Tether can cooperate with law enforcement; why can't Circle?

Written by: Jon Reiter

Translated by: Saoirse, Foresight News

Circle is currently facing criminal charges in Wisconsin. The case stems from an investment fraud, with charges stating: "Circle Internet Financial LLC has refused to transfer the corresponding fiat currency reserves" and "refused to comply with the asset seizure order issued by the circuit court judge."

Law enforcement has obtained a legal seizure order, but Circle refuses to comply. Circle insists it has no capability to execute the order; the government, on the other hand, is suing Circle for willfully refusing to cooperate. Setting aside the various statements, everyone confirms one thing: Circle has not implemented this seizure order to date.

In past reports, we often unearthed a plethora of contradictory details filled with contrasts and curiosities from the external public statements of companies and the legal settlement records that come to light years later. The vast majority of cases follow the same pattern: companies operate in violation while earnestly stating they will never cross the red line; lies and violations cohabit, but the truth is often buried for years before being revealed. However, this time, Circle's case breaks this delay; we can directly verify the authenticity of Circle's statements point by point in the current standoff between the government and the company. The International Consortium of Investigative Journalists (ICIJ) has followed this matter, but in our view, that report is too lenient towards Circle.

Background of the Incident

Tether has long cooperated with law enforcement to complete fund seizures. Tether has the right to destroy USDT from any address without user knowledge or consent and issue an equivalent amount of new tokens to a wallet designated by law enforcement. In theory, Tether could also recover tokens from law enforcement accounts, but this operation has yet to be seen. This authority has been held by Tether for many years, and there is no dispute within the industry.

Circle's situation is different: the current USDC smart contract does not have a built-in seizure transfer function. Both Tether and Circle can blacklist wallet addresses and freeze assets, locking funds in the original address; Circle typically only freezes addresses and cannot directly seize and transfer tokens. This is also the reasoning Circle provided to the Walworth County Circuit Court:

Aside from the authority to blacklist wallet addresses, Circle cannot control USDC within third-party wallets, has no ability to invalidate or reissue this portion of USDC, and cannot complete transfers.

The core of this statement is twofold: "no control authority" + "no operational capability," Circle uses a coordinating conjunction to assert both statements are true. If Circle has any feasible way to invalidate tokens, it is equivalent to making a false statement to the court. Once tokens can be invalidated, reissuing tokens is merely a standard issuance operation, with no technical barrier involved. Therefore, the crux of the matter is: Can Circle indeed invalidate the USDC in the law enforcement-designated address?

Actual Authority Held by Circle

At this stage, the existing contract cannot directly invalidate USDC or freeze funds. However, Circle can fully upgrade the USDC smart contract to independently add any necessary functions. The execution path required by the court:

• Directly seize the involved funds

Circle's compliant pathways are:

• Upgrade the USDC contract to add a seizure function
• Execute the fund seizure

The process for fund recovery described by Circle to law enforcement is as follows (quoted from Circle's court filing):

Circle explained to Agent Kuchta: 1. This wallet address is not held by Circle; 2. Circle does not have the private key for this address; 3. Therefore, Circle cannot withdraw USDC from the wallet; 4. If law enforcement wants to help the victims recover funds, they must find the private key for that address themselves.

Asking the police to find the private key themselves essentially represents Circle's firm refusal to cooperate. Simply put, Circle's logic seems to be:

1. Faced criminal charges for refusing to cooperate
2. Complaining that implementing the seizure will increase their burden
3. Finally upgrading the contract to add the seizure function when they can no longer bear it

The industry is well aware that Circle has the capability to upgrade the USDC contract, and the court is likely to consider this technical authority in the adjudication, with the judge determining the responsibility. Circle's user agreement grants the company significant autonomy, allowing it to restrict users' access to services for almost any reason at any time, as stated in the "Acceptable Use Policy":

Note: The following list of restrictions is not exhaustive, and Circle reserves the right to modify all terms without notice.

This agreement covers all categories of services under various entities of Circle, including custodial accounts, API interfaces, payment cards, financial products, etc. The broad language of "including but not limited to" in the agreement is sufficient to support Circle's upgrading of the contract to comply with the court order. The essence of this case is the court's directive; Circle refuses to comply. Even if someone feels that broadly interpreting the terms seems a bit far-fetched, deliberately misinterpreting the rules to evade judicial orders is itself a serious issue. It is precisely Circle's rigid insistence on a narrow interpretation that has ultimately led to criminal charges, continuously obstructing the court's execution. Conversely, if they were to cooperate using these flexible terms, they would not invite dissatisfaction from the court.

Circle's Terms of Service Contradict Its Actual Behavior

Circle's various official documents have stated in advance that the company could receive court asset freeze orders. The "Access Restriction Policy" outlines the asset freeze framework, and the official terms for USDC specifically set a section on "Blocking Addresses and Seized Funds," clearly stating:

If it receives a legitimate judicial document issued by a formal government agency, Circle is obligated to freeze USDC or transfer the corresponding dollar reserves from a segregated account.

The terms have already anticipated that the court would require a transfer of dollars to the designated account, with the section title directly including "seizure." The details of the court's seizure order disclosed by the Wisconsin government perfectly align with the terms:

The court's seizure order requires Circle to assist in seizing the USDC of Victim No. 1, invalidating this batch of tokens to render them completely valueless; at the same time, Circle is required to issue new USDC worth approximately $381,000 as compensation to the victims, transferring the new tokens to the Walworth County Sheriff's Office wallet. This operation is referred to in the industry as "destroy and reissue."

"Assist in seizure" is a broad directive; the court has not specified the exact method of operation but has simply asked Circle to find a way to implement it. However, Circle's response logic is perplexing. Circle repeatedly emphasizes its operational incapacity, while the government has supplemented further dialogue details:

In subsequent communications, Circle stated: The batch of frozen USDC cannot be redeemed, but the company has retained $381,000 in fiat currency reserves as a corresponding guarantee. Circle raised an objection: if new USDC equivalent to $381,000 is issued, the company must additionally retain $381,000 in reserves as a guarantee, a double reserve requirement is unfair to the company. Circle also claimed that according to its own contractual agreement, it cannot execute the destruction and reissue of USDC.

This logic has obvious flaws. Only by defaulting that Circle would never upgrade the contract does the double reserve become the so-called "necessary cost," as Circle deliberately portrays itself as the victim. Outside speculation suggests that Circle's actions aim to maintain the involved $381,000 reserves for an extended period to continue earning interest.

In other words, Circle's objections are predicated on a refusal to upgrade the contract. The Wisconsin government's documents confirm this point: Circle insists that contractual rules prohibit the destruction and reissue. However, multiple searches have found that Circle's official website has never mentioned the term "reissue." The USDC risk warning also contains a section on seized funds, with contradictory statements. If Circle's "contract" refers specifically to the currently operational smart contract, it does have no reissue rights in the literal sense, but this contract itself supports Circle's unilateral modification.

The external judgment is that Circle is intentionally delaying, relying on the prolonged freeze of the involved funds to earn interest, using the occupied principal to earn interest has become its implicit demand.

Logical Clarification at the Contract Level

The vast majority of commercial contracts stipulate that in special circumstances, the terms may be adjusted according to commercial reasonableness. Changes in partnering office addresses, banking institutions, or reference price indices are common adjustments; contracts do not become invalid directly due to these changes, and fulfilling parties need to make reasonable adjustments accordingly. This type of universal rule exists across various industries, and judges will also require that parties take reasonable approaches when litigating.

The logic of this incident involving Circle should be quite straightforward: the agreement allows for cooperation with judicial executions, and the company has clear and feasible operational steps. However, Circle insists on interpreting the contract in an extremely narrow, self-serving manner, deliberately fabricating the losses that cooperating with the case would generate as a complaint of unfairness. The documents submitted by Circle to the court clearly expose this line of thinking:

The only charge in the indictment against Circle for willfully obstructing the law is "Circle refuses to invalidate the stolen USDC and refuses to issue new tokens" (paragraph 9 of the indictment). However, the indictment distorts the facts of communication. Circle did not refuse to invalidate tokens but merely stated "does not possess the private key for that wallet address." A comparison of the indictment with evidence attachment 6 can confirm that Circle merely lacks the tools to currently invalidate tokens in blacklisted wallet addresses, rather than willfully defying the seizure order.

The court's directive is "assist in seizing funds." Circle argues that it simply does not have a ready-made "seizure button," yet it deliberately avoids the fact that it could fully upgrade the contract to add that function, but actively refuses to upgrade.

Circle's use of "not having the private key for the involved address" as a reason is a mere logical shift. Circle indeed lacks the private key of the fraudster's user, but the private keys that control funds are divided into two categories. In the context of this case, "private key" essentially refers to the power to control funds; Circle, holding the power to upgrade the contract, essentially has access to another set of control rights that allow for the transfer or invalidation of tokens. USDC and USDT are not completely decentralized, anonymous assets; the issuer always holds a significant amount of underlying authority.

Even if one were to forcibly interpret the documents with the strictest narrow technical lens, Circle remains full of lies. It claims it cannot invalidate, reissue, or transfer third-party USDC, yet upgrading the contract could achieve all of this. This lie gives rise to a series of false claims:

1. Newly issued USDC must have an additional $381,000 reserve: false. Once the contract's destruction function is enabled, the old tokens can be invalidated, releasing the original reserves without the need for double guarantees; Circle could even directly mark the address as illegal, completely ignoring the old tokens.
2. The contract prohibits the destruction and reissue of USDC: false. This is merely an internal policy that Circle can unilaterally modify; adhering to a policy of defying the court's order and refusing to execute is precisely the core of this criminal allegation.
3. Cannot control third-party wallet USDC: false. With its ability to upgrade the contract, Circle has controllable authority.
4. No ability to invalidate tokens: false, contract upgrades could achieve this.
5. Cannot reissue or transfer tokens: false, contract upgrades could achieve this.

Whether interpreted broadly or narrowly, Circle has not stated the truth. Unless Circle has lost its ability to upgrade the contract (if true, it would be a significant hidden incident, with no related records in the filings), otherwise, the company's statements throughout do not hold up. To date, there is no evidence in the court filings proving that Circle has lost its rights to modify the contract.

Circle's So-Called Principled Resistance

More strangely, Circle's agreement states the company has the right to refuse unreasonable judicial orders, but this rule does not apply to this incident. The "Access Restriction Policy" states:

If Circle determines that a certain address ban order may threaten the security of stablecoins or is itself unreasonable, Circle reserves all rights to object.

This provision only protects Circle's rights; USDC holders cannot benefit from it. Theoretically, this rule allows Circle to legally contest judicial orders without fear of shareholder liability. The U.S. judicial system is adversarial; Circle has the right to legally object to government demands and appeal against them, but it cannot directly refuse to execute after a judge has issued a final order.

There is speculation that Circle classifies any directive that would reduce its interest income as unreasonable. There exists an absurd logic that aligns with commercial reasoning: long-term locking of frozen assets and maximizing shareholder returns is the company's fiduciary responsibility towards its shareholders, while victims are not shareholders and do not deserve priority consideration. No company would openly state this kind of thinking, but publicly traded companies must be accountable to shareholders while also complying with court judgments and cannot brazenly defy a judge.

The initial seizure order was issued in August 2025, and the court has repeatedly reissued the seizure documents. Circle conveyed false statements to the Wisconsin regulatory authorities for several months, and the government officially filed criminal charges in April 2026. After multiple rounds of communication, Circle has crossed over the normal objection stage and has directly refused to execute the judgment, bringing negotiations to a complete halt.

Some believe law enforcement acted hastily in filing charges, appearing somewhat aggressive. However, it is hard to believe Circle would willingly concede; there are no turning points in negotiations. Circle firmly states that it is technically impossible to comply, a claim fraught with loopholes, unless Circle has undisclosable hidden circumstances. In order to restart negotiations, either Circle must admit to lying or law enforcement must abandon the seizure demand, neither of which seem possible at this time.

If the court demands Circle to seize USDT, we could understand Circle's inability. Circle is not omnipotent, and there are indeed many matters in the Web3 space that it cannot operate. Law enforcement may issue orders that are objectively unfeasible, just as a court cannot force a witness to guarantee they will not pass away before a trial. But this case is different; the operations demanded by the court are entirely feasible for Circle to implement.

This article makes two major predictions: first, Circle will ultimately compromise and cooperate with the execution; second, afterwards Circle will shift the blame for the lies to the legal and technical teams for miscommunication, which the court is unlikely to accept as an excuse. We are even curious whether Circle will cite "the priority of responsibility to shareholders and no priority for victims" as a reasoning. It is highly unusual for a publicly listed American company to openly lie extensively during a judicial confrontation. We have long predicted that Circle would ultimately let its legal team shift the blame to the technical team.