Many people hold a misconception regarding Hong Kong’s Web3 policies: because Hong Kong supports the development of virtual assets, buying and selling cryptocurrencies, engaging in over-the-counter (OTC) transactions, and conducting stablecoin business in Hong Kong are all legal and safe.
This statement is only half correct.
Hong Kong is indeed developing its virtual asset market and creating institutional space for businesses such as trading platforms, stablecoins, custody, and payments. However, what Hong Kong encourages is financial innovation that is licensed, equipped with internal controls, implements customer identification, and monitors suspicious transactions, rather than providing a faster channel for the outbound transfer of funds of unknown origin.
A recent case adjudicated by the Hong Kong District Court serves as an apt illustration of this boundary.
According to Hong Kong media reports, on June 23, 2026, the Hong Kong District Court rendered a judgment in a money laundering case involving virtual asset OTC transactions. A 34-year-old woman from mainland China pleaded guilty in Hong Kong to four counts of money laundering. After arriving in Hong Kong, she opened multiple local digital bank accounts, which were used by cross-border criminal syndicates to receive proceeds from fraud. After the funds were credited, she withdrew the amounts in cash and purchased cryptocurrencies at local virtual asset exchange shops in Hong Kong. Within two months, the amount involved reached HK$9.29 million. The court ultimately sentenced her to 47.5 months of imprisonment.
This is not a story about “being sentenced for buying USDT in Hong Kong.” What makes this case truly noteworthy is how fraud proceeds moved from victims’ accounts into local digital bank accounts in Hong Kong, and were then converted into on-chain assets through cash and OTC transactions. For criminal syndicates, OTC is not an investment tool, but an exit channel for moving illicit funds from the banking system onto the blockchain.
The Issue Is Not Buying USDT, But Converting Fraud Proceeds into USDT
When discussing such news, many people tend to misdirect the issue: Is buying USDT prohibited? Will using OTC services lead to arrest? Does splitting funds into several transactions necessarily constitute wrongdoing?
The answer to all these questions is no.
In criminal cases, the crucial factors are the source of the funds, their intended use, and the role of intermediaries. Clean funds do not automatically become illicit merely because they are split into multiple transactions; funds used for genuine investment, trade, family support, or immigration arrangements do not automatically constitute a crime simply because a particular financial instrument was used.
However, if the upstream source is fraud proceeds, every subsequent action will be reinterpreted. Opening accounts is not merely routine account opening, but providing a collection channel; withdrawing cash is not ordinary withdrawal, but severing the bank transaction trail; buying USDT via OTC is not a normal transaction, but converting criminal proceeds into on-chain assets that are easier to transfer across borders; transferring cryptocurrencies to designated wallets is no longer just a transfer, but assisting the criminal syndicate in controlling and moving the illicit funds.
This is why, in such cases, those held accountable are often not limited to the individuals at the front end of the fraud scheme. Who opened the accounts, who withdrew the money, who took the cash to exchange for USDT, who provided the wallet addresses, and who collected the fees—all these actions are examined within the same fund flow chain.
For criminal defense, the most critical aspect is not whether one “understands cryptocurrencies,” but whether one can explain the fund flow chain: where the money came from, why it came to you, why it was withdrawn in cash, why it was exchanged for USDT, where it went after the exchange, and whether the party noticed any abnormal signals at the time.
Accounts Responsible for Receiving Funds, OTC Responsible for Cashing Out: How Police Reconstruct the Fund Flow Chain
For cross-border criminal syndicates engaged in money laundering, the first step is usually not to buy cryptocurrencies immediately, but to secure accounts.
Victims’ funds need to first enter a local account that appears legitimate, capable of receiving payments, and allowing withdrawals. The more accounts available, the easier it is to disperse funds; the more dispersed the account holders are, the easier it is for the criminal syndicate to hide behind them.
Therefore, renting out, selling, or lending accounts, or opening accounts to receive money under others’ instructions, always carries significant risk. Account holders may believe they have not defrauded anyone and were merely helping to pass funds through. However, from the perspective of law enforcement agencies, these accounts serve as the entry point for illicit funds into Hong Kong’s financial system.
If large amounts are credited within a short period, followed by immediate withdrawal, mismatches between payers and counterparties, or chat records requesting no remarks, no inquiries into the source, and prompt processing, these factors will become evidence for determining “knowledge or constructive knowledge.”
The sensitive point in the OTC segment lies in the break between cash and on-chain assets.
On one side is cash, whose source is difficult to trace; on the other is USDT, which can be transferred rapidly across platforms, wallets, and jurisdictions. Without strict KYC procedures, source-of-funds checks, transaction records, retention of wallet addresses, and handling of suspicious transactions, OTC services transform from transaction facilitators into fund conduits.
The greatest danger in the industry is not “customers coming to buy USDT,” but when customers’ transaction behaviors cannot be reasonably explained. For example, an individual with no stable income source brings millions in cash to exchange for stablecoins within a short period; the same intermediary repeatedly brings different customers to conduct transactions, yet their wallet addresses, devices, and contact information show high overlap; funds are rapidly circulated among multiple bank accounts before being consolidated for OTC cryptocurrency purchases; customers refuse to explain the source of funds, demanding only immediate receipt and transfer of the cryptocurrencies.
If such transactions are accepted without question, it will be difficult for OTC shops to justify their actions with “we did not know” when cases are retrospectively investigated. In criminal cases, “not knowing” is not merely a verbal defense; it depends on whether appropriate identification, verification, and refusal measures commensurate with the risks were implemented.
Hong Kong’s Support for Web3 Does Not Mean Relaxed AML Standards for OTC
Hong Kong is indeed promoting the development of the virtual asset market. The licensing regime for virtual asset trading platforms is already operational, and the regulatory regime for stablecoin issuers was implemented on August 1, 2025. According to public information from the Hong Kong Monetary Authority, stablecoin issuers in Hong Kong have entered a licensed regulatory framework. Market participants must comply with the Stablecoins Ordinance and related guidelines; unlicensed activities and improper promotions may trigger regulatory consequences.
However, this regulatory path is not a relaxation, but rather the integration of virtual assets into a clearer financial regulatory framework.
In February 2024, the Hong Kong Government conducted public consultation on legislative proposals to regulate virtual asset over-the-counter trading, proposing the establishment of a licensing regime for virtual asset OTC service providers under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. Several key points in the proposal include: entities providing virtual asset-to-fiat spot trading services as a business must obtain a license from the Commissioner of Customs and Excise; the regulatory scope covers both physical stores and online platforms; the Commissioner of Customs and Excise will supervise licensed persons’ compliance with anti-money laundering and counter-terrorist financing requirements.
This indicates that regulatory authorities view OTC as a key interface in the virtual asset market. It connects fiat currency and virtual assets, as well as banks, cash, stablecoins, wallets, and cross-border transfers. The more important the interface, the less likely it is to remain long-term in a state of “acquaintance referrals, cash transactions, and deals concluded without source verification.”
In July 2025, Hong Kong Customs announced a money laundering case involving approximately HK$1.15 billion, which involved the smuggling of cash and virtual assets. Customs noted that the individuals involved frequently and rapidly conducted huge stablecoin and fiat currency transactions with funds of unknown origin, which were grossly disproportionate to their backgrounds and financial status. This statement holds significant industry implications: law enforcement agencies assess OTC risks not merely by whether cryptocurrencies were purchased, but by whether the amount, frequency, customer profile, source of funds, and method of transaction can mutually explain each other.
Viewing this information collectively, Hong Kong’s stance is not contradictory: the compliant virtual asset industry continues to develop, while channels utilizing accounts, cash, OTC, and wallets to launder criminal proceeds are being continuously tightened.
Documentation That Ordinary Individuals and OTC Shops Should Retain
In such cases, ordinary individuals may become implicated.
Some are persuaded by friends to open several accounts in Hong Kong, “just to help receive some money.” Some sell their bank accounts or e-wallet accounts to intermediaries. Some believe they are merely running errands, collecting a small fee for withdrawing cash, buying USDT, and transferring cryptocurrencies, assuming that at worst it constitutes a regulatory violation rather than a criminal offense.
The issue is that the significance of real-name account systems lies in the fact that someone is accountable behind each account. Criminal syndicates are willing to pay you fees not because the action is risk-free, but because they need your identity to bear the risk.
When victims report the crime, bank statements are traced, accounts are frozen, and police arrive, the person who must explain the source of funds is the account holder themselves. At that point, chat records, payment receipts, withdrawal records, OTC transactions, and wallet addresses will all be examined together. Whether you can produce evidence of genuine goods, services, loans, investments, or other underlying relationships directly determines the persuasiveness of the claim that you were merely “helping a friend.”
If ordinary individuals genuinely have cross-border funding needs, they should revert to the true reasons and compliant pathways. Immigration, investment, family support, medical care, trade settlement, and overseas living each have different documentation, quota, tax, and foreign exchange management requirements. Finding compliant pathways troublesome and instead borrowing accounts, seeking underground banks, or buying USDT with cash often does not reduce costs, but rather stacks civil, administrative, and criminal risks together.
For practitioners in OTC, wallets, payments, and stablecoins, risk control cannot stop at the level of “the customer claims to be legitimate.” Compliance is not merely taking a photo of an ID card, nor does it end with having the customer sign a statement that “the source of funds is legal.” Truly useful records should link customer identity, payment paths, source-of-funds documentation, transaction purposes, wallet addresses, transaction hashes, and risk control judgments. When encountering clearly unreasonable transactions, there must also be evidence of refusal, suspension, enhanced due diligence, or reporting of suspicious transactions.
Mainland clients purchasing USDT via Hong Kong must also consider an additional layer of legal risks in both jurisdictions. This is an area where many people most easily misjudge: operating in Hong Kong does not mean risks are calculated solely under Hong Kong law. If the source of funds, customer solicitation, account provision, currency exchange needs, or upstream crimes are located in the mainland, even if the actions take place in Hong Kong, it does not mean the risks remain confined to Hong Kong. In the mainland context, common entry points for cases involving virtual currencies and cross-border funds include illegal business operations, concealing or disguising criminal proceeds, money laundering, aiding information network criminal activities, complicity in fraud, operating casinos, and illegally absorbing public deposits. The key remains not the label of “buying and selling USDT,” but where the funds came from, why they passed through you, what you earned, whether you acted as a collection or payment agent, whether there were abnormal prices, and whether there is evidence to explain the purpose of the transaction.
If accounts have been frozen, police have made contact, or assistance in investigations has been requested, the first step is not to repeatedly explain “I was just helping,” but to organize the materials: source-of-funds documentation, underlying transaction relationships, chat records, payment receipts, withdrawal records, OTC transaction vouchers, wallet addresses, on-chain hashes, counterparty information, and the reasoning process for why you believed the transaction was legal. In criminal cases, the ability to clearly explain the fund flow chain is often more important than simply claiming ignorance of cryptocurrencies.
What Can Be Explained Is a Transaction; What Cannot Be Explained May Be a Fund Flow Chain
The true lesson from this Hong Kong OTC money laundering case is not that “buying USDT leads to imprisonment,” but rather: when a sum of money must pass through another person’s account, cash withdrawal, OTC cryptocurrency purchase, and overseas wallet to complete its transfer, it is no longer merely a technical pathway issue, but a fund flow chain that requires legal explanation.
Hong Kong’s direction in developing Web3 remains unchanged. Virtual asset trading platforms, stablecoins, tokenized assets, crypto payments, wallets, and custody may all become part of Hong Kong’s financial market.
However, developing Web3 does not mean allowing virtual assets to become high-speed channels for criminal funds. The more new financial tools are incorporated into regulation, the more they must accept constraints regarding accounts, customers, source of funds, transaction records, and suspicious transaction monitoring.
For ordinary individuals, do not lend accounts, do not sell accounts, and do not receive money, withdraw cash, buy USDT, or transfer cryptocurrencies on behalf of strangers. For practitioners in OTC, wallets, payments, and stablecoins, do not only ask customers how much USDT they wish to buy, but also ask where the money comes from, why it is being purchased in this manner, where it will go after the transaction, and whether there is evidence to explain it.
What can be explained is a transaction; what cannot be explained may be a fund flow chain of the gray or black market.
About Mankun
Mankun Law Firm was established in 2015. It is a boutique law firm dedicated to serving Web3.0 and the next-generation internet, with deep expertise in emerging economic sectors such as blockchain, artificial intelligence, and tech finance.
Headquartered in Shanghai, the firm has branch offices in Hong Kong, Shenzhen, Silicon Valley, and other locations. Its core members come from renowned law firms, judicial organs, technology companies, and digital asset institutions. Leveraging a unique multi-perspective approach encompassing “law, industry, and regulation,” the firm provides high-quality legal services to clients with both Chinese depth and global breadth.
Based on a profound understanding of emerging economic sectors, continuous attention to and research on regulatory policies, and extensive practical experience, the Mankun team excels at providing comprehensive legal services from the perspectives of business models and legal practice. These services cover commercial structure design, project financing, operational compliance, commercial disputes, construction of anti-money laundering (AML) compliance systems, collaboration with global law enforcement investigations, digital asset tracing and recovery, criminal risk prevention and control, and criminal defense for clients in emerging economic sectors such as Web3.0 blockchain, artificial intelligence (AI), crypto payments (PayFi), decentralized finance (DeFi), tokenization of real-world assets (RWA), NFT digital collectibles, and crypto funds.
