Hong Kong’s top customs official has called for more robust oversight of over-the-counter (OTC) cryptocurrency shops amid the recent JPEX virtual asset platform scandal, which exposed gaps in the current regulatory regime.
Louise Ho Pui-shan, commissioner of the Customs and Excise Department, said her agency was ramping up international cooperation to crack down on money launderers taking advantage of the anonymity of cryptocurrency transactions. She said customs had seen an increase of money-laundering cases involving cryptocurrency, which was especially prominent in large-scale schemes.
Addressing risks of money laundering
“Hong Kong must address the money-laundering risks posed by cash-for-crypto shops after the JPEX virtual asset platform scandal exposed gaps in regulation,” Ho said in an interview with the South China Morning Post.
The JPEX scandal has attracted widespread attention, with Hong Kong police receiving over 2,500 complaints involving more than HK$1.5 billion in funds. Ongoing investigations have revealed that Tether tokens processed in online wallets associated with JPEX have been linked to money laundering and online gambling, according to blockchain analytics firm Bitrace.
A governance review to cover regulatory shortfall
Ho said that regular money changers fall under the Customs and Excise Department’s purview, but the OTC cryptocurrency versions operate without licensing or regulatory oversight. As part of the fallout from the JPEX scandal, authorities and relevant regulatory agencies are reviewing governance options for these shops.
Ho stressed the importance of combating money laundering, terrorist financing, and investor protection in any regulatory regime improvements. While Ho did not explicitly state her department’s involvement in the review, she acknowledged the need to enhance law enforcement and surveillance measures.
Criminals exploiting crypto anonymity for illicit activities
The Customs and Excise Department has observed an increase in money-laundering cases involving cryptocurrency, particularly in large-scale schemes. The commissioner noted that criminals exploit the anonymity, convenience, and global nature of virtual asset transactions for illicit activities.
To tackle these challenges, Hong Kong customs is ramping up international cooperation. Later this month, the department will sign a memorandum of cooperation with its South Korean counterpart to strengthen intelligence sharing and enforcement collaboration. Ho also highlighted the department’s upcoming role as vice-chair for the Asia-Pacific region at the World Customs Organization, where it will promote international cooperation in combating money laundering.
Adoption of a proactive approach to regulation
The JPEX scandal is not the first time that Hong Kong customs has dealt with crypto money laundering. In July 2021, customs officials said they had dismantled a money laundering syndicate that used cryptocurrency to process some HK$1.2 billion ($155 million) in illegal funds, in what they said was the first successful operation of its kind.
Ho said that her department would continue to monitor the development of virtual assets and adopt a proactive approach to combat crime. She also urged the public to be vigilant and avoid falling victim to fraudulent schemes involving cryptocurrency.
“Virtual assets are not legal tender and their prices are subject to high volatility,” she said. “Investors should exercise caution and understand the risks involved before engaging in any transactions or investments related to virtual assets.”