Hong Kong OTC money laundering case: lending bank accounts and withdrawing funds to buy USDT—why was he/she sentenced?

Author: Mankun Blockchain

Many people have a misunderstanding about Hong Kong’s Web3 policy: since Hong Kong supports the development of virtual assets, buying and selling coins in Hong Kong, doing OTC, and running stablecoin businesses are all legal and safe.

This statement is only half correct.

Hong Kong is indeed developing the virtual asset market and making room in the regulatory system for businesses such as trading platforms, stablecoins, custody, and payments. But what Hong Kong encourages is financial innovation that is licensed, has internal controls, includes customer identification, and monitors suspicious transactions—not a faster exit channel for unknown funds.

A recent case adjudicated by the Hong Kong District Court is a good example to illustrate this boundary.

According to Hong Kong media reports, on June 23, 2026, the Hong Kong District Court delivered a judgment in a money-laundering case involving virtual asset OTC. A 34-year-old mainland Chinese woman pleaded guilty in Hong Kong to four counts of money laundering. After coming to Hong Kong, she opened multiple local digital bank accounts. These accounts were used by a cross-border criminal syndicate to receive proceeds of scams. After the money was deposited, she took out the funds as cash and went to a local virtual asset exchange shop in Hong Kong to buy cryptocurrencies with the money. Over two months, the amount involved reached HK$9.29 million. The court ultimately sentenced her to 47.5 months in prison.

This is not a story about “getting jailed for buying U in Hong Kong.” What is truly worth paying attention to in this case is this: how scam proceeds moved from the victims’ accounts into local Hong Kong digital bank accounts, and then were converted into on-chain assets through cash and OTC. For criminal syndicates, OTC is not an investment tool—it is an exit route that moves stolen funds from the banking system onto the blockchain.

The issue isn’t buying U—it’s scam proceeds being swapped into USDT

When people discuss news like this, they often get the question wrong: Is it that you’re not allowed to buy USDT? If you use OTC, will you be arrested? If you split the money into several parts, will it definitely be a problem?

None of that is true.

In a criminal case, what really matters is the source of the money, its purpose, and the role of the intermediary. Clean money broken into smaller amounts does not automatically become money laundering; funds with real investment, trade, family support, immigration arrangements, etc., also do not automatically constitute a crime just because a certain financial instrument was used.

But if the upstream origin is scam proceeds, then every later action will be reinterpreted. Opening an account is not ordinary account opening—it is providing a collection outlet. Withdrawing cash is not ordinary cash withdrawal—it is cutting off bank transaction trails. Buying U via OTC is not ordinary trading—it is converting criminal proceeds into on-chain assets that circulate more easily across borders. Transferring coins to a designated wallet is no longer just a transfer—it is helping the syndicate control and move the stolen proceeds.

That is also why, in cases like these, the people held accountable are often not only the person on the front end of the scam script. Who opened the accounts, who withdrew the money, who took the cash to exchange for U, which wallet addresses were provided, and who received the fees—these actions will all be put back into the same money trail for evaluation.

For criminal defense, the most critical part here is not whether you “understand crypto,” but whether you can explain the money trail: where the money came from, why it came to you, why it was withdrawn as cash, why it was swapped for U, where it went after the swap, and whether the defendant saw any abnormal signals at the time.

Accounts collect the money, OTC handles the outflow: how will police reconstruct the funds chain?

In cross-border criminal syndicates’ money-laundering process, the first step is usually not to buy coins immediately, but to find accounts.

The victims’ money needs to enter local accounts that look real, can receive payments, and can withdraw funds. The more accounts there are, the easier it is to scatter funds; the more dispersed the account holders are, the easier it is for the syndicate to hide behind them.

Therefore, renting, selling, or lending accounts—or opening accounts to collect money according to others’ instructions—has never been low risk. Account holders may feel they weren’t deceiving anyone, they were just helping with transfers. But to the investigating authorities, the account is the entry point through which stolen proceeds enter Hong Kong’s financial system.

After that, if there are short-term large deposits, immediate withdrawals, mismatched payer and counterparties, chats requesting that no memo be used and not to ask about the source, and urgent handling, all of these can become evidence for a finding of “knowing or should have known.”

The sensitive point in the OTC step lies in the breakpoints between cash and on-chain assets.

One side is cash, whose source is hard to trace; the other side is USDT, which can be transferred quickly across platforms, across wallets, and across jurisdictions. If there is no strict KYC, source-of-funds review, transaction records, wallet address retention, and suspicious-transaction handling, then OTC can shift from being a trading service into a channel for moving funds.

The most dangerous thing in the industry is not “customers coming to buy U,” but the fact that the customers’ transaction behavior cannot be explained at all. For example, someone without stable income takes several million HKD in cash to exchange for stablecoins in a short period; the same intermediary continuously brings different customers to the shop to trade, but the wallet addresses, devices, and contact information heavily overlap; funds quickly circulate among multiple bank accounts and then are finally consolidated into an OTC purchase of coins; the customer does not want to explain the source of funds and only requires the coins to be received immediately and transferred away immediately.

If these transactions are accepted in full, when the case is later investigated in reverse, it will be difficult for the OTC shop to explain the past solely with “I didn’t know.” In criminal cases, “I didn’t know” is not just a verbal defense—it depends on whether you carried out identification, verification, and refusal actions that matched the risk.

Hong Kong supports Web3, but that doesn’t mean OTC anti–money laundering is relaxed

Hong Kong is indeed pushing forward the development of the virtual asset market. The licensing regime for virtual asset trading platforms has already been operating, and the regulatory regime for stablecoin issuers has also been implemented as of August 1, 2025. According to publicly available information from the Hong Kong Monetary Authority, stablecoin issuers in Hong Kong have entered a licensing and regulatory framework. Market participants need to comply with the Stablecoin Ordinance and related guidelines; unlicensed activities and improper promotion may trigger regulatory consequences.

But this regulatory route is not relaxation—it is putting virtual assets into a clearer financial regulatory framework.

In February 2024, the Hong Kong government conducted a public consultation on its legislative proposals to regulate virtual asset over-the-counter (OTC) transactions. It proposed a licensing system for virtual asset OTC service providers under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. Several pieces of information in the proposal are crucial: if virtual asset and spot money transactions are provided in the form of a business, a license must be applied for from the Commissioner of Customs and Excise; the regulatory scope covers both physical stores and online platforms; and the Commissioner of Customs and Excise will supervise licensed parties’ compliance with anti–money laundering and counter-terrorist financing requirements.

This shows that the regulatory authorities have already been viewing OTC as a key interface in the virtual asset market. It connects fiat currency and virtual assets, and also connects banks, cash, stablecoins, wallets, and cross-border transfers. The more important an interface is, the less likely it is to remain for long in a state of “introductions among acquaintances, cash transactions, and deals completed even without providing a source.”

In July 2025, Hong Kong Customs published a money-laundering case involving about HK$1.15 billion, involving the smuggling of cash and virtual assets. Customs mentioned that the individuals involved frequently and rapidly conducted large stablecoin and fiat transactions with funds of unknown origin, which were inconsistent with their background and financial situation. This statement is actually meaningful for the industry: when law enforcement looks at OTC risk, it is not only about whether someone bought coins—it is about whether the amounts, frequency, customer profiles, source of funds, and transaction methods can explain each other.

Taken together, Hong Kong’s stance is not contradictory: the compliant virtual asset industry continues to develop, while channels that use accounts, cash, OTC, and wallets to launder criminal proceeds are continuously tightened.

What explanation materials do ordinary people and OTC shops need to keep, respectively?

In cases like these, those pulled in could be ordinary people.

Some are persuaded by friends to open several accounts in Hong Kong—“just helping to receive money.” Some sell their own bank accounts or e-wallet accounts to intermediaries. Some think they are merely running errands, taking a bit of commission for cash withdrawal, buying U, and swapping coins—at most it is a violation, not something that rises to a criminal case.

The problem is that the meaning of real-name account systems is that someone is responsible behind each account. Criminal syndicates are willing to pay you a fee not because this action has no risk, but because they need your identity to bear the risk they cannot expose themselves to.

When the victims file reports, bank transaction records are traced, accounts are frozen, and police show up at your door, it is the account holder who must truly explain the source of funds. At that time, chat logs, payment receipts, withdrawal records, OTC transactions, and wallet addresses will all be viewed together. Whether you can provide real underlying relationships—goods, services, loans, investment, or other basic ties—directly determines whether “helping a friend” is convincing.

If ordinary people truly have cross-border funding needs, they should go back to the real reasons and compliant paths. Immigration, investment, family support, medical needs, trade settlement, and overseas living each have different document requirements, quotas, tax rules, and foreign exchange management requirements. If people find the compliant path too troublesome and instead borrow accounts, find underground money services, or buy U with cash, it often doesn’t reduce costs—it stacks civil, administrative, and criminal risks together.

For practitioners related to OTC, wallets, payments, and stablecoins, risk control should not stop at the layer of “the customer says their business is legal.” Compliance is not taking a photo of an ID card, nor is it ending the process by having the customer sign something like “the source of funds is legal.” The truly useful records should be able to connect the customer identity, payment path, source-of-funds documents, transaction purpose, wallet address, transaction hash, and risk-control assessment. When transactions are clearly unreasonable, you should also be able to produce traces showing refusal, suspension, enhanced due diligence, or reporting of suspicious transactions.

For mainland customers buying U in Hong Kong, there is an additional layer of legal risk across two jurisdictions. This is also where many people most easily misjudge: Operating in Hong Kong doesn’t mean the risk is calculated only under Hong Kong law. If the source of funds, customer solicitation, account provision, need for foreign exchange, or upstream crimes are in the mainland, then even if the actions take place in Hong Kong, it does not mean the risk only stays in Hong Kong. In mainland contexts, common entry points for cases involving virtual currency and cross-border funds include illegal business activities, disguising or concealing proceeds of crime, money laundering, assisting cybercrime activities, being an accomplice to fraud, running gambling operations, and illegally absorbing public deposits, among others. The key is still not the label of “buying and selling USDT,” but where the funds come from, why they go through you, what you earned, whether you did any collection-and-payment on behalf of others, whether there is an abnormal price, and whether there is evidence explaining the transaction purpose.

If a case already involves an account being frozen, police contacting you, or you being asked to assist with an investigation, the first step is not to repeatedly explain “I was just helping,” but to first organize the materials: source-of-funds documents, underlying transaction relationships, chat logs, payment receipts, withdrawal records, OTC transaction vouchers, wallet addresses, on-chain hashes, counterparty information, and the process of why you believed the transaction was legal. In criminal cases, whether you can explain the money trail clearly is often more important than merely saying you don’t understand crypto.

What can be explained is the transaction; what can’t be explained may be the funds chain of a gray/black industry

What is truly worth remembering from this Hong Kong OTC money-laundering case is not “buying U will land you in prison,” but: when a piece of money must be transferred using someone else’s account, cash withdrawal, OTC coin buying, and an overseas wallet to complete the transfer, it is no longer just a technical route issue—it is a funds chain that must be explained under the law.

Hong Kong’s Web3 development direction hasn’t changed. Virtual asset trading platforms, stablecoins, tokenized assets, crypto payments, wallets, and custody could all become part of Hong Kong’s financial market.

But developing Web3 does not mean allowing virtual assets to become a high-speed channel for criminal funds. The more a new financial instrument is brought under regulation, the more it must accept constraints related to accounts, customers, source of funds, transaction records, and suspicious transaction monitoring.

For ordinary people, don’t borrow accounts, don’t sell accounts, and don’t help unknown people receive money, withdraw cash, buy U, or swap coins. For practitioners related to OTC, wallets, payments, and stablecoins, don’t just ask customers how much U they want to buy—you must also ask where this money comes from, why they are buying it this way, where it goes after the transaction, and whether there is evidence that can explain the transaction purpose.

What can be explained is the transaction; what can’t be explained may be a funds chain belonging to a gray/black industry.