They can attempt to pass the blame to the US Gov't, and maybe some individuals would be fooled, but larger investors wouldn't be and would see through their ruse and would both be upset and basically lose any faith they have in the system, making the value of Tether plummet. No one would touch Tether, making it worthless, since the big exchanges would then not let you exchange between <Coin> <-> Tether, and so even if they have some assets backing them up they would effectively be worthless as a company because of loss of trust.

So they lose faith in the system... so what? Tether still has all the assets, why would they care that the itchy and scratchy money they gave everyone is worthless?

If Tether's dollars are sanctioned and can't be used, then they are as good as worthless.

Another comment in this thread asked what happens to the backing assets when USDT gets sanctioned. Imagine if large amounts of USDT get sanctioned so Tether can refuse to ever redeem them, yet they keep the collateral. They could go from insolvent to super-profitable overnight!

Tether will get to keep all the bitcoins and people will be holding the bags.

This is a very interesting theory.