Since Bitcoin (BTC) started gaining popularity in recent years, governmental departments around the world have been keeping a close eye on cryptocurrency. Originally, the danger associated with Bitcoin was often described as “speculative risk.” The lack of regulation and reliable information in the crypto market, coupled with the rapid increase in the value of cryptocurrencies and the desire to make money, have made way for bad actors to enter the space. In fact, cryptocurrency fraud is now a mainstream issue on a global scale.
According to a Customer Protection Data Spotlight published by Federal Trade Commission (FTC), cryptocurrency investment scam reports have increased quickly with nearly 7,000 people reporting losses of more than $80 million from these scams since October 2020, which is about 12 times the number of reports compared to the same period a year earlier. Reports to the FTC Consumer Sentinel Network also suggest scammers are “cashing in on the buzz around cryptocurrency by luring people into bogus investment opportunities in record numbers.”
Source: Federal Trade Commission
“Similar to the internet, the rapid development of the cryptocurrency market has spawned a plethora of issues, including new romance scams and Ponzi schemes. To help protect our users against fraud and other criminal activities, we have developed an advanced risk control system to secure transactions. This system not only keeps users’ data safe but reduces customer friction as it speeds up payment and transactions for trusted users,” shared Jeff Mei, director of global strategy.
The importance of crypto risk control measures
Maintaining the security and safety of users’ assets is the main priority of the Huobi risk management team. As such, if a user is a victim of fraud, theft or other criminal activities, the Huobi team works diligently with the user to implement the appropriate risk control measures.
The following case study is based on a real-life incident that occurred on Huobi’s platform. Please note that it is a single example and risk control measures vary based on the individual case at hand. The name of the victim has been replaced to protect their privacy.
User case: Asset theft
In March 2020, Bob, a Huobi user, logged on to a website for a PC wallet through a Google search and imported his keystore. However, he did not know that the website was fake and actually a phishing scam.
The system prompted an error when he entered the password for the first time, so he entered it again and was finally able to open the wallet’s web page.
The next day, when Bob logged into the wallet’s official website, he found that all his assets were stolen. When he checked the transfer records, Bob realized that the assets in his wallet were transferred within 10 minutes of him entering the wrong password the day before.
Because the amount stolen was significant, Huobi was notified immediately. The Huobi team then analyzed the addresses linked to the stolen assets, tracked the latest inflow addresses of the assets, and added the relevant address information to the business security chain tracking system and monitoring system to automatically track the assets on the chain.
Four days later, the Huobi system detected the inflow of the suspected stolen assets and the platform automatically imposed withdrawal restrictions on the user who deposited the assets, thereby the user could not withdraw funds through the Huobi channel.
Since Bob reported the incident to the authorities, the police contacted Huobi after learning that the company had restricted the accounts linked to the stolen assets. Huobi cooperated with the authorities to provide them with the information they needed. In the end, Bob’s stolen assets were recovered.
System and strategies: Huobi peer-to-peer's advanced risk control
Peer-to-peer trading refers to the transfer of assets between two parties at an agreed-upon price while offering enhanced flexibility and customization. As the trading volume continues to soar, P2P trading is becoming increasingly popular in crypto trading.
To ensure that both parties comply with the agreed terms and properly handle the settled cryptocurrencies, Huobi P2P is dedicated to providing users with a reliable platform and full-stack risk prevention measures. Secure and time-tested, Huobi P2P always gives the safety of its customers and their assets the highest priority and thus conducts regular reviews and risk monitoring of users’ information to prevent any potential frauds and deceptive behaviors.
Risk control strategies
Huobi P2P’s risk control strategy consists of multiple strategies to identify and intercept potential risks:
Isolation of fiat currency with regulatory requirements
In order to meet the demands of worldwide trading, the P2P platform provides the most suitable currency based on clients' geographical features and supports the most popular local payment methods. For some enhanced regulatory requirements, the platform restricts certain currencies which are only available for local residents and does not allow cross-border trade.
Anti-romance scam strategy (For Indonesia, Taiwan and Malaysia currently)
Huobi identifies potential victims of romance scams and intercepts any transactions that follow as quickly as possible. In addition to intercepting transactions and providing risk education related to romance scams, Huobi P2P issues risk warnings to users who send assets to medium- and high-risk addresses. Furthermore, all addresses determined to have fraud potential are monitored to prevent any funds from being withdrawn until the necessary clarifications are made.
Huobi has committed to expanding the coverage of its risk control strategy to improve the security of users' assets and transactions in recent years. On July 22, 2021, an updated anti-romance scam strategy was launched to protect users who may become victims of romance scams in Indonesia. If a user is identified as a potential victim, Huobi P2P will notify the user accordingly to ensure asset security.
Order real-time monitoring
Huobi P2P identifies orders that involve fraud and/or account theft, intercepts them, and automatically disposes of fraudulent accounts in a timely manner.
Automatic and manual advanced verification
Users’ images and IDs are carefully verified and cross-checked by edge-algorithm programs to confirm the authenticity of their identities. Fraudsters using false identities are quickly intercepted.
Advanced verification for merchants and advertisers (For P2P and fiat gateway transactions)
All merchants and advertisers are required to pass advanced identity verifications before onboarding and posting advertisements. This includes Jumio checks for national identity documents and face-match verifications.
Note: These strategies cover all exchange users (or advertisers or merchants, if applicable) across P2P transactions and 30 fiat currencies unless otherwise stated.
Trade protection program and guardian plan
The platform has prepared a total of 50,000 Huobi Dollar (HUSD) in security funds to users who help prevent potential scams and remove rule breakers. Users can help by reporting risky or suspicious behaviors to the platform for further investigation.
Solutions for fraud and scams
Telecommunications fraud
Huobi uses a Short Message Service (SMS) or emails to send risk reminders to users who may be victims of telecommunications fraud and have actively withdrawn funds. Users are reminded to actively check the possibility of fraud. Additionally, Huobi P2P will continually reach out to high-risk users by sending messages with helpful risk education information to strengthen their risk prevention awareness.
Gambling scams
Huobi P2P expanded its evaluation procedures regarding gambling-related scams. Users who deposit assets from gambling houses will be quickly locked. Users will also be required to provide proof regarding the source of their assets.
Money laundering
Huobi P2P first considers the various risk factors associated with a customer suspected of money laundering. From there, risk monitoring is carried out, including correctly identifying customers, regularly reviewing basic customer information and continuously testing customers’ risk levels. Review standards are then raised according to the customer’s risk level.
After the evaluation of the risk control system or the verification of risk control staff, if the user is deemed to have directly participated in or assisted in money laundering and/or criminal activities, their accounts and related account functions will be permanently restricted.
Jumio, a risk control certification system
To further meet the Know Your Customer requirements of the Financial Action Task Force, Huobi P2P has integrated Jumio, a KYC-enhanced system that provides a variety of digital identity tools to validate clients’ identity and make sure the operations are from clients themselves.
Jumio provides a variety of solutions, including:
- ID verification — verifies authenticity and validity of submitted IDs and extracts data from verified IDs.
- Identity verification — matches the face to the photo on IDs and uses liveness detection to validate that a user is a live person.
- Document verification — extracts addresses, issuance dates and names from bank statements and utility bills.
- Authentication — uses liveness detection to match the face to the image kept on file.
Starting from July 9, 2021, all users who would like to publish advertisements will be required to pass advanced verification first.
“As a major participant in the global cryptocurrency trading market, Huobi will continue to optimize and upgrade its risk control system to ensure that it has strong anti-fraud capabilities. This will enable us to continue combating cryptocurrency crime and creating a sound market development environment,” commented Mei.