Silvergate Under Fire For Collaborating With Huobi Global Despite KYC Concerns

Despite prior evidence of Huobi Global’s lax KYC enforcement, public company investigator Aurelius Capital Value criticized Silvergate for working with the exchange.

To argue that Silvergate’s screening procedure was inadequate, Aurelius cited Huobi’s purported history of aiding money laundering and a 2020 experiment showing how simple it is to create phony accounts.

Did Justin Sun Affect Huobi’s KYC Process?

Following a 2020 experiment by forensics company Cipherblade, Aurelius raised concerns about Silvergate’s collaboration with Huobi Global on Twitter.

In addition, the experiment showed how simple it is to create false accounts by using manipulated images of famous people as ID photos. Authorities in Thailand and China busted a $124 million money-laundering conspiracy in 2021 that had taken advantage of Huobi’s inadequate security measures.

Silvergate Bank, chosen by 1600 major crypto firms, Silvergate Exchange Network, specializes in converting crypto and fiat.

Researchers found connections between Huobi and darknet marketplace Hydra and discrepancies in Silvergate’s due diligence and Huobi’s onboarding process.

Justin Sun, a member of Huobi’s international advisory board, is a significant character. Aurelius claims Sun partnered with Silvergate Bank to launch TRON stablecoin, criticized for lacking technical foundation and value. Through TRON’s coin in 2017, Sun raised $58 million.

Chinese media alleged that Sun committed insider trading, money laundering, and other financial crimes in 2019. According to The Verge, Sun authorized the Poloniex exchange to onboard new users via a phony KYC mechanism.

Furthermore, A former Poloniex employee suggested creating a new account using a picture of the animated character Daffy Duck.

As per the sun fiercely refuted the charges and threatened to sue anyone who made false accusations for defamation.

If any entity spreads misleading information, we reserve the right to seek legal redress. He confirmed that Harder LLP, our legal counsel, is in charge of representing us.

Identity Theft Risk From Weak Controls

Financial service providers must abide by KYC regulations to gather and validate customer data and stop criminals from opening accounts.

In addition, the procedure must recognize sanctioned people and stop them from opening accounts without authorization.

Lax controls can result from various factors, including how strictly different jurisdictions enforce KYC and anti-money laundering laws. Bad actors may also get inside through inept compliance officers’ ocular examinations of identifiable information.

Sometimes cryptocurrency exchanges relocate to areas with less demanding rules, like Malta, which might cause additional customer issues.

According to Aurelius, Huobi clients could only contact the exchange through a mailbox in Seychelles, as the deal had no physical presence in that location.

Furthermore, Lax KYC rules on exchanges make it easier for thieves to convert stolen cryptocurrency to money, as businesses are commonly used for trading fiat and cryptocurrencies.

Related Reading | Kraken Exits Japanese Market In 2023: Is This The End Of Crypto In Japan?

Moreover, the gang in the Chinese money laundering bust got people’s personal information by posting false employment adverts. After that, they opened many accounts on exchanges using these details to serve as conduits for illicit money.

Comments (No)

Leave a Reply