Huione's money laundering ratio has decreased to 2.7%. Has it truly become compliant after rejecting illegal transaction guarantees?

Huione Group is a large financial group located in Cambodia, which owns business zones including Crypto Assets Wallet, payment, trading guarantees, insurance, and Crypto Assets exchange. Bitrace's audit shows that after Huione refused to provide guarantees for illegal transactions, the proportion of high-risk funds at the new business Address decreased from 7.70% at the old Address to 2.70%.

2962 million USDT freezing incident sounds the alarm

In July this year, Huione Group faced a “backlash.” According to an investigation by Bitrace, the payment business (HuionePay) under Huione Group had its Address frozen by Tether due to receiving funds from the stolen cases of the Crypto Assets exchanges DMM and Poloniex, amounting to 29.62 million USDT. This amount accounted for approximately 75% of HuionePay's reserves at the time, creating a certain withdrawal pressure for Huione and affecting the normal operation of the platform to some extent, which rang alarm bells for Huione.

The freezing scale of 29.62 million USDT is extremely rare in the cryptocurrency industry. Tether, as the issuer of USDT, has the technical ability to freeze USDT at any address, but typically exercises this power only when explicitly requested by law enforcement or in cases of significant crimes. DMM and Poloniex are both well-known exchanges that have suffered from hacking attacks, with stolen funds flowing into Huione through a complex money laundering chain, ultimately being tracked and frozen.

A 75% reserve freeze means that Huione Pay is facing a severe liquidity crisis. Under a partial reserve system, payment platforms typically only keep 20-30% of reserves to handle daily withdrawals, with the remainder used for investment or lending to earn returns. When 75% of the reserves are frozen, the platform may be unable to meet normal withdrawal demands, which explains why a small-scale run occurred at that time.

This freezing incident is a turning point for Huione's decision to change its business strategy. Faced with international regulatory pressure and actual economic losses, Huione realized that the risks of continuing to provide services for illegal activities have exceeded the benefits. After this freezing incident, Huione Guarantee's official website added a special reminder stating that businesses related to serious crimes such as theft of Crypto Assets, human trafficking, drug trading, arms ammunition trading, and involvement in terrorism and violence, as well as financial flows involving the United States and cross-chain mixing laundering business, are explicitly not guaranteed by Huione.

The wording of this statement is extremely clear and comprehensive. The theft of encryption assets, human trafficking, drugs, firearms, terrorism – these are the types of crimes that the international community is most vigorously combating. “Involving the financial flow businesses related to the United States” is a direct response to the pressure from U.S. law enforcement agencies, showing that Huione is trying to draw a line with U.S. jurisdiction. “Cross-chain mixing and laundering businesses” target the behavior of using mixers (such as Tornado Cash) to clean funds.

Huione Guarantee has made a clear distinction regarding business boundaries, shifting its attitude towards certain high-risk businesses from an ambiguous stance to a clear rejection. This shows its tendency to strengthen the company's business compliance management to avoid involvement in illegal activities and further legal risks. However, a statement is one thing, while actual implementation is another. The cryptocurrency industry is filled with hollow compliance commitments, and the key lies in whether on-chain data can verify these commitments.

Bitrace Audit: High-risk funds account for 5% decrease

Huione money laundering ratio decreased to 2.7%

(Source: Bitrace)

Huione publicly resists a series of risk activities funding in order to improve business compliance. Is this initiative effective? Bitrace conducts a risk fund audit on the six business addresses recently disclosed by Huione, comparing them with previous old business addresses to observe the risk fund inflow situation of Huione addresses before and after their statements. These six guaranteed addresses include: TX36xR, TVf2Na, TYQLMe, TKBiAw, TFMp4o, TU7X7b.

The audit results show significant improvement. Huione's old business address TL8TBp accumulated inflows exceeding 2.244 billion USDT from July 16, 2023, to October 13, 2024, with high-risk funds reaching 173 million USDT, accounting for 7.70%. This proportion is extremely high among Crypto Assets payment platforms, as the risk fund proportion of normal compliant platforms is usually below 1%.

Huione's latest business address accumulated inflow of funds exceeding 300 million USDT from July 16, 2024, to October 13, 2024, among which high-risk funds reached 8.14 million USDT, accounting for 2.70%. It can be seen that the proportion of high-risk funds in Huione's inflow has significantly decreased, from 7.70% to 2.70%, a reduction of 5 percentage points, with a relative improvement rate of approximately 65%.

The allocation of high-risk funds is split according to different categories of risk, with the inflow of black and gray industry funds significantly improving, decreasing from 7.63% to 2.61%. The inflow of high-risk funds such as money laundering, online gambling, and fraud has also significantly decreased. This cross-category comprehensive improvement indicates that Huione's compliance measures are not only targeting specific types of crimes but are systematically enhancing risk screening capabilities.

In addition, Bitrace further calculated the proportion of high-risk funds for new and old business addresses over different time periods. During the period from July 16, 2024, to October 13, 2024 (the same period after the statement was released), the influx of high-risk funds accounted for 6.68% of the total funds for TL8TBp, slightly higher than the same period last year, and slightly lower than the entire audit period. This indicates that even old addresses have seen an improvement in the proportion of risk funds during the same period, suggesting that Huione's compliance measures may be implemented across the entire platform rather than being limited to new addresses.

Data improvement but conclusions still need to be cautious

Huione Before Trading in High Risk

From the above data, it is not difficult to see that both new and old addresses have indeed seen an improvement in the inflow of high-risk funds to the Huione Guarantee business address, which may be related to its tightening of merchant participation thresholds. Specific measures for improvement may include: strengthening KYC verification requirements for merchants to provide more detailed identity information, implementing stricter transaction monitoring to flag suspicious large or high-frequency transactions, collaborating with blockchain analysis companies to identify funds from mixers or blacklisted addresses, and refusing to provide services to certain high-risk industries.

However, it is worth noting that this batch of new business addresses does not have a sufficiently long operational history, and the data currently available may not accurately reflect the compliance progress of Huione Guarantee. The new addresses have only been operating for about 3 months, while the audit cycle for the old addresses exceeds 1 year. Short-term data may be affected by seasonal factors, market cycles, or temporary compliance actions, and may not fully represent long-term trends.

In addition, while the high-risk capital ratio of 2.70% has significantly improved from 7.70%, it is still far above the standards of compliant financial institutions. The risk capital ratio of mainstream crypto exchanges like CEX is usually below 0.5%, and the standards for payment processors are even stricter. A ratio of 2.70% means that for every 100 USDT that flows in, 2.70 USDT comes from illegal activities such as money laundering and fraud. Although this ratio has improved, it still remains in the high-risk zone.

Huione is located in Southeast Asia, and its business scope highly overlaps with the notorious local organized crime groups, making it difficult to completely eliminate structural risks. Cambodia is the core region for global “pig-butchering” scams, with a large number of scam parks concentrated in places like Sihanoukville and Poipet. As long as these criminal activities continue to exist, Huione, as the largest crypto payment platform in the area, will find it challenging to completely avoid contact with illegal funds.

Bitrace will continue to pay attention. The expansion of the crypto industry and the flood of risk capital have put increasing compliance pressure on Web3 organizations. The lack of ability to identify the risk of funds in users' addresses may impact platform operations and even lead operators to face the risk of being investigated. Know Your Transaction (KYT), as a fundamental tool for cryptocurrency companies to maintain security and operate in compliance, plays an indispensable role in preventing illegal activities, protecting users' property security, and enhancing the platform's reputation.

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