Nonprofit watchdog CFA alleged Circle’s blockchain protocol CCTP enables money laundering and funding of terrorism through Tron network. Image by Kerem Goktug Kaya, DALL-E 3.

The Campaign for Accountability (CFA), a nonprofit ethics watchdog, renewed its accusations against Circle on December 14, alleging that the company’s Cross Chain Transfer Protocol (CCTP) is enabling money laundering and potentially funding terrorism.

CCTP in the Crosshairs

In an open letter addressed to Senators Elizabeth Warren and Sherrod Brown, CFA executive director Michelle Kuppersmith claimed that Circle’s CCTP “may be used to facilitate what appears to be the fastest growing vehicle for illicit finance in the digital asset space.” She pointed specifically to the protocol’s support for transfers to the Tron blockchain network.

“Tron has been named in multiple law enforcement actions involving billions of dollars in transactions by alleged organized crime groups and sanctioned entities,” the letter stated.

NEW: This morning, CfA sent a letter to @SenSherrodBrown and @SenWarren highlighting incomplete & misleading information shared by stablecoin-issuer Circle in response to previous concerns that CfA raised about its operations.https://t.co/88urQqriKF

— Campaign for Accountability (@Accountable_Org) December 14, 2023

Kuppersmith argued that by allowing USDC stablecoin transfers to Tron, Circle is effectively enabling money laundering and criminal activity on the network.

These accusations originally surfaced last month, when the CFA sent its first letter to the senators accusing Circle of inadequate anti-money laundering practices.

At the time, Circle’s head of public policy Dante Disparte strongly denied the claims in a blog post, stating that the allegations were based on unverified social media posts. Disparte emphasized that Circle actively monitors blockchain activity and suspends access to suspicious counterparties, while also reiterating that Circle no longer maintained any relationship with Justin Sun or his affiliated entities.

“Circle terminated all accounts held by Mr. Sun and his affiliated companies in February 2023,” Disparte stated in the blog post.

The Money Laundering Risks of Cross-Chain Transfers

In the latest letter, the CFA doubled down, asserting that new evidence has emerged to validate its warnings about Tron’s ties to illicit finance. The letter cited a recent Reuters report that claimed Tron has surpassed its rival blockchains to become the most popular platform for crypto transfers linked to designated terror groups.

The CFA letter also took issue with Circle’s response regarding its past relationship with Justin Sun. While Circle stated it no longer conducted any business with Sun, the CFA noted this indicates Circle previously had a direct customer relationship with the Tron founder — a connection the CFA was not previously aware of.

According to the letter, Circle did not disclose specifics about its prior dealings with Sun, merely stating the accounts were closed in February 2023. The CFA argued this lack of transparency around Circle’s ties to Sun raises concerns, given Tron’s alleged involvement in money laundering.

Terrorism-affiliated wallets (i.e. Tron wallets listed in the seize order documents 34-23, 19-23 and 15-22 excluding the two addresses being analyzed) only account for 10.62% of the total inflow volume into these two addresses. pic.twitter.com/6jmOTCbCPh

— Olawale Adedamola (@baakiblake) November 3, 2023

The CFA insisted that Circle is still failing to adequately mitigate the money laundering risks associated with Tron and other crypto networks accessible through the CCTP. Kuppersmith concluded the letter by urging Senators Warren and Brown to investigate these issues and increase oversight of Circle’s cross-chain operations.

The renewed scrutiny of CCTP comes amid broader concerns about cryptocurrencies being used to finance terrorism and evade sanctions. Government officials have been ramping up calls to strengthen compliance procedures and monitoring systems of the crypto industry to detect and prevent illicit transactions.

Since the outbreak of the Israeli-Hamas conflict on October 7, claims have intensified about cryptocurrencies funding terrorism. The blockchain analytics platform Elliptic reported that Tron’s SunSwap protocol was a popular means for money laundering by terror groups.

After media citations of its report, however, Elliptic stated that the scope of these transactions had been exaggerated. Regardless, cross-chain protocols like CCTP face continued doubts about their potential role in enabling illegal crypto activity.

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