Why did the big players in the cryptocurrency circle return to China again? Russia, Japan, South Korea, Canada, Singapore, and Hong Kong are all cracking down on cryptocurrency-related crimes with a ‘global perspective’.

What Led Major Cryptocurrency Influencers to Flock Back to China? Amid a Concentrated Global Effort to Combat Cryptocurrency Crimes by Russia, Japan, South Korea, Canada, Singapore, and Hong Kong.

1. Introduction

Cryptocurrency crimes are not only being cracked down in our country, but any country based on the interests of society and the people will combat illegal activities. When dealing with cryptocurrency issues, we cannot simply generalize and believe that only our country is cracking down while other countries support it freely. In reality, both China and other countries do not have an absolute standpoint. A one-size-fits-all view is only a partial understanding of complex issues, a bit like blind people touching an elephant. Therefore, we will delve into the measures taken by various countries to deal with major cryptocurrency crime cases in order to better understand the global governance situation in the field of cryptocurrency crime.

2. Singapore Torque Exchange Scam

In September 2020, the Singaporean police cracked a cryptocurrency investment fraud case involving over 10 million Singapore dollars (about 50 million RMB). The case involved a platform called “Torque,” which claimed to provide investors with high daily returns but was actually a Ponzi scheme. The police arrested 14 suspects and froze assets worth about 16 million Singapore dollars (about 80 million RMB). The case is still under investigation.

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3. Russian BBC Money Laundering Case

In December 2019, the Russian Federal Security Service (FSB) arrested two suspects involved in money laundering using cryptocurrencies. It is alleged that these two suspects provided anonymous cryptocurrency exchange services to customers from Russia and other countries through a website called “BBC,” thereby converting illegal proceeds into legal currency. It is estimated that they laundered about 1.5 billion rubles (about 150 million RMB) through this method. The two suspects are charged with illegal banking operations and money laundering, facing a maximum of 10 years in prison.

4. EU 2gether Case

In July 2020, the European Union Agency for Law Enforcement Cooperation (Europol) assisted law enforcement agencies in countries such as Spain, the United Kingdom, and Germany in dismantling a criminal network that used cryptocurrencies for money laundering. The network was operated by a company called “2gether,” which claimed to be a legitimate cryptocurrency trading platform but actually provided money laundering services for drug dealers and other criminals. Four key members were arrested and their residences in Spain and the UK were searched, resulting in the seizure of a large amount of cash, cryptocurrencies, and electronic devices.

5. South Africa Bitcoin Wallet Scam

In November 2019, the South African police broke up a virtual currency investment scam involving over 1 billion rand (about 480 million yuan). The case involved a platform called “Bitcoin Wallet,” which promised investors a daily return of 100%. However, it turned out to be a Ponzi scheme. When investors found out they couldn’t withdraw their funds, they reported it to the police. The founder of the platform, Spi Enoda, was arrested and charged with fraud and money laundering.

Sixth: Israel Chimera Money Laundering Case

In August 2020, the Israeli police arrested a suspect who allegedly used cryptocurrencies for money laundering. It was reported that the suspect provided anonymous cryptocurrency exchange services to clients from Israel and other countries through a website called “Chimera,” converting illegal proceeds into legal currency. It is estimated that he laundered about 1 billion shekels (about 200 million yuan) through this scheme. The suspect was charged with money laundering and illegal operation of financial services.

Seventh: Canada Interac e-Transfer Case

In June 2019, the Canadian police arrested a suspect who allegedly used cryptocurrencies for money laundering. It was reported that the suspect provided anonymous cryptocurrency exchange services to clients from Canada and other countries through a website called “Interac e-Transfer,” converting illegal proceeds into legal currency. It is estimated that he laundered about 3 million Canadian dollars (about 150 million yuan) through this scheme. The suspect was charged with money laundering and illegal operation of financial services.

Eighth: South Korea Luna Coin Zeroing Case, V Global Pyramid Scheme, etc.

(1) V Global Pyramid Scheme

V Global, a company in South Korea, promised investors high returns using the guise of virtual digital currency. It used a “snowball” method, using funds from new investors to pay returns to earlier investors. In a short period of time, the company defrauded 69,000 people of 38 trillion won (about 22.1 billion yuan). A significant number of victims were elderly people. On May 4, 2021, the case was raided by the South Korean police, who conducted searches in 22 locations, including the headquarters of the exchange and the residences of its employees. Ultimately, 240 billion won (about 1.38 billion yuan) in cryptocurrency was frozen. The individuals responsible were sentenced to prison.

(2) Seoul’s first Bitcoin money laundering case

The defendants, including Mr. Li, provided Bitcoin exchange services through online platforms from 2017 to 2018, facilitating criminal activities such as fraud and smuggling. The defendants illegally profited approximately 360 million Korean won (about 2.09 million yuan) by charging exchange fees and exchange rate differentials. The case was tried by the Seoul Central District Court in December 2019, and Mr. Li was sentenced to two years in prison for money laundering, along with a fine of 50 million Korean won.

(3) The case of LUNA token going to zero

LUNA is the governance token of Terra, while UST is an anchor stablecoin pegged to the US dollar. 1 UST is pegged to 1 US dollar. 1 UST can be redeemed for an equivalent value of LUNA.

(1) If the price of UST against the US dollar falls below $1, for example, if 1 UST = $0.99, arbitrageurs can use LUNA to redeem UST within the ecosystem and then sell UST in the market for profit. Each arbitrage of 1 UST can yield a profit of $0.01.

(2) If the price of UST against the US dollar goes above $1, for example, if 1 UST = $1.01, arbitrageurs can exchange UST for LUNA within the ecosystem and sell LUNA in the market for profit. Each arbitrage of 1 UST can yield a profit of $0.01. However, if UST experiences a severe anchor break, the entire economic system could collapse.

With market capital attacks and weak risk management awareness by Quandar Hyung, this day finally arrived.

On May 6, 2022, UST temporarily fell to $0.8, causing a sharp decline in UST price. More and more people exchanged UST for LUNA and sold it, leading to a death spiral. Quandar Hyung’s attempt to rescue the market failed, announcing that the market should regulate itself. This directly triggered a market explosion, with no believers in LUNA left, only scavengers trying to divide this giant beast. Eventually, the price of LUNA plummeted from its peak of $120 to five zeros after the decimal point, and LUNA ceased to exist.

Countless gamblers tried to jump in and even opened leveraged contracts when LUNA declined to single digits, but they were all buried without a doubt. Of course, the Korean people suffered the most losses because the Anchor protocol of LUNA allowed users to earn a static yield of 19.41% annually. This is a concept that exceeds the highest annual interest rate of ordinary banks, which is at most 4%. Therefore, many Koreans not only put all their savings in it but also took loans from financial institutions to earn interest. The interest rate of nearly 20% exceeded the lending rates of most loan institutions.

A large number of Korean people went bankrupt, and to prevent suicide, the Seoul government even deployed a large number of personnel to patrol the “suicide bridge,” Mapo Bridge. However, unfortunate incidents still occurred. A family of three from Jeju Island went missing and was found dead under the sea a month later. The search history found on the husband’s computer before his death was filled with keywords such as LUNA, UST, suicide, and so on.

After the incident, Quan Daoheng fled abroad fearing his guilt, but he was eventually arrested in Montenegro and extradited to South Korea. The Korean prosecutor’s office believes that he intentionally manipulated the market price, causing investors to suffer losses of over 50 trillion Korean won (approximately 260 billion Chinese yuan), and endless probation awaits him. Later that evening, the U.S. Manhattan court in New York issued eight criminal charges against Quan Daoheng, including securities fraud, electronic fraud, commodity fraud, and conspiracy to commit crimes. Depending on the severity of Quan Daoheng’s crimes, the U.S. court could sentence him to 100 years in prison.

9. Japan

(a) Mt. Gox Exchange Collapse

Since June 2013, Mt. Gox suspended its service for customers to withdraw dollars. By November, users started experiencing delays in bitcoin withdrawals, ranging from weeks to months, causing great dissatisfaction among users who expressed their complaints on various social media platforms. On February 24, 2014, Mt. Gox forcibly suspended all trading activities and took the trading platform offline. An internal leaked document revealed that the company had been hacked, resulting in the theft of 744,400 bitcoins and an additional 100,000 bitcoins from the exchange itself, for a total of approximately 850,000 bitcoins.

Subsequently, the Criminal Investigation Department of the Tokyo Metropolitan Police Department in Japan launched an investigation. The final investigation revealed the truth behind this incident: Mt. Gox was actually responsible for the theft through self-manipulation, rather than external hackers. Out of the 850,000 bitcoins lost, only 7,000 were actually stolen.

In August 2015, the CEO of Mt. Gox was arrested by the Japanese police and faced charges of misappropriating company funds for business acquisitions and luxury goods. The CEO also faced criminal charges from other countries, including France and the United States.

(b) Coincheck Exchange Hack

On January 26, 2018, hackers exploited a security vulnerability in the Coincheck exchange and stole 58 billion yen (approximately 3.4 billion Chinese yuan) worth of NEM. This event triggered strict regulation of virtual currency exchanges by the Japanese Financial Services Agency, and the individuals responsible were subject to criminal investigation. Coincheck was also forced to compensate the affected users and underwent acquisition by the Japanese internet giant Monex Group.

(c) Sino-Japanese Transnational Money Laundering Case

This is a complex case involving elements of organized crime, cross-border transfers, and virtual currency that took place in 2017. In this case, a Chinese individual acted as an intermediary to help a Japanese organized crime group “launder” 30 billion yen (approximately 1.8 billion Chinese yuan) through virtual currency. They utilized multiple exchanges and accounts to repeatedly convert different types of virtual currency until the funds were transferred to Japan. Japanese police arrested 16 suspects in 2018 and transferred the case to the International Financial Action Task Force.

Ten, Hong Kong

On June 1st of this year, Hong Kong launched the “Virtual Asset Trading Platform Licensing Regime” implemented by the Securities and Futures Commission. This marks a key step for the Hong Kong government in the development of its digital harbor, continuously advancing towards the strategic goal of becoming a web3 financial center.

However, just 3 months later, on September 13th, the Securities and Futures Commission surprisingly named and issued a warning to the virtual asset platform JPEX, making it the first virtual asset exchange to receive a red card. According to the Securities and Futures Commission’s website, JPEX did not hold a valid license but actively promoted its services and products to the Hong Kong public through social media influencers and over-the-counter virtual asset currency exchanges.

On September 14th, a withdrawal screenshot started circulating in multiple cryptocurrency communities. A user withdrew 1000U from JPEX but only received 1U, with a whopping 999U transaction fee. Later, some users were unable to withdraw even 1U.

As of now, nearly 3,000 people have reported the incident, involving an amount of approximately HKD 1.6 billion, with the largest investor having invested HKD 40 million.

The Hong Kong authorities are furious about this, and the Chief Executive specifically addressed the issue. The Hong Kong police have initiated a full investigation, mobilizing personnel from various criminal departments and seeking assistance from the “Major Incident Investigation and Disaster Support System.” They are also seeking international cooperation, collaborating with overseas virtual asset trading platforms, and intercepting fraudulent funds through physical banks and online means. So far, 8 people have been arrested, and the related arrests are still ongoing.

As a new emerging technology, virtual currency will inevitably go through a process of maturing from immaturity. We believe that the Hong Kong government will continuously improve relevant systems and the handling of cases to prevent such incidents from happening again, ensuring that web3 truly takes root and brings new vitality to Hong Kong.

Summary

From the classic cases above, we can see that every country takes a strict stance on cracking down on virtual currency crimes. The foreign virtual currency environment is not always unconditionally open and free. In fact, in terms of the harm caused by these incidents, the industry and social harm caused by events like FTX collapse, LUNA collapse, and Mt.Gox collapse are much greater than the domestic incidents. This precisely reflects the advantage of China’s cautious attitude towards virtual currency trading. Of course, the emergence of any new thing is bound to be accompanied by periods of chaos and even disorderly development. Governments around the world are constantly learning from these lessons, improving their legal systems and implementing responsive measures. We also believe that the future development of the blockchain industry can return to the original intention of the Bitcoin whitepaper, establishing a secure, efficient, and transparent financial system instead of equating it with illegal activities.

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