Key Insights:
- Circle was accused of delaying blacklisting Lazarus-linked wallets, allegedly profiting from hacked funds.
- Crypto community questions Circle’s response to $4.96 million tied to the North Korean hackers.
- Stablecoin issuers increase efforts to freeze illicit funds as Lazarus Group exploits continue.
USDC issuer Circle is under scrutiny after allegations emerged that the company profited from transactions involving hacked funds tied to the North Korean hacker group, Lazarus. The accusations, brought forward by blockchain investigator ZachXBT, revolve around Circle’s delay in blacklisting wallet addresses connected to illicit activities by the group. This delay reportedly spanned 4.5 months, during which time transactions linked to the stolen funds allegedly continued to generate revenue for Circle.
Delayed Blacklisting Sparks Controversy
The controversy began when ZachXBT, a well-known figure in the blockchain community for his investigations into crypto-related exploits, criticized Circle on social media. His accusations focused on the company’s failure to promptly freeze wallets tied to the Lazarus Group following a major hack. ZachXBT claimed that Circle had ample time to blacklist the addresses but failed to take action, unlike other stablecoin issuers that had already done so.
According to reports, four stablecoin issuers, including Circle, Tether, Paxos, and Techteryx, blacklisted two wallet addresses containing a total of $4.96 million in stablecoins linked to the Lazarus Group. These funds were spread across USDT, USDC, BUSD, and TUSD. While other companies acted faster, ZachXBT accused Circle of delaying the blacklisting process, thus allowing the group to continue using its platform for money laundering.
Accusations of Profiting from Hacked Funds
ZachXBT’s public remarks also extended to Circle’s financial gains during the delay in blacklisting the hacked funds. He implied that the company profited from the transactions processed during the period, accusing them of prioritizing revenue over security measures. The Lazarus Group, known for its involvement in various crypto hacks, was allegedly responsible for a $20 million exploit on the Indonesian crypto exchange Indodax on September 11.
While Circle has not directly responded to these allegations, the company faces increasing backlash from the crypto community for its perceived lack of urgency in freezing illicit funds. The accusations come at a time when the role of stablecoins in money laundering schemes is drawing greater attention from regulators and industry observers.
Growing Concerns About Lazarus Group’s Activities
The Lazarus Group, believed to be backed by the North Korean government, has been implicated in several high-profile cryptocurrency thefts over the years. According to reports, the group has laundered nearly $200 million in crypto assets between 2020 and 2023. Their method often involves converting stolen cryptocurrencies into stablecoins like USDT and USDC, which can be more easily moved and stored.
As part of a broader investigation, crypto exchanges have frozen an additional $1.65 million linked to the hackers. This brings the total amount of frozen funds to $6.98 million. The combined efforts of stablecoin issuers and exchanges to freeze these assets indicate an ongoing effort to combat the group’s illicit activities, though the delayed response by Circle has raised questions about the company’s commitment to such measures.
Stablecoin Regulation and Anti-Money Laundering Efforts Intensify
The accusations against Circle have reignited discussions surrounding stablecoin regulation and the role of issuers in preventing the use of their platforms for illegal activities. As the crypto industry faces growing scrutiny, stablecoin issuers are being urged to adopt stricter measures to prevent their assets from being used in criminal activities, particularly by state-backed hacker groups like Lazarus.
Other stablecoin issuers have already taken more proactive steps in this regard. Tether, for instance, has partnered with Tron and TRM Labs to establish the T3 Financial Crime Unit, a task force dedicated to fighting fraud and money laundering. The T3 unit has reportedly frozen over $12 million in USDT linked to scams and fraudulent activities.