One of the world's most controversial cryptocurrency companies could have a major ally near the top of the incoming Trump administration. Howard Lutnick, the billionaire Wall Street CEO tapped by President-elect Donald Trump to serve as Commerce secretary, is a leading U.S. booster of Tether, the offshore crypto firm that issues a stablecoin pegged to the value of the dollar. He is now poised to give the company, long the subject of scrutiny over its reserves and alleged links to illicit finance, a powerful supporter in Washington. The firm’s sudden influence is alarming some crypto lobbyists and raising a potential conflict of interest for Lutnick. Cantor Fitzgerald, the financial services firm he has led as CEO since 1991, manages reserves for Tether, which issues the world's largest stablecoin, with a market capitalization of more than $132 billion. While Lutnick would not have direct oversight of digital assets as Commerce secretary, he serves as co-chair of Trump’s transition team, leading efforts to vet personnel, and is a longtime friend of the president-elect. Lutnick said in a statement last week that he would step down and divest his interests in his companies if he is confirmed by the Senate. “Just given his past connections and being a proponent of crypto and specifically Tether, it would help his credibility if he’s not in any way directly involved in decisions that would benefit them,” said John Pelissero, the director of government ethics at Santa Clara University’s Markkula Center for Applied Ethics. He added that it is “good that Lutnick has decided to divest himself of his interests in Cantor Fitzgerald.” A Trump transition spokesperson said in a statement that "Howard Lutnick, like all those who serve in the Administration, will follow the laws and regulations for public service." Tether CEO Paolo Ardoino told CoinDesk last month that the firm “doesn't expect any political favors by anyone.” Cantor holds most of Tether’s assets, according to a report over the weekend in the Wall Street Journal, and it collects tens of millions of dollars in fees each year under the arrangement. The firm also struck a deal in the past year to receive about a 5 percent ownership stake in Tether, the paper reported. Lutnick has been Tether’s highest-profile proponent in the U.S. business community, defending the company against claims that its token is used in illicit finance and vouching for the legitimacy of its reserves. He has also touted stablecoin adoption as a way to promote dollar hegemony, which he calls “fundamental to the United States of America.” Some in the crypto space expect his selection to be a boon for Tether — and it comes as the firm is facing potential scrutiny from U.S. law enforcement. The Treasury Department has for months been considering sanctioning Tether over its alleged role in facilitating illicit finance and money laundering, according to a person with direct knowledge of the matter. Prosecutors at the Manhattan U.S. attorney’s office are also probing whether the firm’s crypto token has been used by third parties to fund illegal activities, according to a report last month in the Wall Street Journal, which also first reported that Treasury was weighing sanctions. Tether said in a statement to MM that it has “no indication” it “is under investigation by the DOJ or Treasury for sanctions violations or AML issues,” adding the suggestion is “false.” “To suggest that Tether is somehow involved in aiding criminal actors or sidestepping sanctions is outrageous,” the company said. “We work actively with U.S. and international law enforcement to combat illicit activity, as we’ve publicly demonstrated many times.” Tether has touted its efforts to work with law enforcement, including in the U.S. The Justice Department has acknowledged working with the company in the past, including in an August press release that credited Tether “for its assistance in effectuating the transfer of” seized assets. While Lutnick is seen as an ally of the crypto sector, some industry lobbyists have expressed concern about legitimizing Tether. “Tether’s been seen as the poster child of how not to operate a stablecoin,” said one Washington crypto lobbyist, granted anonymity to speak candidly about sensitive dynamics within the sector. The tension illustrates the looming power struggle within the crypto sector as Washington gears up to radically overhaul digital asset regulations after a slate of election wins for industry-friendly candidates, including Trump. Others in the industry view Tether more favorably and see Lutnick as an influential friend. A second crypto lobbyist told MM that Lutnick’s presence in the administration “is going to be good for crypto” and added that Tether is “not necessarily the bad actor that people think they are.” Adam Zarazinski, CEO of the crypto intelligence firm Inca Digital, said Tether has “made mistakes” in the past, but added that “they’re working diligently to do a better job now.” “I think what you’re going to see within the next year is a broad maturing and a broad … movement toward more risk management,” he said. At a crypto conference in July, Lutnick said Cantor thoroughly vetted Tether’s assets and helped onboard it with law enforcement agencies around the world. “Tether does what it says it does,” he said. IT’S TUESDAY — Send crypto and Capitol Hill tips to Jasper at jgoodman@politico.com. As always, you can reach Sam at ssutton@politico.com and @samjsutton.
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