Hong Kong’s authorities recently placed three people in custody. The arrests were made in connection with robberies at six Bitcoin ATMs in the city. Hong Kong Authorities made the arrests after crypto exchanges reported that funds had been withdrawn illegally from Bitcoin ATMs.
Details of the Fraud
The cybersecurity and technology crime bureau of the Hong Kong Police Force managed to arrest three people after receiving reports from two crypto exchanges. According to the reports filed by the exchanges, the fraudsters withdrew the funds from six Bitcoin ATMs without proper authorization.
According to a report by the South China Morning Post, the suspects are key members of a larger syndicate operating in Hong Kong. The police arrested the three suspects on Thursday and Friday in the Mong Kok residential district of Hong Kong. All three hackers were aged 26 to 55 and they have been charged with conspiracy to defraud. They all claimed unemployment. During the arrest, authorities confiscated six smartphones and some money linked to the illegal withdrawals. Authorities have not ruled out more arrests in connection to the case.
The reports by the exchanges claimed that the fraudsters exploited loopholes in the Bitcoin ATMs that enabled them to withdraw funds from the ATMs by circumventing authorization. In total, the hackers managed to withdraw around 230,000 Hong Kong dollars, which is about $30,000 over 11 transactions across the six ATMs. The biggest amount withdrawn in a single transaction was 54,000 Hong Kong dollars.
The Loophole Exploit Will Not Be Revealed
According to Wilson Tam, a superintendent at the Hong Kong Police Force cybersecurity and technology crime bureau, they will not release details of the loophole exploited by the fraudsters. Besides that, they will not reveal how the scammers managed to trick the ATMs.
However, the superintendent revealed that they had offered security advice to the two crypto exchanges. He added that he believed they would upgrade their systems to close off the loophole. The superintendent added that it was the first time they had come across Bitcoin ATM fraud.
The Bitcoin ATM Landscape in Hong Kong
Data by Coinatmradar shows that there are 52 Bitcoin ATMs in Hong Kong. Today, there are over 9000 ATMs across the world. HK Bitcoin ATM and Coinhere are the main operators of Bitcoin ATMs in Hong Kong. Both of these BTC ATM operators have ATMs in the Mong Kong district.
Bitcoin Regulation in Hong Kong
Hong Kong’s Monetary Authority does not consider Bitcoin to be legal tender. However, it is recognized as a virtual commodity. The Securities and Futures Commission published a statement in September 2017 stating that digital tokens sold through ICOs were debentures, shares, or interests, in a collective investment scheme. As a result, they would be classified as securities.
Consequently, any company advising on digital tokens, dealing, managing, or marketing an ICO would be considered a regulated activity. Thus, they would need to acquire a license or be registered by the SEC. In November 2019, the Hong Kong Monetary Authority unveiled a new regulatory framework for opt-in regulation of crypto exchanges.