Hong Kong’s Customs and Excise Department is taking a closer look at the regulatory measures surrounding cash-for-crypto shops in an effort to address the money-laundering risks associated with these establishments. This decision came after the police arrested several store owners who were allegedly involved in a $192.7 million fraud concerning the JPEX crypto exchange. Traditionally, money changers in Hong Kong fall under the oversight of the Customs and Excise Department, but over-the-counter (OTC) cryptocurrency exchange shops currently operate without any licensing or regulatory supervision. Some of these OTC shops even promoted JPEX’s investment offerings, which were later deemed “too good to be true” by the Securities and Futures Commission (SFC).
Louise Ho Pui-shan, the commissioner of Customs and Excise, acknowledges that there are significant regulatory gaps that need to be addressed, as highlighted by the JPEX scandal. She emphasizes the importance of tackling both money laundering and investor protection when it comes to regulating OTC exchange shops. With the increasing maturity of financial technology, virtual asset transactions have become more prevalent, posing a greater risk for money laundering activities. These transactions are often concealed and not restricted by time or location, making them an attractive option for criminals.
To strengthen Hong Kong’s crypto regulatory regime, the Customs and Excise Department intends to enhance international cooperation to combat money laundering facilitated through the anonymity of cryptocurrency transactions. A memorandum of cooperation is set to be signed with the South Korean counterpart to bolster intelligence sharing and enforcement collaboration. Additionally, the department plans to promote international cooperation against such crimes as it prepares to assume the role of vice-chair for the Asia-Pacific region at the World Customs Organization.
While the commissioner did not confirm active involvement in reviewing crypto regulations, she emphasized the importance of continuous improvement in law enforcement and surveillance regimes. This suggests that there is indeed a need to reevaluate the existing regulations and make necessary adjustments to address the evolving risks associated with cryptocurrency transactions.
The JPEX scandal has significantly impacted the trust of Hong Kong investors in the entire asset class. JPEX users reported difficulties in withdrawing assets from the platform, as withdrawal fees were arbitrarily hiked to exorbitant amounts. The SFC exposed the platform’s dishonest actions, including false claims of being regulated in Dubai. JPEX employed aggressive marketing tactics, such as billboards and influencer marketing, to attract customers. As a result, some of the influencers involved in promoting the platform have been arrested. So far, 28 people linked to the alleged fraud have been arrested, and the police investigation is still ongoing.
Furthermore, blockchain analytics firm Bitrace reported last month that some Tether tokens processed in online wallets associated with JPEX were linked to money laundering and online gambling. This revelation raises concerns about the integrity and cleanliness of these tokens and highlights the need for stricter regulations to prevent such contamination in the future.
The JPEX scandal has exposed the regulatory gaps and shortcomings in Hong Kong’s crypto market. The Customs and Excise Department recognizes the urgent need for tighter regulations to combat money laundering and protect investors. By enhancing international cooperation and strengthening law enforcement and surveillance regimes, Hong Kong can strive towards a safer and more secure crypto market. It is crucial for authorities to continuously review and improve regulations to keep up with the evolving risks and challenges posed by the rapidly growing cryptocurrency industry.