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Tether under scrutiny: A deep dive into cryptocurrency crime allegations

Tether under scrutiny: A deep dive into cryptocurrency crime allegations

A recent report by the United Nations Office on Drugs and Crime (UNODC) has warned that Tether, one of the world’s most traded cryptocurrencies, has become a key tool for criminals, money launderers and scammers in East and Southeast Asia.

The report claims that Tether’s stability, ease of use, anonymity and low transaction fees have made it the preferred choice for fraudsters and money launderers alike and that its popularity is illustrated by the surging volume of cyber fraud, money laundering and underground banking cases involving the stablecoin.

However, some crypto enthusiasts and experts have challenged the validity and accuracy of the UN report, arguing that it is based on flawed assumptions, incomplete data and biased analysis. They contend that Tether is not the most preferred currency for illicit activities, that it is not as anonymous and untraceable as the report suggests, and that bad actors can use other cryptocurrencies and techniques to evade detection and regulation.

In this article, I will examine both sides of the debate and offer my own opinion on the matter.

What is Tether, and why is it popular?

Tether is a company that runs a blockchain platform and issues digital tokens pegged to real-world currencies with the backing of its own financial reserves, most notably USDT, or tether, which is tied to the US dollar one-for-one. Tether claims that its tokens are fully backed by fiat currency and other assets and that they provide a stable and transparent alternative to volatile and unpredictable cryptocurrencies.

Tether’s main appeal lies in its ability to bridge the gap between the traditional and the crypto worlds, offering users the benefits of both. Tether users can enjoy the speed, security, low cost and global reach of blockchain transactions while also maintaining the stability, liquidity and familiarity of fiat currencies.

Tether also enables users to access various crypto platforms and services, such as exchanges, wallets, lending, gaming and gambling, without having to deal with the complexities and risks of converting between different currencies and tokens.

According to CoinMarketCap, Tether is the world’s third-largest cryptocurrency by market capitalisation, behind only Bitcoin and Ethereum, with a market cap of over US$95 billion as of January 16, 2024.

Tether also has the highest daily trading volume of any cryptocurrency, surpassing even Bitcoin, with an average of over US$100 billion traded per day. Tether is widely accepted and supported by hundreds of crypto platforms and service providers, as well as some regulated entities, such as banks and payment processors.

What are the allegations against Tether?

Despite its popularity and success, Tether has also been plagued by controversies and criticisms, ranging from its lack of transparency and accountability to its involvement in market manipulation and fraud to its vulnerability to hacking and theft. Tether has faced several lawsuits, investigations and regulatory actions from various authorities and stakeholders, both in the US and abroad, over its business practices, operations and compliance.

The most recent and alarming accusation against Tether comes from the UNODC report, which alleges that Tether has quickly become the platform of choice for money laundering and fraud operations across East and Southeast Asia.

The report cites intelligence from law enforcement and financial authorities in the region, who report that Tether ranks among the most popular cryptocurrencies used by organised crime groups, especially those operating online casinos, which have emerged as among the most popular vehicles for cryptocurrency-based money launderers.

The report also details how Tether is used to facilitate various schemes, such as “sextortion”, a form of blackmail threatening to post sexual content or information about a person, and “pig butchering”, a socially engineered romance designed to “fatten up” targets before extracting money. It claims that Tether’s appeal to criminals lies in its speedy and irreversible transactions, its low detection and traceability, and its ability to bypass regulatory and legal barriers.

The same report also highlights the role of “motorcades”, which are sophisticated, high-speed money laundering teams that specialise in Tether transactions. These teams advertise their services on social media platforms, such as Facebook, TikTok and Telegram, and offer to exchange Tether for fiat currency or other cryptocurrencies for a percentage of the total laundered and transferred funds. It says that these teams have seen a rapid uptick in recent years and that they pose a serious challenge to law enforcement and financial authorities.

What are the counterarguments to the UN report?

In my humble opinion, the UN report has been met with scepticism and criticism, and some other experts also question its methodology, data, and conclusions. They argue that the report is based on anecdotal evidence, selective cases and biased sources and that it does not provide a comprehensive and accurate picture of the crypto landscape and the role of Tether in it. I want to also point out the flaws and limitations of the report and offer alternative explanations and perspectives on the issue.

One of the main counterarguments to the UN report is that Tether is not the most preferred currency for illicit activities and that other cryptocurrencies, such as Bitcoin, Ethereum, and BNB, are perhaps more widely used and more suitable for such purposes.

It is cited in various studies and reports that show that the majority of crypto transactions are legitimate and legal and that only a small fraction of them, around one per cent, is associated with criminal and illicit activities.

I would also argue that Tether is not as anonymous and untraceable as the report suggests and that it is possible to track and monitor Tether transactions using blockchain analysis tools and techniques. They point out that Tether transactions are recorded on public ledgers, such as the Bitcoin, Ethereum and Tron blockchains, and that they can be linked to real-world identities and entities using various methods, such as IP addresses, wallet addresses, exchange accounts, KYC information and network activity.

It also contends that bad actors can use other cryptocurrencies and techniques to evade detection and regulation and that Tether is not the only or the best option for them. They mention the use of privacy coins, such as Monero and Zcash, which offer enhanced anonymity and obfuscation features, such as stealth addresses, ring signatures, zero-knowledge proofs and confidential transactions.

They also mention the use of crypto mixers, such as Tornado Cash and Wasabi, which offer decentralised and trustless solutions for mixing and tumbling coins, making it harder to trace their origin and destination.

What is my opinion on the matter?

Based on my research and analysis, I think that the UN report has some merit and validity, but it also has some flaws and limitations. I think that Tether is indeed a popular and convenient tool for some criminals, money launderers and scammers, especially in East and Southeast Asia, where there is a high demand and supply for crypto services and products and where there is a lack of effective and consistent regulation and enforcement.

I think that Tether’s features and benefits, such as its stability, ease of use, low cost and global reach, also make it attractive and useful for such actors, who can exploit its loopholes and weaknesses to their advantage.

However, I also think that the UN report is not conclusive and definitive and that it does not capture the whole and true picture of the crypto landscape and the role of Tether in it. I think that Tether is not the only or the most preferred currency for illicit activities and that other cryptocurrencies and techniques are more widely used and more suitable for such purposes.

I think that Tether is not as anonymous and untraceable as the report suggests and that it is possible to track and monitor Tether transactions using blockchain analysis tools and techniques. I think that the UN report is based on anecdotal evidence, selective cases and biased sources and that it does not provide comprehensive and accurate data and analysis on the issue.

To stay within my argument, here is some food for thought — Tether has conducted the biggest-ever USDT freeze of US$225 million linked to a human trafficking syndicate. They worked hand in hand on this occasion with leading crypto exchanges, OKX and DOJ. This shows Tether’s willingness to help the industry and, to a certain extent, stay accountable and transparent.

Therefore, my opinion is that it is not fair or accurate to label it as the crypto of choice for criminals. I think that Tether has a legitimate and valuable role and function in the crypto ecosystem and that it provides a stable and transparent alternative to volatile and unpredictable cryptocurrencies.

I think that Tether also has a lot of room and potential for improvement and innovation and that it can address and resolve its controversies and criticisms by enhancing its transparency and accountability, complying with relevant laws and regulations, and cooperating with authorities and stakeholders.

 

Source: https://e27.co/tether-under-scrutiny-a-deep-dive-into-cryptocurrency-crime-allegations-20240123/

Insights

What is Tether, and why has it gained popularity in the cryptocurrency market?

Tether is a blockchain platform that issues digital tokens, such as USDT, pegged to real-world currencies, offering stability and transparency. Its popularity stems from bridging traditional and crypto worlds, combining the benefits of blockchain transactions with the stability and familiarity of fiat currencies.

What are the allegations against Tether regarding its involvement in illicit activities?

What counterarguments exist against the UNODC report's accusations towards Tether?

In the article, Anndy Lian argues that the UN report lacks comprehensive data and relies on anecdotal evidence. They contend that Tether is not the primary choice for illicit activities, pointing to other cryptocurrencies like Bitcoin and Ethereum. Moreover, they emphasize the traceability of Tether transactions through blockchain analysis tools and highlight alternative options, such as privacy coins and crypto mixers.

What is the Anndy Lian's opinion on the UNODC report and Tether's role in illicit activities?

Anndy Lian acknowledges the UN report's merit but criticizes its flaws and limitations. They argue that Tether serves as a tool for criminals in specific regions due to the demand for crypto services and lax regulation. However, the author contends that Tether is not the exclusive choice for illicit activities and suggests that the report is based on biased sources. They advocate for a more nuanced perspective on Tether's role in the crypto landscape.

How does Tether respond to accusations of involvement in criminal activities, and what is the author, Anndy Lian's overall opinion on Tether?

Tether has taken action against criminal activities, evidenced by a significant USDT freeze linked to a human trafficking syndicate, showcasing a commitment to industry integrity. The author concludes that labeling Tether as the go-to crypto for criminals is unfair, emphasizing its legitimate role in the crypto ecosystem. Anndy Lian believes Tether can improve by addressing controversies, enhancing transparency, complying with regulations, and collaborating with authorities.

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
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Will Singapore, Hong Kong step up crypto scrutiny as US cracks down on Binance, Coinbase?

Will Singapore, Hong Kong step up crypto scrutiny as US cracks down on Binance, Coinbase?
  • The moves by the US SEC against Binance, Coinbase spooked investment sentiment just as Hong Kong seeks to establish itself as a trading hub along with Singapore
  • Unlike Singapore and Hong Kong, the US does not have comprehensive regulations for crypto and blockchain firms to operate without fear of regulatory action

US regulatory action against two major cryptocurrency exchanges, Coinbase and Binance, is likely to serve as a reference point for Hong Kong and Singapore as they seek to balance growth with investors’ safety, analysts have said.

The crackdown is the latest in a series of measures by the US Securities and Exchange Commission (SEC), which has levied fines and other penalties against crypto-lending firms, following the collapse of one of the most-reliable crypto exchanges FTX last November that sparked public outrage.

The SEC said Coinbase had acted as a broker, exchange and clearing agency for investments without proper registration. The complaint came a day after the regulator sued Binance, alleging it had tried to evade US regulation.

Binance said the enforcement action was unwarranted and alleged it was a regulatory “overreach” that damages the United States’ status as a global financial hub. Paul Grewal, Coinbase’s general counsel, said in a statement that the company would continue operating as usual and had “demonstrated commitment to compliance”, according to Reuters.

The development spooked investment sentiment just as Hong Kong is seeking to frame regulations to establish itself as a trading hub along with Singapore, which already has such a framework.

The two cities may look at the US action as a reference point, which could mean tighter scrutiny even in the Asian hubs, analysts say.

“There will be a fallout for sure. Hong Kong and Singapore are taking measures to regulate the cryptocurrency industry by proposing new licensing regimes for virtual asset trading platforms,” said Anndy Lian, Singapore-based author of the book “NFT: From Zero to Hero”.

Unlike Singapore and Hong Kong, the US has yet to come up with a comprehensive set of regulations that allows cryptocurrency and blockchain firms to operate transparently without fear of regulatory action.

“The war that the US is waging on cryptocurrencies shows no signs of abating, and it will only intensify as time wears on,” said Julian Hosp, the CEO and co-founder of Cake Group, a fast-growing Southeast Asia’s digital assets innovator.

The regulator’s action is part of a larger trend which is likely to continue into the 2024 presidential election, Hosp said.

Industry cautions on overkill

The Securities and Futures Commission (SFC) in Hong Kong has requested feedback on a proposal that would require virtual asset trading platform operators to obtain the same type of licences as securities traders, Lian said, adding that it had asked other firms who were not applying to prepare for an orderly closure.

Securities, as opposed to other financial assets, are strictly regulated and require detailed disclosures to inform investors of potential risks.

“These developments indicate that cryptocurrency exchanges seeking approval in Hong Kong and Singapore will have to adhere to new regulatory requirements and may be subject to increased scrutiny from regulators,” Lian said.

But new regulations could help establish the legitimacy of the cryptocurrency industry and potentially attract more investors and businesses at a time people are increasingly wary of the US market, analysts said.

“The SEC’s lawsuit primarily focuses on actions that have taken place in the United States and their impact on American citizens,” said Rajagopal Menon, vice-president of WazirX, India’s leading cryptocurrency exchange.

“As for regulators in Hong Kong, such as the Securities and Futures Commission, and Dubai’s Virtual Asset Regulatory Authority, the SEC’s lawsuit can serve as a point of reference or information. However, it does not automatically alter their regulatory stance or trigger immediate action,” he added.

At the two-day Crypto Expo Asia in Singapore, attendees were unbothered by news about Binance and Coinbase, with little to no mention about the developments.

Though the US action may not have a direct impact on other regions, Menon conceded that it could potentially have some indirect influence on their decision-making processes.

Nizam Ismail, founder of Singapore-based compliance consultancy Ethikom Consultancy, said crypto investors too were likely to be more cautious about risks and the need for due diligence on intermediaries.

“These products will be subject to prudential and consumer protection requirements. In the longer term, regulatory gaps will be addressed and consumer protection measures are likely to be introduced,” he added.

The development also exposed extreme price fluctuations in the digital assets which have made many traditional investors in assets like stocks and bonds cautious about investing in the digital asset.

After initially falling to a three-month low of US$25,750 following the Binance lawsuit, bitcoin has rebounded to around US$27,000 in afternoon trade in Asian hours.

Some investors – typically traditional investors, family offices and high net worth individuals – may have been deterred by the US regulator’s lawsuits, while “die-hards” long time investors “would not care”, said Hayden Hughes, the chief executive office and co-founder of Alpha Impact, a social trading platform.

A key takeaway from the incident for Asian hubs like Hong Kong is to have “regulatory clarity”, he said, adding that Hong Kong’s decision to open up to crypto and implement regulations had been a step in the right direction.

But it is unlikely that the event would deter crypto exchanges from seeking approval from Hong Kong and Singapore authorities, he said, highlighting that the two cities would gain from establishing clear rules and a licensing framework.

“Asian hubs can focus on their core mission of protecting the retail investors. There is absolutely no incentive for regulators to move fast and break things,” Hughes said.

Industry executives urged regulators to strike a balance with the fledgling industry.

Hong Kong and Singapore were unlikely to be impacted by the developments “if there is a will on both sides” and regulators are cautious “to not overkill the opportunity”, said Thomas Tallis, CEO of TVVIN, a firm that takes real-world assets and issues them on the blockchain.

Source: https://www.scmp.com/week-asia/economics/article/3223305/will-singapore-hong-kong-step-crypto-scrutiny-us-cracks-down-binance-coinbase

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
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Hong Kong Emerges As An Attractive Hub For The Virtual Asset Industry Amidst Regulatory Scrutiny

Hong Kong Emerges As An Attractive Hub For The Virtual Asset Industry Amidst Regulatory Scrutiny

The virtual asset industry is facing increasing scrutiny and regulatory clampdowns worldwide, leading to the emergence of new hubs for the industry. Hong Kong is one such hub that has proposed rules allowing retail investors to trade certain “large-cap tokens” on licensed exchanges, contrasting with mainland China’s ban on crypto-related transactions. Although the Securities and Futures Commission of Hong Kong has not specified which tokens would be allowed, industry insiders believe Bitcoin and Ether are likely to be among them.

China’s crackdown on crypto trading aimed to protect individual investors from speculative activity. However, the crypto industry’s increasing bankruptcies and layoffs may justify their actions. Despite this, the industry continues to attract investment and talent, making it hard to imagine Beijing sitting idly by while the rest of the world develops new building blocks that could potentially spark a new wave of innovation as big as the current internet itself.

As a result, many of China’s web3 startups have set up new bases in more crypto-friendly locations such as Singapore and Dubai. However, with Hong Kong’s more relaxed regulatory environment for cryptocurrencies, some Chinese-founded web3 companies in exile may consider returning home. Hong Kong’s proposal stipulates that all centralized virtual currency exchanges operating in the city or marketing services to the territory’s investors must obtain licenses from the securities and futures authority.

The proposed requirements cover key areas such as safe custody of assets, know-your-client, conflicts of interest, cybersecurity, accounting and auditing, risk management, anti-money laundering/counter-financing of terrorism, and prevention of market misconduct. Centralized crypto exchanges must ban Hong Kong IP addresses until they obtain the relevant permits to operate in the city. The regulatory requirements are open for consultation until March 31, and the new licensing regime will take effect on June 1. This move by Hong Kong is strategic, as it can attract crypto companies and investments to the city. Implementing clear regulatory frameworks would help the industry gain mainstream adoption and bring in more institutional investors.

AML Crypto Regulations In Hong Kong

The Legislative Council passed the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 (AML/CTF Amendment Bill 2022) on December 7, 2022. This bill introduced a licensing regime for virtual asset service providers (VASPs) and imposed anti-money laundering (AML), counter-terrorism financing (CTF), and investor protection obligations upon these actors.

VASPs that are licensed in Hong Kong are subject to a number of AML, CTF, and investor protection obligations. These include:

  • Customer Due Diligence (CDD): VASPs must conduct CDD on their customers, which includes identifying and verifying the identity of the customer, the beneficial owner, and any other person who exercises control over the customer. VASPs must also assess and understand the nature and purpose of the business relationship with the customer.
  • Ongoing Monitoring: VASPs must monitor their customers’ transactions on an ongoing basis to ensure that they are consistent with their knowledge of the customer, the customer’s business, and the risks associated with the customer.
  • Record-Keeping: VASPs must maintain adequate records of their customers, their transactions, and their risk assessments. These records must be kept for a period of at least five years.
  • Reporting: VASPs are required to report suspicious transactions to the Joint Financial Intelligence Unit (JFIU) of Hong Kong. Suspicious transactions include those that are inconsistent with the customer’s profile, those that have no apparent economic or lawful purpose, or those that involve the proceeds of crime.
  • Investor Protection: VASPs must also put in place measures to protect their customers’ assets. This includes measures such as segregation of customer assets from the VASP’s own assets and insurance against losses.
  • Penalties for Non-Compliance: VASPs that fail to comply with the new regulations are subject to a range of penalties, including fines, suspension or revocation of their license, and criminal liability. Individuals who are found guilty of money laundering or terrorist financing may face imprisonment of up to 14 years and fines of up to HKD 5 million.

The new regulations also provide for the imposition of sanctions by the United Nations Security Council or by Hong Kong in respect of breaches of international sanctions.

Licensing And Registration Requirements For VASPs In Hong Kong

Anyone who engages in a virtual asset exchange business in Hong Kong must apply for a license with the SFC. The AML/CTF Amendment Bill 2022 also introduced regulations for VASPs to comply with the Crypto Travel Rule.

The HKMA will only grant licenses to VASPs that meet certain criteria, including:

  • The company must be incorporated in Hong Kong.
  • The company must have a permanent place of business in Hong Kong.
  • The company must have adequate financial resources.
  • The company must have appropriate AML/CTF systems and controls in place.
  • The company must have a compliance officer responsible for ensuring the company’s compliance with the new regulations.

VASPs that fail to obtain a license will be prohibited from providing virtual asset services in Hong Kong.

Complying With The Crypto Travel Rule In Hong Kong

The Crypto Travel Rule will be effective in Hong Kong as of June 1, 2023. The new regulatory regime will provide industries with a grace period to prepare for compliance until that date. In Hong Kong, Travel Rule requirements apply regardless of the transaction amount.

The scope of data to be exchanged varies depending on the threshold of the transaction. For virtual assets that amount to HKD 8,000 or more, the following information needs to be shared: name, account number, and address of the originator, as well as the beneficiary’s name and account number. For virtual assets that amount to less than HKD 8,000, only the name and account number of the originator and beneficiary are required.

There are no differences in customer personally identifiable information (PII) requirements for cross-border transfers and transfers within Hong Kong. However, for wire transfers, the information recorded must include the number of the originator’s account or a unique reference number assigned to the wire transfer by the financial institution.

Non-custodial or self-hosted wallet transactions do not have any specific requirements in Hong Kong. The AML/CTF Amendment Bill 2022 defines virtual asset transfers subject to Crypto Travel Rule requirements as transactions for transferring virtual assets carried out by an institution on behalf of an originator, with a view to making the virtual assets available to the originator or another person at an institution, which may be the ordering institution or another institution.

To sum up, Hong Kong’s plan to permit retail investors to trade large-cap tokens on licensed exchanges is a significant advancement for the worldwide crypto industry. While China’s crackdown on crypto trading was meant to safeguard individual investors from speculative behavior, Hong Kong’s proposed regulatory framework is more lenient and has the potential to lure more crypto companies and investments to the city. The establishment of clear regulatory frameworks would aid in the industry’s adoption by the general public and attract more institutional investors. I hope to witness a harmonious balance between the two approaches.

 

Source: https://www.benzinga.com/23/03/31340390/hong-kong-emerges-as-an-attractive-hub-for-the-virtual-asset-industry-amidst-regulatory-scrutiny

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j