In the wake of the recent JPEX virtual asset platform scandal, Hong Kong’s top customs official has pressed the need for more robust regulation of over-the-counter (OTC) cryptocurrency shops. Louise Ho Pui-shan, Commissioner of Customs and Excise, emphasized the urgent need to address money laundering risks. Moreover, she highlighted how the city’s conventional money changers are regulated, whereas OTC crypto shops operate in a legal grey area. Additionally, she revealed that her department is intensifying international collaborations to combat money launderers exploiting the anonymous nature of crypto transactions.
International collaboration ramped up
Ho’s comments come at a time when Hong Kong customs is set to sign a memorandum of cooperation with its South Korean counterpart. This agreement aims to strengthen intelligence sharing and enforcement efforts to crack down on financial crimes involving cryptocurrencies. Furthermore, Ho’s department is geared to take over as the vice-chair for the Asia-Pacific region at the World Customs Organization starting from July 2024. This indicates an even greater commitment to international cooperation.
Ho stopped short of confirming whether her department would take up the regulatory mantle for these OTC shops. However, she did state that the authorities and “relevant regulatory agencies” are currently reviewing governance options. She emphasized that any future regulatory framework should consider both money laundering and investor protection.
The JPEX scandal has notably increased the scrutiny of OTC cryptocurrency shops in Hong Kong. Police arrested 28 individuals, including shop owners, who were part of the alleged fraudulent activities centered on JPEX. Some of these OTC shops had even promoted JPEX investment offerings, previously flagged by the Securities and Futures Commission as “too good to be true.”
Ho also expressed concern over the rise in money laundering cases linked to cryptocurrency transactions. She particularly pointed out that financial technology is maturing at a rapid pace. As a result, there’s been a spike in virtual asset transactions, providing criminals with more opportunities to launder money. Due to the concealed nature of such transactions, which are not restricted by time or location, law enforcement faces challenges in surveillance and oversight.
The JPEX scandal sent shockwaves across the financial sector in Hong Kong, triggering more than 2,500 complaints and involving over HK$1.5 billion (US$191.7 million) in funds. The investigation remains ongoing, while concerns about the lack of regulation for OTC crypto shops continue to mount. Bitrace, a blockchain analytics firm, even reported last month that some Tether tokens associated with JPEX were “contaminated,” having been linked to money laundering and online gambling. Significantly, this brings further urgency to Ho’s call for stronger oversight and international cooperation in tackling these complex financial crimes.
