The suspects detected and exploited loopholes in the system, which allowed them to withdraw 230,000 Hong Kong dollars
Three individuals have been arrested by the Hong Kong cybersecurity and technology crime bureau after two cryptocurrency exchanges filed complaints, claiming that funds had been taken from six Bitcoin (BTC) ATMs without authorization.
The South China Morning Post reported that the suspects appear to be a part of a larger syndicate and managed to take advantage of certain “loopholes” in the ATM system so that they could withdraw cash even without authorisation.
According to the local authorities, the individuals were aged between 26 to 55.
The robberies, and the subsequent arrests, took place over a span of two days, between Thursday and Friday. They were caught in Mong Kok, Hong Kong’s Kowloon district.
The individuals had withdrawn 230,000 Hong Kong dollars (around $30,000) in 11 transactions from the machines. The largest amount taken from a single machine was 54,000 Hong Kong dollars.
While local authorities would not provide further explanation as to how the individuals managed to cheat the machines, or what exactly the loopholes were, they did mention that they offered security advice to the two companies and that the companies are working on upgrading their systems.
“I cannot reveal what the loopholes are. But any bitcoin transaction needs verification. Maybe the ring bypassed the verifying process before taking the money,” Superintendent Wilson Tam explained.
Superintendent Tam also revealed that it is the first time that they have encountered fraud linked to Bitcoin ATMs.
As part of the investigation, the local authorities also seized six smartphones and some cash that was linked to the case.
Bitcoin ATMs allow members of the public to buy Bitcoin using cash or their credit cards, with some machines also capable of selling crypto in exchange for cash. As of writing, Hong Kong has 56 Bitcoin ATMs. Most of the machines are operated by Coinhere, followed by HK Bitcoin ATM.
The Hong Kong Monetary Authority views Bitcoin as a virtual commodity, and the country’s Securities and Futures Commission revealed a new regulatory framework in November of last year that gave cryptocurrency exchanges the opportunity to be licensed and regulated.
It provided regulatory clarity for crypto exchanges as well, by detailing how exchanges must approach custody and compliance with regards to Know Your Customer (KYC) and Anti-Money Laundering (AML) laws.