How to buy/sell cryptocurrency and not be deceived: signs of fraud in OTC deals


This article describes how to buy and sell cryptocurrency without money being stolen or you being batted. Nowadays it is impossible to deny the impact of the rapid development of technology on the economic life of society. Unfortunately, traditional social institutions do not always have time to adequately assess these changes and quickly respond to them. This creates a gap of misunderstanding on the part of both market participants and regulators. The sphere of cryptocurrency and blockchain remains one of the fastest growing, but also the most controversially evaluated technological innovations in recent years.

That’s why the publications on legal issues of the development of this sphere are actual now. This data is based only on current, freely available information, our practice and the comments of leading market experts. Therefore, this is a private insight into the situation, it can’t be considered as a guide for making any business decisions and is not aimed at discrediting the activities any of the market participants.

I would like to start with the wide-ranging topic such as the cashless acquisition of cryptocurrency. Many people have heard of numerous attempts at fraud in this market. Unfortunately, this cannot be avoided, but such situations can be prevented.

Let’s take a look at aspects that should be paid attention in case of receiving an offer to conduct an over-the-counter (OTC) cryptocurrency purchase/sale transaction. These tips help you not to become a victim of psychological manipulations and altered facts.

How does the typical offer to make a cashless transaction for the purchase or sale of cryptocurrency look like?

A person who usually introduces himself as a trustee of the seller or buyer (depending on the scenario of a particular case) offers to make a transaction on non-cash purchase/sale of cryptocurrency in large volumes. The amounts in such transactions equivalent to 1000-100 000 or more BTC. From every beginning during the formulation of such offer pay attention to a few points:

1. The first point is to consider why a broker acting on behalf of a person with such means is looking for contacts on the open market. There are specialized world-renowned companies that could provide high-quality services in the shortest time. The owner of such a volume of cryptocurrency will not report this fact to the external market. A true holder will not tell anyone about the availability of volume, as he will be inclined to sell in small batches. Large lots are usually sold through direct interaction with the buyer, without intermediaries.

2. Why did this person address to you? Even if you have certain experience in the cryptocurrency market, have acquaintances in this field, these facts do not mean that you understand all aspects of the market. Do not cherish illusions. If there are no very wealthy individuals in your environment and you have never conducted a transaction of this format, the probability that a true buyer/seller approached you to realize such a volume of cryptocurrency tends to zero.

Then you should pay attention to the terms of the transaction and the terminology used by this person during your dialogue with him:

– The interlocutor, posing as a trustee of the buyer/seller’s side, refuses to provide any documents proving his legally arranged relationship with the company through which the transaction is going to be conducted. If a person introduces himself as a broker, he also refuses to provide a brokerage service license;

– The interlocutor is very reluctant to share the details of the transaction. He refers to the need of increased levels of secrecy “at the request of the client”, while often refusing to talk about the procedure of conducting a transaction without signing the NDA (Non-Disclosure Agreement). He proposes to sign the document with him, without specifying how much damage to him or his business reputation may be caused if the information becomes available to third parties. Also, it is not specified what is the general legal meaning of a non-disclosure agreement signed between individuals;

– Contact person starts a conversation with commission size negotiation. He is ready to bargain about the size of the commission. It often turns out that there are also several people in the chain of beneficiaries of the transaction who should receive a commission as well. He doesn’t explain who these people are and why they should receive a commission. He proposes to sign in advance an agreement on the distribution of commissions (with the provision of passport data of participants), advisedly emphasizing that “everyone will receive a lot of money.” In this case, the interlocutor tries to avoid talking about the mechanism of the transaction under any pretext. But the most important thing in this matter is the conversation about the commission and the essence of its discussion. If there is a representative of the seller, he does not offer to divide the commission because he pays it. The seller’s representative is the employee/partner;

– The interlocutor refuses to organize negotiations with the financial or legal consultant of his client and similar specialists on your part calling such step as an unethical act;

– The interlocutor is ready to conduct further dialogue only if the seller sends 1-15 Satoshi to the customer’s wallet (the so-called Proof of Coin or Proof of Product procedures), or provide a video with access to the wallet that holds the required number of BTC. The buyer, in turn, is asked to immediately provide the Proof of Funds which is a certificate of the availability of funds in the account for purchasing the required amount of cryptocurrency. Such requirements should arise not earlier than all the documents are signed and the counter-verification procedures are passed. Otherwise, it is an attempt to manipulate in order to keep your attention. If the “buyer” wants to get Satoshi, there is a chance that he needs a wallet for committing unlawful acts, for example, for conducting a DDOS attack.

During the discussion of the transaction mechanism, you are likely to hear the following:

– The transaction is usually proposed to conduct in the following jurisdictions such as Hong Kong, Singapore, Malaysia, UAE; European countries include Estonia, Latvia, United Kingdom, Switzerland, less often the Czech Republic is mentioned. Infrequently the United States is proposed. You can also be offered to make a deal “in any country of the world.” At the same time, a person does not explain what aspects determine the choice of
jurisdiction. You can often hear the legend that “the owner of the wallet/money travels a lot, and now he is in a particular country.” At the same time, he is not ready to go anywhere else. All details are invited to discuss when meeting with the client on its territory – in a bank, office, any other “protected object”;

– If it comes to a jurisdiction in which any operations with cryptocurrencies are prohibited, the interlocutor may offer to make a transaction allegedly for the supply of a) any goods, materials, and services; b) food; c) software. You may even be demonstrated a contract in which “such transactions have already been conducted.” Special attention should be paid to the contract, because it is often drafted with gross infringements of the Incoterms that is the rules for interpreting trade terms in the field of foreign trade, and does not conform to the model of ICC (International Chamber of Commerce) standard contract for the international sale of finished products, which looks like this one:

– The interlocutor states that the client has an open account in one or several banks from among TOP-10 / TOP-50. Often you can hear such banks as DBS, Standard Chartered, HSBC, Barclays, Deutsche Bank, J.P. Morgan, UBS. In this case, the names of banks are often used with errors. The contractor is offered to open an account in the same bank in order to “speed up the process” or because of “having connections in a particular bank”. No additional information about the mechanism of operations, even at the level of departments
and divisions of the bank, is not reported;

– A deal is proposed to be carried out through a non-cash escrow account. Such a service is usually offered by banks for saving and blocking money received from one of the parties for subsequent transfer to the second party of the transaction when this party fulfills the conditions specified in the contract. Escrow accounts are regularly used in international trade as one of the instrument. However, in the case of cryptocurrency trading, intermediaries propose to use the services of an outside organization allegedly providing escrow services
exclusively for cryptocurrency operations. This may be, for example, a law firm. In this case, the interlocutor tries to avoid questions about the company, providing just a link to the site, which often looks like a one-page landing;

– During the conversation, the interlocutor uses financial terms such as, for example, SWIFT MT760 / MT799, Block (ed) Funds Investment, Brokerage Account, and so on in the free form. Unfortunately, cases of economiс fraud with the use of fictitious banking instruments have been known for a long time in international practice. The appearance of cryptocurrency has created a space for the simple transfer of such scenarios to this sphere.
More information on cases of abusive use of financial terminology for fraudulent purposes can be found on the following sites:

1. FBI:
2. The United States Securities and Exchange Commission (SEC):
3. US Treasury:

– The interlocutor is not ready to answer subsequent questions, and insists on discussing everything “already in person during a transaction”. He emphasizes that it’s not worth worrying about anything and everything is exceptionally safe.

Of course, the stated above aspects describe a non-exhaustive set of scenarios during the negotiation on non-cash purchases of cryptocurrency. But even the cases described look like obvious attempts to conduct unfair economic activity. However, such scenarios are repeated regularly. People subconsciously believe in the ability to dramatically improve their well-being. But it is important to be vigilant.

If you receive a proposal containing one or more of the above-stated signs, when the interlocutor does not welcome direct questions on the details of the transaction and communicates in a rather persistent manner, it is better to consult with a lawyer and a specialist in foreign economic activity for your own safety. Unfortunately, there is no “so
simple”, especially if we are talking about cryptocurrencies, which are in the area of contradictory legal regulation.

As an additional reading, you can look at the brochure “Recognizing and preventing commercial fraud” published by the UN Commission on International Trade in 2013.

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Yaroslava Mykhailenko

Written by Yaroslava Mykhailenko

Key Account Manager at ICORECORD company. Yaroslava deals mostly with technical aspects of company tokenization providing consultations of various Dashboard solutions.