Hong Kong’s Customs and Excise Department has embarked on a significant regulatory initiative aimed at mitigating the money-laundering risks inherent in cash-for-crypto establishments.
This move follows the apprehension of certain shop owners in connection with the alleged $192.7 million fraudulent activities linked to the JPEX crypto exchange.
In the intricate landscape of Hong Kong, traditional money changers fall under the jurisdiction of the Customs and Excise Department.
Curiously, however, over-the-counter (OTC) cryptocurrency exchange shops have been operating without the purview of licensing or regulatory oversight.
It is noteworthy that some of these OTC establishments actively promoted JPEX’s investment offerings, a move subsequently deemed “too good to be true” by the Securities and Futures Commission (SFC).
Louise Ho Pui-shan, the Commissioner of Customs and Excise, underscores the pivotal role Hong Kong’s regulatory bodies are playing in addressing the regulatory voids exposed by the JPEX scandal.
She indicated that:
“There are two aspects to [regulating] these OTC exchange shops. One aspect involves combating money laundering and terrorist financing and the other is investor protection.”
Both aspects need to considered in order to improve Hong Kong’s crypto regulatory regime.’
A concerning rise in crypto money laundering cases, particularly in large-scale schemes, has drawn her department’s attention.
She pointed out:
“Financial technology is becoming more mature, so we have observed increasing activity in virtual asset transactions, which can easily be used by criminals for money laundering as the transactions are more concealed and not restricted by time and location.”
Consequently, there is a resolute intent to strengthen international cooperation to combat money laundering facilitated through the anonymity inherent in cryptocurrency transactions.
Notably, later this month, Commissioner Lousie’s department will solidify this commitment by signing a memorandum of cooperation with its South Korean counterpart, further reinforcing intelligence sharing and collaborative enforcement.
Moreover, the Customs and Excise Department is gearing up to champion international cooperation against such financial crimes, as it prepares to assume the role of vice-chair for the Asia-Pacific region at the World Customs Organisation for a two-year term commencing in July 2024.
While Commissioner Louise did not explicitly confirm ongoing crypto regulation revisions, her statement underscores the overarching commitment to continually enhance law enforcement and surveillance mechanisms.
The shockwaves triggered by the JPEX scandal have had a profound impact on the confidence of Hong Kong’s investors, casting a long shadow over the entire asset class.
In response to this debacle, law enforcement has taken assertive action by apprehending 28 individuals with suspected ties to the alleged fraud.
This response was precipitated by a staggering influx of over 2,500 complaints from victims who felt the sting of the scandal’s repercussions.