The key takeaway from this Hong Kong OTC money laundering case is not that “buying USDT leads to imprisonment,” but rather: when funds must pass through another person’s account, involve cash withdrawals, OTC crypto asset purchases, and transfers to overseas wallets to complete the transaction, it ceases to be merely a technical pathway and becomes a chain of funds requiring legal interpretation.
Hong Kong’s commitment to developing Web3 remains unchanged. Virtual asset trading platforms, stablecoins, tokenized assets, wallets, and custody services may all become part of Hong Kong’s financial market.
However, Hong Kong’s development of Web3 does not equate to permitting virtual assets to serve as high-speed channels for criminal proceeds. The more new financial instruments are incorporated into the regulatory framework, the more they must be subject to constraints such as identity verification, customer due diligence, transaction record-keeping, and monitoring of suspicious transactions.
For ordinary individuals, do not lend your accounts, do not sell your accounts, and do not receive funds, withdraw cash, purchase USDT, or transfer crypto assets on behalf of strangers. For practitioners in OTC, wallet, payment, and stablecoin-related sectors, do not merely ask customers how much USDT they wish to purchase; instead, inquire about the source of the funds, the purpose of the transaction, and whether the transaction can be reasonably explained.
The Issue Is Not Purchasing USDT, But the Conversion of Fraud Proceeds into USDT
When discussing such news, many people tend to misframe the issue: Does buying USDT mean one cannot do so? Will using OTC services lead to arrest? Does splitting funds into multiple transactions necessarily indicate wrongdoing?
The core issue is not the purchase of virtual assets per se, but whether the source and destination of the funds can be reasonably explained.
If funds originate from legitimate trade, investment, or lawful income, and stablecoins are purchased through compliant channels with complete transaction records retained, such activities are inherently unrelated to criminal proceeds.
However, if criminals obtain funds through fraud, gambling, illegal business operations, or other means, and then use third-party accounts to withdraw cash, purchase USDT through OTC merchants, and finally transfer the assets to on-chain addresses, the OTC purchase of crypto assets becomes merely one link in the chain of laundering funds.
Accounts Receive Funds, OTC Facilitates Cash-Out: How Police Reconstruct the Chain of Funds
For cross-border criminal groups engaged in money laundering, the first step is typically not immediate crypto asset purchases, but rather securing accounts.
Victims’ funds must first enter local accounts that appear legitimate, capable of receiving payments, and allowing cash withdrawals. The more accounts involved, the easier it is to disperse funds; the more dispersed the account holders are, the easier it is for criminal groups to remain hidden behind them.
Therefore, renting out, selling, or lending accounts, or opening accounts to receive funds under others’ instructions, carries significant risk. Account holders may believe they have not defrauded anyone and were merely assisting with fund transfers. However, from the perspective of law enforcement agencies, these accounts serve as critical entry points for illicit proceeds into the financial system.
Subsequent indicators—such as large deposits within a short period, immediate cash withdrawals, discrepancies between payers and transaction counterparts, requests in communications to omit remarks, avoid inquiries about sources, and expedite processing—become significant factors in determining “knowledge or constructive knowledge.”
The sensitive aspect of the OTC segment lies in the conversion between cash and on-chain assets.
On one side is cash, whose source is difficult to trace; on the other are stablecoins such as USDT, which transfer rapidly and can flow across platforms, wallets, and jurisdictions. If strict KYC procedures, source-of-funds reviews, transaction record retention, and risk identification mechanisms are lacking, OTC services may transform from transaction facilitators into conduits for fund laundering.
The true danger in the industry is not customers purchasing USDT, but rather customers’ transaction behaviors being inexplicable. Examples include individuals without stable income sources carrying large amounts of cash for transactions within a short period; the same intermediary continuously introducing different customers while wallet addresses, contact information, and devices show significant overlap; funds flowing rapidly through multiple accounts before being concentrated to purchase stablecoins; and customers refusing to disclose the source of funds, demanding only rapid transaction completion.
If such transactions lack effective verification and record-keeping, OTC service providers will find it difficult to rely solely on “I did not know” as an explanation during retrospective investigations. In criminal cases, “I did not know” is not merely a verbal defense but must be evaluated against whether reasonable duties of identity verification, risk assessment, and transaction management were fulfilled.
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 continues to operate, and the regulatory framework for stablecoin issuance is gradually being established. Hong Kong’s direction is to incorporate virtual assets into a clearer financial regulatory framework, rather than relaxing management of fund-related risks.
Virtual asset transactions, stablecoin payments, custody services, and OTC businesses essentially connect bank accounts, cash flows, wallet addresses, and cross-border fund movements. The more critical these connections are, the more robust the requirements for customer identity verification, anti-money laundering measures, and transaction record-keeping become.
Regulatory authorities’ focus on OTC risks is not because the transactions themselves involve virtual assets, but because OTC connects fiat currency with virtual assets, serving as a crucial interface for funds entering the on-chain world.
When assessing risks, law enforcement agencies typically do not look solely at “whether crypto assets were purchased,” but comprehensively evaluate transaction amounts, frequency, customer identity, source of funds, transaction methods, and the presence of any obvious anomalies.
Documentation That Ordinary Individuals and OTC Shops Should Retain for Explanation
In such cases, those exposed to risk may include not only professional institutions but also ordinary individuals.
Some individuals help others open accounts, receive funds, or withdraw cash based on friends’ introductions; some rent out their bank accounts or digital wallets; some believe they are merely running errands to earn handling fees and thus face no criminal risk.
However, the significance of real-name account systems lies in the fact that someone behind the account bears responsibility. Criminal groups often require not your capabilities, but your identity to assume the risks associated with fund flows.
When victims report crimes, bank statements are traced, accounts are frozen, and police make contact, the person who must explain the source of funds is the account holder themselves. At this stage, chat records, receipt statements, withdrawal records, OTC transaction records, and wallet addresses will all be examined as part of the same chain of funds.
If one cannot prove the genuine transactional relationship underlying the funds, merely explaining that “a friend asked me to help,” “I did not know the source of the funds,” or “I was just earning a small handling fee” often fails to form a complete defense logic.
For practitioners in OTC, wallet, payment, and stablecoin-related sectors, risk control cannot stop at customers’ oral explanations. compliance is not simply collecting ID cards, nor does it end with having customers sign a statement that “the source of funds is lawful.”
A truly effective risk control system should be capable of recording customer identity, transaction purpose, source of funds, payment pathways, wallet addresses, transaction hashes, risk assessments, and the handling process for anomalous transactions.
How to Proceed If Already Frozen?
If wallet freezes, exchange account restrictions, bank card freezes, or police contact have already occurred, the first step is not to hastily explain “I was not involved,” but rather to secure and organize all evidence.
Materials to be organized include: documentation of fund sources, transaction contracts, order details, chat records, payment and receipt statements, withdrawal records, OTC transaction vouchers, wallet addresses, on-chain transaction hashes, counterparty information, and an explanation of why you believed the transaction was lawful.
Different types of freezes correspond to different handling pathways.
If wallet or on-chain assets are restricted, confirm the corresponding address, transaction hash, and source of restriction; if an exchange account is frozen, understand the platform’s risk control reasons, whether judicial assistance is involved, and the channels for submitting appeal materials; if a bank card is frozen, communicate with the freezing authority regarding the fund statements.
If the entry point is incorrect, even extensive material preparation may fail to effectively resolve the issue.
What Can Be Explained Is a Transaction; What Cannot Be Explained May Be a Chain of Funds
The key takeaway from this Hong Kong OTC money laundering case is not that “buying USDT leads to imprisonment,” but rather: when funds must pass through another person’s account, involve cash withdrawals, OTC crypto asset purchases, and transfers to overseas wallets to complete the transaction, it ceases to be merely a technical pathway and becomes a chain of funds requiring legal interpretation.
Hong Kong’s direction in developing Web3 remains unchanged. Virtual asset trading platforms, stablecoins, tokenized assets, crypto payments, wallets, and custody services may all become important components of the future financial market.
However, the development of financial innovation does not imply relaxed regulation of criminal proceeds. The more important new financial instruments are, the more they must be subject to identity verification, source-of-funds reviews, and transaction record management.
For ordinary individuals, do not lend your accounts, do not sell your accounts, and do not receive funds, withdraw cash, purchase USDT, or transfer crypto assets on behalf of strangers.
For enterprises related to OTC, wallets, payments, and stablecoins, do not focus solely on transaction volume; instead, pay greater attention to the transaction background: Where did the funds come from? Why was the transaction conducted in this manner? Where did the funds ultimately flow? Is there complete evidence to explain these aspects?
What can be explained constitutes a transaction; what cannot be explained may constitute a grey or black-market chain of funds.
About Mankun Law Firm
Mankun Law Firm is a boutique law firm specializing in serving emerging economic sectors such as Web3.0, artificial intelligence, blockchain, and tech finance.
Headquartered in Shanghai, the firm has branches in Hong Kong, Shenzhen, Silicon Valley, and other locations. Its core members come from renowned law firms, judicial authorities, technology companies, and digital asset institutions. The Mankun team provides clients with legal services combining Chinese depth and global breadth, based on multi-perspective insights into “law, industry, and regulation.”
The team has long served clients in emerging economic sectors such as Web3 blockchain, artificial intelligence (AI), crypto payments (PayFi), decentralized finance (DeFi), tokenization of real-world assets (RWA), NFT digital collectibles, and crypto funds, providing comprehensive legal services including commercial structure design, project financing and investment, operational compliance, dispute resolution, establishment of anti-money laundering (AML) compliance systems, digital asset tracing and recovery, criminal risk prevention and control, and criminal defense.
