Original Article Title: "Behind the Student Money Laundering Case: Southeast Asian Fraud Industry is Infiltrating Hong Kong"

Original Source: Bitrace

Hong Kong, as a world-renowned free port and international financial center, had already seen a thriving cryptocurrency economy emerge locally years before official preferential policies were introduced. Among them, the virtual asset over-the-counter trading service providers (VAOTCs) operating in the form of offline stores, online groups, etc., are particularly prominent. Together with local native and overseas virtual asset trading service providers (VATPs), they provide token exchange and fiat on/off-ramp services for Hong Kong's virtual asset investors.

However, due to the highly anonymous and borderless nature of blockchain-based virtual assets, various types of cryptocurrency associated with criminal activities—especially stablecoins—can flow into the Hong Kong crypto ecosystem without hindrance, causing fund contamination to local operators and ordinary investors and bringing legal and compliance risks. This article aims to take the recent money laundering case involving mainland Chinese students in Hong Kong as an analytical starting point to explore how the Southeast Asian fraud industry has harmed the Hong Kong crypto economy in this incident and disclose relevant data.

Event Description

On March 26, 2025, a mainland Chinese student received a part-time job offer on a certain idle second-hand goods trading platform, where he was requested to go to Hong Kong through a local exchange shop to purchase a certain amount of Tether (USDT) and transfer it to a designated blockchain address. The process involved using a personal bank card to receive Chinese Yuan and exchanging it for Hong Kong Dollars at a local fiat exchange shop, then going to the designated cryptocurrency exchange shop to buy USDT and having the shop owner directly transfer it to the designated wallet.

Through this method, the student purchased tens of thousands of Chinese Yuan worth of USDT. His bank card and WeChat Pay were frozen by mainland law enforcement, and he was informed that the received funds were transferred out by a victim of an upstream fraud event. Subsequent investigations by Bitrace and Mankun Law Firm revealed that this was a typical "Card Receive Back U" style money laundering technique, closely related to organized crime networks in the Southeast Asian region.

On-Chain Analysis

An analysis of the designated receive U address TTb8Fk revealed that the student purchased 2396 USDT from the designated exchange shop, and this fund subsequently flowed to the escrow platform merchant address TKN5Vg, the latter of which has long-term business affiliations with two Southeast Asian guarantor platforms—Huione Guarantee and Newcoin Guarantee.

These two guarantor platforms have long provided services to organized crime industries in Southeast Asia, including illegal online gambling, dark gray industries, money laundering, fraud, etc. In this incident, they took on the role of helping process upstream fraudulent funds. Indicating that this was a malignant event in which a Southeast Asian fraud group used a Hong Kong cryptocurrency exchange shop for money laundering.

Their modus operandi follows the common "Carding U-turn (Crypto-based money laundering)" technique, where money launderers swiftly convert fiat funds received from fraud victims into USDT on the off-exchange market and then transfer it back to the fraudsters' blockchain address, earning a commission in the process. Since purchasing USDT requires multiple bank cards and real-name information, money launderers recruit a large number of part-time workers in advance to form a "Laundering Syndicate," with these part-time workers referred to as "Carders" or "Drivers."

In this incident, a mainland student unwittingly became a money laundering driver and, together with a Hong Kong VAOTC, assisted money launderers in completing fund conversions. The acquired USDT first enters the syndicate's address, and after deducting a commission (calculated at a commission return ratio of 33%), the syndicate transfers the funds to the guarantor merchant, who then settles the funds through the guarantor platform.

Industrialization of Crime

Bitrace further traced the commission address of the laundering syndicate, TGeZzC, and discovered that this money laundering event was not an isolated case but rather the tip of the iceberg of a highly industrialized large-scale money laundering syndicate.

Tracing the source of funds for the commission address reveals 7 other primary Carding U-turn addresses (left three), these addresses are at the same level as TTb8Fk and receive varying amounts of USDT from a Hong Kong exchange shop (left one and two, HKVAOTC). From these funds, 33% are transferred to the commission address (highlighted), and 67% are transferred to secondary Carding U-turn addresses (right two) before being individually liquidated through the guarantor platform, demonstrating a very clear division of labor throughout the process.

Analysis shows that these addresses became active as early as 2024, with the initial source of funds unrelated to Hong Kong but rather originating from a large number of Southeast Asian dark gray risk addresses. This further indicates that behind this case is a group closely linked to a Southeast Asian organized crime network. In less than three months, just this one laundering syndicate has illegally laundered over $310,000 in Hong Kong using the same method. Considering that there are still other unexplored addresses in this case or addresses of other syndicates that have not been detected, the actual scale of this industrialized money laundering activity exploiting HKVAOTC may be even larger.

The Dawn of Hong Kong's VAOTC Industry

Shiwei Shao, a lawyer at Shanghai Mancun Law Firm, stated that globally, the regulatory frameworks for OTC businesses in various countries and regions have not yet reached complete uniformity. However, major OTC operating locations such as Hong Kong, the EU, and the US have begun to develop relevant legislation and licensing regulations.

Taking Hong Kong as an example, the Financial Services and the Treasury Bureau (FSTB) released a legislative consultation paper on Virtual Asset Over-the-Counter (OTC) Services in February 2024. The paper proposed an important recommendation to introduce a licensing regime for OTC businesses under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). According to this proposal, Hong Kong plans to establish an OTC business licensing regime under the AMLO to ensure that these companies can meet compliance requirements such as Anti-Money Laundering (AML) and Know Your Customer (KYC).

This means that all companies providing virtual asset over-the-counter trading services, including OTC traders, must apply for the relevant license from the Customs and Excise Department (CCE) in Hong Kong and strictly comply with the relevant legal provisions. However, as of now, the legislation is still in the consultation stage, and specific implementation details and effective dates are yet to be officially announced by the government.

Industry Operators Need to Actively Respond to Regulation

The current VAOTC has become an indispensable part of the cryptocurrency market, playing a crucial role in market stability and industry development. With Hong Kong set to introduce OTC compliance policies, industry operators must actively respond to regulatory requirements with a more proactive attitude. Operators in the industry not only need to strictly comply with the upcoming licensing regime but also need to establish and improve internal compliance systems to ensure that all trading activities meet compliance requirements such as Anti-Money Laundering (AML) and Know Your Customer (KYC).

Additionally, operators should enhance communication with regulatory agencies, actively seek to understand the latest policy trends, and participate in industry self-regulatory organizations to contribute to the standardized development of the entire industry. In this process, industry operators should especially focus on refraining from any association with cryptocurrency funds involved in illegal activities. By implementing rigorous customer due diligence and transaction monitoring measures, identify and resist fund flows with suspicious signs to avoid facilitating any illegal activities. This not only helps maintain a company's good reputation but is also a vital demonstration of corporate social responsibility.

Overall, Hong Kong's upcoming OTC compliance policies present an important opportunity for the virtual asset over-the-counter trading industry to achieve standardized development. Industry operators should seize this opportunity, actively adapt to changes in the regulatory environment, continuously enhance their compliance levels, and thereby strengthen their competitiveness. Only in this way can they stand invincible in Hong Kong's thriving crypto-economic market and achieve long-term stable development.

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