The UK's Foreign, Commonwealth and Development Office last month designated Huobi Global S.A. — the Panama-based entity behind the HTX exchange — accusing the firm of funneling over $1.5 billion to Russian networks, including the sanctioned entities A7 and Garantex. The move, announced on May 26, marks the first time Britain has applied banking-style sanctions to a cryptocurrency exchange, requiring UK firms to freeze and trace any exposed funds.
What the sanctions actually do
The designation names 18 entities and effectively treats HTX like a sanctioned bank. Any UK-registered company or individual holding assets linked to the exchange must now freeze them and report the holdings to the Office of Financial Sanctions Implementation. The scope is broad: compliance tools now flag any wallet that has ever interacted with HTX — even transactions years before the designation, according to blockchain investigator ZachXBT.
That retroactive tagging creates a mess, he argues. “Compliance tools in most cases mark any wallet that received funds from HTX as high risk, even if it was a legitimate user years before the sanctions,” ZachXBT posted shortly after the announcement. The result: risk scores become meaningless for a large segment of Asian retail users who used the exchange regularly.
ZachXBT's critique: Targeting the wrong target?
The investigator contrasted HTX with previous targets like Hydra and Garantex, which had high concentrations of illicit activity. HTX, by contrast, serves a massive Asian retail base — many ordinary traders. ZachXBT claims the UK missed a separate $1.25 billion laundering operation run by a genuine illicit actor while going after a mainstream exchange. “The tools struggle to separate pre- and post-sanction activity,” he noted, meaning a wallet that made one withdrawal from HTX in 2023 and nothing since gets the same red flag as a wallet actively funneling funds to Russia today.
Reversing those high-risk tags isn't currently possible. Protocols defer to third-party tools, and those tools have no mechanism to unflag a wallet once it's been marked — even if the owner can prove the transaction was clean.
What users are dealing with
One affected user told ZachXBT that wallets holding 99.5% of their net worth were frozen after they made a small number of post-sanction HTX withdrawals. The user wasn't named publicly, but the story underscores the blunt force of the sanctions regime. ZachXBT advised moving funds several hops away from any flagged wallet using decentralized bridges — though that's cold comfort for someone already locked out of their assets.
The timing isn't great for HTX's retail base. Many Asian users rely on the exchange for everyday trading, and a sudden freeze on UK-linked accounts can cascade through related wallets across multiple jurisdictions. Compliance firms have little incentive to fix the false-positive problem: the safest play is to block everything touching a sanctioned entity and sort out appeals later.
The unresolved question
Britain's Treasury has not yet clarified whether it plans to issue guidance on how users can appeal erroneous tags or whether exchanges like HTX can seek a delisting. For now, anyone who ever held funds on HTX — even years ago — is effectively carrying a digital scarlet letter that no current compliance tool can remove.
