Behind the resurgence of card freezing: the pain of OTC withdrawal channel supervision in the crypto world

In recent times, some users who have participated in OTC transactions have reported that the market has encountered a new round of card freezing, and compared with previous card freezing incidents, this round of card freezing is more fierce.

CoinHolmes, a visual digital asset platform under blockchain security company PeckShield, analyzed and found that the main reason for the resurgence of card freezing incidents is the frequent occurrence of fraudulent activities such as telecommunications fraud, pig-killing schemes, and pyramid schemes.

Since the beginning of this year, relevant national departments have stepped up their efforts to combat money laundering and issued strict guidance documents, giving public security organs in most parts of the country the right to exercise jurisdiction over some cases. The regulations state that as long as the head of the public security organ at or above the county level approves it, the public security organ can prepare a notice to assist in freezing property and notify financial institutions and other units to execute it. In addition, in order to ensure that the stolen money is not tracked, all kinds of fraudsters use digital assets as their main channel, which have stronger anonymity, more complex transfer paths, more diverse withdrawal channels, and a complex regulatory environment.

Therefore, when the public security organs tracked the flow of assets in some cases, they found that in addition to underground banks, many cases were more or less related to encrypted assets.

CoinHolmes analysts analyzed a large number of fraud cases and found that there are significant differences in the way the stolen goods are sold in different types of cases:

1. The amount of funds involved in pig-killing cases is often small. After the fraud is successful, the funds will be gathered in the hands of money laundering gangs. After a series of fierce operations, the laundered funds will eventually be transferred to the fraud gangs hiding overseas.

Therefore, the difficulty for the police in cracking such cases of pig-killing scams lies in how to find the complex financial network hidden behind the flow of funds in a single case, and finally identify the money laundering gangs through the intersection addresses of funds in different cases, and finally find the fraud gangs hidden behind the scenes. It is worth mentioning that these money laundering gangs are likely to be intertwined and proficient in complex money laundering methods such as currency mixing services. Professional asset tracking services must be used to sort out the flow of assets.

Second, pyramid schemes and Ponzi schemes are quite common nowadays. The worst thing is that most of these cases are in the area of ​​vague legal supervision. The fraudulent modes are diverse. The behind-the-scenes operation team designs fancy modes with pyramid schemes, uses the rise of currency prices as an inducement, and attracts users who lack cognitive judgment to participate. Such cases generally have a long cycle. The fraudsters do not directly commit fraud, but conduct improper operations through the game of passing the parcel until there is a problem with the capital flow and then run away.

The legal definition of such cases is currently vague, and they have always existed in various forms. Due to the inherent anonymity of crypto assets, high technical barriers, and lack of effective market supervision, they are easy to be manipulated. Therefore, many Ponzi schemes and pyramid schemes have begun to enter the field of crypto assets, using the wealth effect as bait to set up fraud. Unfortunately, most of these cases are currently difficult to be effectively investigated.

3. Telecom fraud cases often involve a strong urgency to withdraw funds, and usually choose over-the-counter transactions for money laundering. Therefore, some KYC access qualification reviews are not strict, and even OTC platforms that specialize in serving black money have become the hardest hit areas. Some exchange over-the-counter trading platforms will also be contaminated by this type of black money. The detection system for telecommunications fraud is already very mature, but that is only for traditional legal currency channels. Once telecommunications fraud and encrypted assets are involved, the problem will become quite complicated.

When we explore the frequent card freezing incidents, our focus is not on how the police effectively tracked down the stolen money, but rather on the fact that the police adopted the traditional mature card freezing process for telecommunications fraud when handling cases involving crypto assets. This is bound to cause certain law enforcement frictions for users who only became involved in the stolen money after three or four transactions in the OTC market.

Why is this happening?

1) The OTC withdrawal channel environment is relatively complex. Although the major exchanges have platform guarantee mechanisms such as Blue Shield merchants, many people still choose some OTC merchants with poor qualifications in order to buy low and sell high. This makes it difficult to avoid the problem of individual funds being contaminated by stolen money;

2) There is a black KYC industry chain that buys and sells fake ID cards, phone cards and other fake identities. Moreover, the entire crypto market trading environment is relatively complex, and the quality of large, medium and small exchanges varies. There are even some centralized institutions that do not require KYC: such as ChangeNow and CoinSwitch. This objectively creates a fake KYC black hole;

3) The judicial authorities have a mature interception system for tracking the flow of traditional legal currency funds, such as bank freezes, etc.; but the problem is that the crypto asset trading environment is relatively complex, and some users are likely to receive stolen money after many transactions. At present, the regulators are still using relatively traditional interception methods to freeze. Obviously, the crypto asset OTC market has not yet taken perfect measures to deal with the problem of money laundering. I believe that as the judicial authorities' methods of verifying and collecting evidence in the crypto world become more mature, and as the major exchanges' technical control at the anti-money laundering level becomes more and more perfect, this kind of large-scale freezing of bank cards will gradually decrease.

CoinHolmes analysts believe that when various types of telecommunications fraud, pyramid schemes, pig-killing fraud and other cases become the focus of rectification, for exchanges, how to solve the problem of the influx of stolen money becomes the key.