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Tether deposited more than $1bn with a financial services group founded by a Tory party donor who last year was indicted on allegations of bribery by US authorities.
The world’s largest stablecoin issuer placed the funds with a subsidiary of Britannia Financial Group, according to filings made in London’s High Court, offering a rare glimpse into the banking relationships Tether has built.
Despite Tether’s pivotal role in crypto markets, the company has kept its ownership structure, how its roughly $87bn of assets are managed and its ties with financial institutions under tight wraps. Its stablecoin, USDT, helps underpin crypto markets, offering a smooth way to trade assets such as bitcoin and ethereum.
Tether says that each of its stablecoins is backed by a dollar, allowing investors to redeem the digital tokens on demand. The company’s ability to keep that promise ultimately depends on the liquidity and safety of its reserves.
The more than $1bn deposit by Tether is at the heart of a previously unreported legal battle between Britannia Financial and Arbitral International, a company registered in the British Virgin Islands. Tether opened an account with a subsidiary of Britannia Financial in November 2021, according to court filings.
Britannia Financial was founded by Venezuelan-Italian banker Julio Herrera Velutini, who in August 2022 was charged by US authorities in an alleged bribery scheme involving a Puerto Rican politician. Herrera Velutini has vigorously denied the accusations, calling them “baseless” and “politically motivated”. Britannia Financial was not accused of any wrongdoing.
Tether has itself drawn regulatory scrutiny. In 2021, the Commodity Futures Trading Commission alleged the company had made misleading statements about having enough dollars to back each of its stablecoins in circulation.
An investigation in the same year by the New York attorney-general into Tether for allegedly concealing huge losses stated that, for a period from the middle of 2017, the group did not have access to banks anywhere in the world. Tether settled both probes without admitting liability.
The company’s chief technology officer Paolo Ardoino told the Financial Times last year that it had strong relations with more than seven banks.
Earlier this year, Arbitral filed a claim in London alleging Britannia Financial failed to pay the full price for a Bahamas-based brokerage it sold to the group in June 2021.
According to the filings from both parties, there was an agreement that Britannia Financial would pay an extra sum based on the amount of revenue-generating assets the business held a year after its sale, including those from clients originally introduced by Arbitral or related parties.
Arbitral argues it is owed money under that arrangement because Tether’s deposit was made in the 12 months after it sold the business. Britannia Financial denies that it owes any more money, saying that Tether put the funds with its London-based subsidiary Britannia Global Markets rather than the brokerage it bought from Arbitral. Britannia Global Markets operates as an executing broker and securities custodian.
Britannia Financial says it was introduced to Tether by Aldo Mazzella, who it describes in the filings as “a professional introducer” and someone it believed to have had a commercial relationship with Tether since around 2017. Arbitral, however, claims that an executive at its former Bahamas brokerage also played a role in the introduction.
In its court filing, Britannia Financial said that Tether had initially considered putting some of its funds with the Bahamas-based brokerage it acquired from Arbitral, but decided that “it wanted its assets to be held in the UK rather than in the Bahamas”.
Headquartered in London’s Scalpel building, Britannia Financial provides investment banking, brokerage as well as asset and wealth management services.
London has sought to establish itself as a hub for the cryptocurrency industry. Earlier this month, regulators set out proposals that could eventually lead to stablecoins being used as a means of payment in the UK.
In August, Bloomberg reported that Tether had begun using Britannia Bank & Trust, a Bahamas-based bank also owned by Britannia Financial, to process dollar transfers.
Through Britannia Financial, Herrera Velutini has donated more than half a million pounds to the UK’s Conservative party since former prime minister Boris Johnson took office, including £100,000 days before the 2019 general election. Last year, Britannia Financial sponsored the platinum jubilee Pageant, which marked the 70-year anniversary of the late Queen Elizabeth II’s accession to the throne.
This summer, Herrera Velutini transferred ownership of Britannia Financial Group to his 26-year-old son, Julio Cesar Herrera, according to Companies House filings.
Mark Bruce, chief executive of Britannia Financial, told the FT that Herrera Velutini resigned as a director of Britannia Global Markets in late November 2021 and “is not involved in any day-to-day management of any other Britannia entity”.
Tether and Mazzella did not respond to requests for comment. A lawyer for Arbitral International declined to comment.