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China Cracks Down on USDT-Related Crime

While cryptocurrency trading has long been banned in China, over-the-counter (OTC) trading desks and exchanges have been a popular way for Chinese citizens to acquire cryptocurrencies. Without any KYC requirements, OTC exchanges provide people with a quick and easy way to acquire various cryptocurrencies, requiring virtually no settlement time and protecting users from the prying eyes of the Chinese government.

However, both law enforcement agencies and private security companies have warned about the dangers of OTC trading, highlighting the recent surge in crime that has been reported on these informal exchanges. According to the latest report from Weixin, a local news outlet in China, face-to-face OTC trading has the potential to turn into a full-blown security crisis in the country.

According to PeckShield’s Anti-Money Laundering Report, the output from unregulated cryptocurrency trading was $17.1 billion in 2020, up 51% since 2019. The numbers, the report has shown, continue to grow rapidly as we enter deeper into 2021.

One of the biggest dangers users face when dealing with OTC traders is unknowingly becoming involved in money laundering. CoinHolmes, a cryptocurrency tracking company focused on security, a significant number of merchants that have participated in OTC transactions have had their credit and debit cards frozen in the “card freeze wave” that started last year in China. Aside from that, users can also be targeted by robbers, as participating in OTC transactions requires carrying significant amounts of cash on hand.

There has been a recent surge in robberies in many OTC transactions involving Tether’s USDT stablecoin, both in Hong Kong and in mainland China. Representatives from CoinHolmes said that they have recently assisted in an investigation where an organized gang of Southeast Asians robbed users looking to exchange large amounts of yuan for USDT.

According to the latest report from Chinese state prosecutors, there have been 85 reported bases of USDT-related crimes last year. This number, while seemingly low, represents a huge increase from the 5 cases reported in 2019.

Most of the larger robberies that have happened throughout last year were facilitated by experienced OTC traders, who establish trust with their customers by first facilitating several “smaller” transactions that go through successfully. After a customer exchanges several hundred thousand yuan with the trader, the trader insists on facilitating one larger transaction, usually worth over $1 million.

A report from CoinHolmes showed that there have been two major OTC trading robbery in Hong Kong in just 15 days, where fraudsters have stolen at least a couple of million Hong Kong dollars (HKD) from unsuspecting users. At the beginning of the year, a 36-year-old trader was robbed out of HK$3 million and 15 BTC during an OTC trade with two South Asian buyers. Just two weeks later, a woman was robbed at knifepoint of HK$3.5 million while attempting to buy USDT.  The woman reportedly facilitated two large transactions with the same OTC trader, with HK$600,000 and HK$700,000, respectively.

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