has flowed into crypto exchanges over the last two years,” the New York Times reported Nov. 17.

 

Worse, the loophole risks fueling criminal networks, including human traffickers who already use crypto, while drawing money away from consumers and the community banks that support local economies. Some of that money going into stablecoins is money not going into community banks, which can be recycled into home and small business loans.  Treasury analysts warn that if stablecoins begin offering yields comparable to bank accounts, as much as $6.6 trillion—about 36% of all U.S. deposits—could move out of insured institutions and into payment stablecoins.

Honest consumers who simply want a good interest payment for their savings may unwittingly abet the crooks if they buy stablecoins. That’s because a money laundering operation requires legitimate money to hide. An honest dollar goes into the stablecoin fund and might come out to redeem a trafficker.

Congress will shortly consider another cryptocurrency bills. While Public Citizen opposes this bill on many grounds, it is critical that any final bill close this stablecoin “rewards” loophole. Community banking should thrive, not the next Epstein.