Many people have a misconception about Hong Kong’s Web3 policy: that because Hong Kong supports the development of virtual assets, buying, selling, conducting OTC transactions, or operating stablecoin businesses in Hong Kong are all legal and safe.
This statement is only half correct.
Hong Kong is indeed developing its virtual asset market and creating regulatory space for businesses such as trading platforms, stablecoins, custody services, and payments. However, Hong Kong encourages financial innovation that is licensed, has robust internal controls, implements customer identification, and monitors suspicious transactions—not a faster channel for illicit funds to exit.
A recent case decided by the Hong Kong District Court is well suited to illustrate this boundary.
According to Hong Kong media reports, on June 23, 2026, the Hong Kong District Court handed down a ruling in a money laundering case involving over-the-counter (OTC) virtual assets. A 34-year-old woman from mainland China pleaded guilty to four counts of money laundering in Hong Kong. After arriving in Hong Kong, she opened multiple local digital bank accounts, which were used by a cross-border criminal group to receive proceeds from fraud. Once funds were deposited, she withdrew them as cash and purchased cryptocurrencies at local virtual asset exchange outlets. Over a two-month period, the total涉案 amount reached HK$9.29 million. The court ultimately sentenced her to 47.5 months in prison.
This is not a story about “getting sentenced for buying U in Hong Kong.” What’s truly worth examining in this case is how illicit funds moved from the victim’s account into a local Hong Kong digital bank account, then converted into on-chain assets via cash and OTC transactions. For criminal organizations, OTC is not an investment tool—it’s a withdrawal channel to move illicit funds from the banking system onto the blockchain.
The issue isn't buying U—it's that illicit funds were converted into USDT.
When people discuss news like this, they often get sidetracked: Is it wrong to buy USDT? Will you get arrested for using OTC? Is there definitely an issue if you split your funds into several transactions?
Neither.
In criminal cases, what truly matters is the source of the funds, their intended use, and the role of intermediaries. Clean money does not become illicit simply by being split into multiple transactions; funds with legitimate purposes—such as real investments, trade, family support, or immigration arrangements—do not automatically constitute a crime merely because a particular financial tool was used.
But if the upstream funds are proceeds from fraud, every subsequent action will be reinterpreted: opening an account is no longer just account registration, but providing a channel to receive funds; withdrawing is no longer a simple cash-out, but severing the bank transaction trail; buying USDT via OTC is no longer a routine transaction, but converting illicit proceeds into on-chain assets that are easier to transfer across borders; transferring coins to a designated wallet is no longer merely a transfer, but aiding a criminal group in controlling and moving stolen funds.
This is why, in cases like these, those held accountable are not just the individuals at the front end using fraudulent scripts. Who opened the accounts, who withdrew the funds, who exchanged the cash for USDT, who provided the wallet addresses, and who collected the fees—all these actions are traced back along the same financial chain.
For criminal defense, what matters most here is not whether one understands cryptocurrency, but whether one can explain the flow of funds: where the money came from, why it ended up with you, why it was withdrawn, why it was exchanged for USDT, where it went after the exchange, and whether the defendant noticed any unusual signals at the time.
The account is responsible for receiving funds, and OTC is responsible for withdrawals: How will law enforcement reconstruct the fund flow?
When cross-border criminal groups launder money, their first step is usually not to buy cryptocurrency immediately, but to find accounts.
The victim's funds must first be deposited into a local account that appears legitimate, capable of receiving and withdrawing funds. The more accounts there are, the easier it is to disperse the money; the more dispersed the account holders, the easier it is for the criminal group to hide behind them.
Therefore, renting, selling, lending accounts, or opening accounts to receive funds as directed by others has never been low-risk. Account holders may feel they are not committing fraud, merely helping to transfer funds. However, from the perspective of law enforcement, the account serves as the entry point for illicit funds into Hong Kong’s financial system.
If any of the following occur in the future—large deposits followed immediately by withdrawals, mismatch between payer and counterparty, requests in chats to avoid adding remarks, to not inquire about the source, or to process urgently—these will all serve as evidence of “actual or constructive knowledge.”
The sensitivity in the OTC process lies in the disconnect between cash and on-chain assets.
On one side is cash with unclear origins; on the other is USDT, which enables fast transfers across platforms, wallets, and jurisdictions. Without strict KYC, source-of-funds verification, transaction recordkeeping, wallet address retention, and procedures for handling suspicious transactions, OTC services will shift from transaction platforms to money channels.
The most dangerous situation in the industry isn't "customers coming to buy USDT"—it's when customers' transaction behaviors are completely unexplainable. For example, someone with no stable source of income arrives with millions in cash within a short time to exchange for stablecoins; the same intermediary repeatedly brings different customers to trade, but their wallet addresses, devices, and contact information are highly overlapping; funds rapidly circulate through multiple bank accounts before being consolidated into OTC crypto purchases; and the customer refuses to explain the source of funds, demanding only immediate receipt and immediate transfer of the cryptocurrency.
If these transactions are accepted without question, OTC shops will find it difficult to explain away their actions with simply “we didn’t know” when the case is reviewed retroactively. In criminal cases, “we didn’t know” is not merely a verbal defense—it depends on whether you conducted appropriate identification, verification, and rejection measures commensurate with the risk.
Hong Kong supports Web3, but this does not mean relaxing AML measures for OTC trading.
Hong Kong is actively promoting the development of the virtual asset market. The licensing regime for virtual asset trading platforms is already in operation, and the regulatory framework for stablecoin issuers came into effect on August 1, 2025. According to public information from the Hong Kong Monetary Authority, stablecoin issuers are now within the licensed regulatory framework in Hong Kong. Market participants must comply with the Stablecoin Ordinance and related guidelines; unlicensed activities and improper promotions may trigger regulatory consequences.
But this regulatory path is not a relaxation; it places virtual assets within a clearer financial regulatory framework.
In February 2024, the Hong Kong government launched a public consultation on legislative proposals to regulate over-the-counter (OTC) virtual asset trading, proposing the establishment of a licensing regime for OTC virtual asset service providers under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. Key points in the proposal include: entities providing OTC virtual asset and fiat currency spot trading services on a business basis must apply for a license from the Commissioner of Customs; the regulatory scope covers both physical outlets and online platforms; and the Commissioner of Customs will oversee licensees’ compliance with anti-money laundering and counter-terrorist financing requirements.
This indicates that regulators now view OTC as a critical interface in the virtual asset market—it connects fiat currency with virtual assets, as well as banks, cash, stablecoins, wallets, and cross-border transfers. The more vital an interface becomes, the less likely it is to remain indefinitely in a state of “word-of-mouth referrals, cash transactions, and trades without source verification.”
In July 2025, Hong Kong Customs disclosed a money laundering case involving approximately HK$1.15 billion, which included the smuggling of cash and virtual assets. Customs noted that the individuals involved frequently and rapidly conducted large-scale transactions in stablecoins and fiat currencies using funds of unclear origin, which was highly inconsistent with their background and financial status. This statement holds significant industry relevance: law enforcement assesses OTC risk not merely by whether cryptocurrency is purchased, but by whether the transaction amounts, frequency, customer profile, source of funds, and transaction methods are logically consistent with one another.
When viewed together, Hong Kong’s stance is consistent: the compliant virtual asset industry continues to grow, while channels for laundering illicit proceeds through accounts, cash, OTC, and wallets remain steadily restricted.
What documentation should individuals and OTC shops provide?
In cases like these, ordinary people may get involved.
Some people were persuaded by friends to open several accounts in Hong Kong, told it was “just helping to receive money.” Others sold their bank or e-wallet accounts to intermediaries. Some believed they were merely running errands, earning a small fee for withdrawing cash, buying USDT, or transferring cryptocurrencies, thinking it was at most a violation—not a criminal offense.
The point of real-name registration for accounts is that there is a responsible person behind each account. Criminal groups are willing to pay you a bribe not because the action carries no risk, but because they need your identity to absorb that risk.
When the victim reports the crime, bank statements are traced, accounts are frozen, and police arrive, it is the account holder themselves who must explain the source of the funds. At that point, chat records, receipt histories, withdrawal logs, OTC transactions, and wallet addresses will all be examined together. Whether you can provide verifiable evidence of real goods, services, loans, investments, or other underlying relationships will directly determine whether your claim of “just helping a friend” holds any credibility.
If ordinary individuals truly have cross-border fund needs, they should return to the genuine reasons and follow compliant channels. Immigration, investment, family support, medical expenses, trade settlement, and living abroad each have distinct documentation, quota, tax, and foreign exchange management requirements. Avoiding compliant pathways due to inconvenience and instead using others' accounts, underground money changers, or buying USDT with cash does not reduce costs—it stacks civil, administrative, and criminal risks together.
For professionals in OTC, wallets, payments, and stablecoins, risk control cannot stop at merely accepting a client’s claim of legality. Compliance is not just about taking a photo of an ID or having a client sign a statement that “funds are legally sourced.” Truly useful records must connect the client’s identity, payment pathway, source-of-funds documentation, transaction purpose, wallet addresses, transaction hashes, and risk assessment decisions. When encountering clearly unreasonable transactions, you must also be able to demonstrate documented evidence of refusal, suspension, enhanced due diligence, or reporting of suspicious activity.
Mainland clients purchasing USDT through Hong Kong must also consider the legal risks across both jurisdictions. This is a common point of misjudgment: operating from Hong Kong does not mean risk is assessed solely under Hong Kong law. If the source of funds, customer acquisition, account provision, currency exchange needs, or upstream criminal activity originates in the Mainland—even if the action takes place in Hong Kong—the risk is not confined to Hong Kong. In the Mainland context, common entry points for virtual currency and cross-border fund cases include illegal business operations, concealing or covering up criminal proceeds, money laundering, aiding information network criminal activities, conspiracy to commit fraud, operating gambling dens, and illegally absorbing public deposits. The key issue is not the label “buying or selling USDT,” but rather: where did the funds come from? Why did they pass through you? What did you gain? Did you act as a payment intermediary? Were there abnormal prices? Is there evidence explaining the purpose of the transactions?
If your account has already been frozen, law enforcement has contacted you, or you’ve been asked to assist in an investigation, the first step is not to repeatedly explain, “I was just helping.” Instead, gather and organize all relevant materials: documentation of fund sources, underlying transaction relationships, chat records, receipt histories, withdrawal records, OTC transaction receipts, wallet addresses, on-chain hashes, counterparty information, and a clear explanation of why you believed the transaction was legitimate. In criminal cases, being able to clearly trace the flow of funds is often more critical than simply claiming you didn’t understand cryptocurrency.
What can be explained is trading; what can’t may be a liquidity issue.
What truly matters about this Hong Kong OTC money laundering case is not that "buying USDT can lead to jail time," but rather: when money must pass through someone else’s account, cash withdrawals, OTC crypto purchases, and offshore wallets to complete its transfer, it is no longer merely a technical pathway issue—it is a financial chain that requires legal interpretation.
Hong Kong’s development of Web3 remains unchanged. Virtual asset trading platforms, stablecoins, tokenized assets, crypto payments, wallets, and custody services could all become part of Hong Kong’s financial market.
However, developing Web3 does not mean allowing virtual assets to become high-speed channels for criminal funds. The more new financial tools are brought under regulation, the more they must be subject to constraints on account verification, customer due diligence, source of funds, transaction records, and monitoring of suspicious transactions.
For the general public: Do not lend your account, sell your account, or collect, withdraw, buy USDT, or transfer crypto on behalf of strangers. For professionals in OTC, wallets, payments, and stablecoins: Don’t just ask customers how much USDT they want to buy—also ask where the funds are coming from, why they’re making this purchase, where the funds will go after the transaction, and whether they can provide supporting documentation.
What can be explained is trading; what cannot be explained may be a fund chain tied to illicit activities.
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This article is an original work by Shanghai ManKun Law Firm and represents the author's personal views only; it does not constitute legal advice or opinion on any specific matter. For reproduction or legal consultation, please add our customer service: mankunlawyer.