LONDON: The world's largest stablecoin, Tether, has stepped up monitoring of how its tokens are used in broader crypto markets and payments in a bid to combat illicit finance, Tether said in a statement on Thursday.

Tether, a cryptocurrency pegged to the U.S. dollar, and blockchain analytics company Chainalysis have launched new tools to identify transactions associated with sanctioned entities and analyse the activity of major holders of the token, Tether said.

Last month, Reuters reported that Venezuela's state-run oil company PDVSA planned to increase use of Tether in its crude and fuel exports at a time when the U.S. has reimposed oil sanctions.

The Wall Street Journal reported last month that Russian middlemen had used Tether to evade Western sanctions in order to source weapons parts for drones and other military equipment.

Tether's announcement did not mention either report.

Asked by Reuters if Thursday's announcement was related to the report about Venezuelan oil, a spokesperson for Tether said that its work to build a more powerful monitoring tool with Chainalysis had been "in the works for several months."

"Tether has been using Chainalysis data for several years, as the foundation for our investigation and compliance work. Also, Tether has clearly announced its compliance with OFAC/SDN list," the spokesperson said in emailed comments, referring to the U.S. Treasury's Office of Foreign Assets Control's sanctions.

Tether has previously said that every action with the cryptocurrency is online and traceable, and "every asset can be seized and every criminal can be caught."

Tether has grown rapidly in recent years, hitting $100 billion in circulation in March. That growth has been driven by its use as an alternative to the dollar in emerging markets, Tether CEO Paolo Ardoino told Reuters last month.

Stablecoins can be used as a form of payment, as well as to convert in and out of other tokens, such as bitcoin, when trading on crypto exchanges.

Tether, which is registered in Hong Kong and owned by a company registered in the British Virgin Islands, is able to freeze its tokens and has previously said it has done so in response to requests from law enforcement. (Reporting by Elizabeth Howcroft, Editing by Rosalba O'Brien)