Hong Kong’s Customs and Excise Department is looking to tighten regulatory measures to tackle money laundering risks associated with cash-for-crypto stores, South China Morning Post reported on October 21. The decision comes after police arrested several of these store owners in connection with the alleged $192.7 million fraud committed on the JPEX crypto exchange.
In Hong Kong, traditional money changers are supervised by the Customs and Excise Department. However, over-the-counter (OTC) cryptocurrency exchange shops currently operate without licenses or regulatory oversight. Some of these OTC stores promoted JPEX’s investment offering, which was deemed “too good to be true” by the Securities and Futures Commission (SFC).
Customs and Excise Commissioner Louise Ho Pui-shan said Hong Kong regulators are exploring options to fill regulatory gaps exposed by the JPEX scandal. Ho said on television:
“There are two aspects to it [regulating] these OTC exchange shops. One aspect concerns the fight against money laundering and the financing of terrorism, the other aspect is the protection of investors.”
According to Ho, both aspects should be taken into consideration to improve Hong Kong’s crypto regulatory regime.
Ho said the client department has witnessed increased cases of cryptocurrency laundering, especially in large-scale schemes. She noted:
“Financial technology is continuing to mature, so we have seen increased activity in virtual asset transactions, which can easily be used by criminals for money laundering as the transactions are more hidden and not limited by time and location.”
Therefore, her department plans to enhance international cooperation to combat money laundering, facilitated by the anonymity of cryptocurrency transactions.
Later this month, Ho’s department will sign a cooperation memorandum with its South Korean counterpart to strengthen intelligence sharing and enforcement cooperation. Furthermore, the department plans to promote international cooperation against such crimes as it prepares to assume the role of Vice-Chairman for the Asia-Pacific Region at the World Customs Organization for a two-year term from July 2024.
While Ho did not confirm whether her department is actively involved in reviewing crypto regulations, she said there is “always room to improve the law enforcement and supervisory regime.”
JPEX scandal
Last month, JPEX users started reporting problems withdrawing assets from the platform, arbitrarily increasing withdrawal fees to exorbitant amounts. The SFC has highlighted some of the platform’s duplicitous actions, including false claims that it is regulated in Dubai.
JPEX had used aggressive marketing tactics, including billboards and influencer marketing, to acquire customers. Some of the influencers involved in promoting the platform have been arrested.
The JPEX scandal has shaken Hong Kong investor confidence in the entire asset class. Police have arrested 28 people in connection with the alleged fraud after receiving more than 2,500 complaints from victims. The police investigation into the case is still ongoing.
Bitrace, a blockchain analytics company, reported last month that some Tether tokens processed in online wallets linked to JPEX were linked to money laundering and online gambling, raising concerns about the tokens’ contamination.