OTC has become a hotbed of money laundering, can exchanges stay out of it?
Author | Qin Xiaofeng
Editor | Lu Xiaoming
Produced | Odaily
Author | Qin Xiaofeng
Editor | Lu Xiaoming
Produced | Odaily
The over-the-counter market (OTC) is becoming more and more extensive, attracting the attention of investors.
In January, Goldman Sachs-backed crypto finance company Circle claimed that 10,000 over-the-counter trades had been made in 2018, totaling $24 billion.
According to a research report by the consulting firm Tabb Group, in August last year, the OTC market of BTC was two to three times the trading volume of exchanges; 25-50% of all transaction volume.
The secretive and huge OTC market has attracted many investors. Even Bitmain founder Wu Jihan's new entrepreneurial project Matrix is targeting this market.
Matching is not standard, information circulation is opaque, and many criminals try to launder money through OTC, which also puts a touch of gray on this market. Although many cryptocurrency exchanges have strengthened KYC (Know Your Customer) and AML (Anti-Money Laundering) measures, "money launderers" still have ways to pass through these lines of defense, and the ultimate victims are users.
"Coin speculation is technical, and not everyone can play it well." Some OTC traders lamented.
In order to avoid stepping on pitfalls, OTC trading veterans have summed up a set of lightning protection methods: separation of receipts and payments, and fund filtering.
However, only by doing a good job at the source (the exchange) can we avoid future troubles forever.
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Thawing in three days VS waiting half a year
When OTC transactions are frozen, you can only wait for God to save face. You may have to pay out of your own pocket to eliminate the disaster, and it may be thawed in a few days.
"What should I do if the account is frozen? I just received a sum of money in the Huobi fiat currency trading area, and then the account was frozen."
It was the first time that his bank account was frozen, which made investor He Xiao quite at a loss. I thought that such a thing would never happen to me, but I didn't expect it to happen.
At 13:00 on June 10th, He Xiao sold 4,000 USDT (about 28,000 yuan) on Huobi OTC (over-the-counter trading platform). After 2 minutes, the money arrives normally.
"Huobi's customer service did not provide the other party's information, and the other party's phone number was empty." Helpless, He Xiao could only go to the bank for help.
However, the bank stated that it did not know the reason for the freezing and could not provide help, and suggested to go to the account opening bank to check the reason. By the time he arrived at the account opening bank, it was already past the off-duty time.
With the idea of giving it a try, He Xiao tried to use the mobile bank to transfer money, and the error code: 93012587 was displayed.
image description
(frozen screenshot)
"The customer service of ICBC only said that this code shows that the account has been frozen. It may be frozen by the public security organs. The specific reason can only be found out by the bank where the account was opened." He Xiao said with a smile, "But I haven't gone to the bank where the account was opened the next day. It's back to normal."
As for the reason for being frozen, he said that he still doesn't know and doesn't take it to heart. However, He Xiao, who didn't know what to do, followed the advice of the group friends and transferred all the funds in the card to other accounts.
A person familiar with the matter told Odaily that the reason why He Xiao's account was frozen was because the money collected in his account may be "black money". "The source of the money is not clean (fraud or money laundering), so it is included in key monitoring and freezing measures are taken."
As for why the freeze was unfrozen after only one day, Guo Yatao, a lawyer of the chain law team, explained that if the public security agency froze his account, it may be that it was found that it had nothing to do with the case, so the freeze was lifted. If it is frozen by the anti-money laundering agency, it may be a temporary freeze, and the law stipulates that the freezing time shall not exceed 48 hours.
"Financial institutions that have not received a notice from the investigation agency to continue freezing within 48 hours after taking temporary freezing measures in accordance with the requirements of the anti-money laundering administrative department of the State Council should immediately lift the freezing." Guo Yatao said.
At the beginning of December last year, Lao Huang also sold 30,000 yuan worth of Ethereum (ETH) in the fiat currency trading area of a domestic exchange; two days later, when Lao Huang made the transfer, he found that the bank card was also frozen.
After several twists and turns, Lao Huang got in touch with the Nanjing police who froze the bank card. Through the police, Lao Huang also learned that his account was involved in a telecom fraud "money laundering".
In August last year, there was a telecom fraud case in Nanjing, involving more than 300,000 yuan. After the successful deception, the suspect carried out money laundering activities through the cryptocurrency exchange, and the funds of more than 300,000 yuan flowed into the accounts of some traders on the OTC platform of the exchange, and the dealer who traded with Lao Huang was one of them . Later, part of the funds flowed into Lao Huang's account.
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(Suspected money laundering fund chain, all frozen)
"This matter has nothing to do with me, and I did not cheat, why should my account be frozen?" Lao Huang was indignant.
However, the local police only told Lao Huang that since the case had not yet been closed, all the funds involved in the case had to be frozen until the case was over.
However, a friend of Lao Huang, similar to his situation, had his account unfrozen within a week.
"The (police) officer told her to unfreeze the victim's 40,000 yuan, and she had more than 4 million yuan in her account. After thinking about it, she finally gave it up." Lao Huang explained the reason for the unfreezing, "After a week of payment, it will be unfrozen. It was unfrozen, probably because the victim withdrew the report."
To this day, more than 30,000 yuan in Lao Huang's account card is still frozen.
Xiao Sa, director of the Bank of China Law Research Association, believes that the police's freezing of investors' accounts is legal in law. "Where illegal activities are involved, such as money laundering, organization leadership pyramid schemes, and fraud, the police have the right to freeze the relevant accounts. In addition, because it is uncertain whether other assets in the account are involved in other cases, it is a routine practice to freeze all funds."
As for the freezing process, Guo Yatao explained: "It should be approved by the person in charge of the public security organ at or above the county level, and a notice to assist in freezing property should be prepared and notified to financial institutions and other units to implement."
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Only dozens of cards in hand can "anti-freeze"
In order to avoid pitfalls, users are also forced to resort to complicated "cash withdrawal" methods.
"Coin speculation has technical content, not everyone can play it well." Chen Qi, an over-the-counter trader, expressed his views on what happened to He Xiao and Lao Huang.
In Chen Qi's view, Lao Huang and He Xiao's coin selling operations "can be called a textbook-like error demonstration."
Due to the many risks in OTC transactions, Chen Qi explained that many OTC veterans do at least two things: separation of receipts and payments, and fund filtering.
The so-called separation of receipt and payment means that the collection card and the payment card are separated into two or more different cards.
In the opinion of many OTC traders, the safety factor of payment cards is low. Therefore, after receiving the payment, the funds must be filtered and transferred to another secure card for future payment.
"The filtering method is actually through third-party platforms." OTC trader Jeff Liu said, "I have used Alipay, WeChat, wealth management platforms, online merchant banks, and even P2P."
The method Liu Jiefu mentioned is to transfer the funds in the receiving card after selling coins to a third-party platform, and then transfer them out to another card through the third-party platform.
image description
(funding filter)
Taking Alipay as an example, after the receiving card receives the money, recharge it to Alipay, then transfer it to Yu Libao or Yu'e Bao, and finally use Yu Libao/Yu'e Bao to transfer it to another card.
"Of course, this is not foolproof. If it is not done well, Alipay will be blocked. Alipay unfreezing procedures are more troublesome than bank cards." Liu Jiefu reminded, "So the most important thing is to do it right from the source. It is best to protect yourself from those "money laundering" "There are entanglements. "
How to do it well from the source? Liu Qi believes that when investors sell coins, they must choose OTC buyers with higher credibility, such as whether the registration time is longer and whether they have passed multiple certifications of the platform.
"Of course, some reputable merchants are not without problems. Generally speaking, these people will not take the initiative to get involved in "black money". The cost is too high. "Liu Qi explained, "The main reason is that those who traded with merchants may be "black money", and the merchants transferred them to other people in a muddle, and finally the entire capital chain was frozen. "
In addition, the coin seller can require the payer to pay with the real name (the real name of the platform is the same as the name of the bank card payment), so as to prevent the first-hand black money from being received to the greatest extent.
"If you receive a payment that is not in your real name, you must return it through the original route, and make a note when returning: wrong type/transfer error, to prevent any relationship with black money." Liu Qi said.
In addition, when selling coins, you can choose to split the operation, and the amount of a single transfer should not exceed 50,000, so as not to trigger the "freeze of the PBOC transfer system".
Yuan Jun believes that lowering KYC standards on the platform can increase transaction activity. "If gray transactions, including money laundering, are excluded, a large part of the transaction volume may be reduced."
According to Yuan Jun, CEO of MinIPO, it is the lack of supervision of the trading platform itself that causes users to be extremely cautious when conducting off-exchange transactions to prevent receiving black money. "The exchange itself is not particularly serious and professional in KYC. I don't think this is their own professional problem, but they do it on purpose."
Yuan Jun believes that lowering KYC standards on the platform can increase transaction activity. "If gray transactions, including money laundering, are excluded, a large part of the transaction volume may be reduced."
Although cryptocurrencies are still in a gray area, in Yuan Jun’s view, the government will definitely impose strong supervision on cryptocurrencies in the future, which also requires trading platforms to be good “gatekeepers.”
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The KYC of the platform still needs to be strengthened
The platform is the first gate for the inflow of "black money", how to be a good "gatekeeper" and give full play to the regulatory role of the platform itself?
Under regulatory requirements, many cryptocurrency exchanges including Huobi, OKEx, and Binance have gradually improved measures such as KYC (Know Your Customer) and AML (Anti-Money Laundering), requiring users to register with their real names.
The Odaily test found that when registering on the Huobi platform, if false ID information is used, it is difficult to register. The platform appears to be connected to public security departments and can detect false identities.
An early user of Huobi told Odaily that in the early days of Huobi, KYC was not required, and transactions, deposits and withdrawals can be made by registering with a mobile phone and email. After the "September 4th Notice" in 2017, Huobi launched KYC real-name verification and required users to take photos with their ID cards in hand.
The other two exchanges (OKEx, Binance) also started the KYC process at the same time "after September 4th". Among them, OKEx also needs to conduct video verification, requiring users to read the verification text by voice.
At present, foreign cryptocurrency exchanges are also strengthening the KYC mechanism.
According to The Block, on June 10, Bitfinex sent emails to users, asking them to carry out image verification with their ID cards issued by the local government. Bitfinex wants to use this method to filter American users, so as to avoid direct conflicts with American regulators.
Another exchange, Bittrex, also requires users to fill out compliance forms that contain personal information, including proof of employment and retirement income, and transaction verification.
But judging from the results, Know your customers (know your customers) is not easy.
An anonymous person who has been engaged in KYC certification said that when Binance launched IEO, because domestic identities did not allow IEO, many investors chose to purchase foreign identities for KYC, which gave birth to the proxy certification industry. "The fee for certification is 600-800 yuan, and the identities are basically from Myanmar and Cambodia."
In March, research firm Coinfirm released a report. In a study of 216 exchanges, Coinfirm said 69% of these businesses did not have “fully transparent” KYC procedures; only 26% had “high” levels of anti-money laundering (AML) procedures, such as conducting ongoing transactions Monitoring and internal compliance staff with anti-money laundering experience.
The report also believes that Binance has "high" regulatory risk. Because on this exchange, KYC is not required for deposits and withdrawals of less than 2 bitcoins.
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Kind tips
Many people are concerned, what should they do if their account is accidentally frozen?
First of all, you need to contact the account opening bank to inquire about the reasons for freezing, and consult the following information: freezing period, freezing method (bank freezing or judicial freezing), freezing authority, contact person and contact information.
Kind tips
First of all, you need to contact the account opening bank to inquire about the reasons for freezing, and consult the following information: freezing period, freezing method (bank freezing or judicial freezing), freezing authority, contact person and contact information.
One is the temporary freezing by the police, which means that your card is not a card that directly accepts black money. Wait patiently, and it will be automatically unfrozen when it expires, usually up to 72 hours.
"If it is a bank freeze (such as a large-value transfer), don't worry. Just bring the materials required by the bank and cooperate with the process. Usually, the freeze will be released within three working days." Liu Qi said, "But if it is a judicial freeze, it will be more troublesome. "
Liu Qi explained that there are two types of judicial freezes:
The second is that the police ask the people's court to freeze the case, usually for half a year to one year, and the freezing period can even be extended until the case is closed or withdrawn. Every place is different. Some can unfreeze all the materials; some unfreeze half, and the funds involved in the case must be frozen; some cases are unfrozen only after the case is closed.
(Note: Some interviewees in this article are pseudonyms)
"The second one can only depend on luck." Liu Qi added, "You are not afraid of the shadow if you are upright. As long as you have not committed a crime, you are not afraid."
