Regulatory Measures to Address Money-Laundering Risks in Hong Kong’s Cash-for-Crypto Shops

Regulatory Measures to Address Money-Laundering Risks in Hong Kong’s Cash-for-Crypto Shops

Hong Kong’s Customs and Excise Department is taking steps to tighten regulatory measures in response to the money-laundering risks associated with cash-for-crypto shops. The move comes after several store owners were arrested in connection with an alleged $192.7 million fraud involving the JPEX crypto exchange. These over-the-counter (OTC) cryptocurrency exchange shops currently operate without licensing or regulatory oversight. As a result, the Hong Kong regulatory bodies are re-evaluating the existing mechanisms to address the regulatory gaps brought to light by the JPEX scandal.

Louise Ho Pui-shan, the commissioner of Customs and Excise, emphasized the need to consider both combating money laundering and safeguarding investor protection in order to enhance Hong Kong’s crypto regulatory regime. She highlighted the increased instances of crypto money laundering, particularly in large-scale schemes, and acknowledged that the maturing financial technology has made virtual asset transactions more concealed and less restricted by time and location, making them attractive to criminals. To address this, the department intends to enhance international cooperation to combat money laundering facilitated through the anonymity of cryptocurrency transactions.

Recognizing the need for international collaboration, the Hong Kong Customs and Excise Department plans to sign a memorandum of cooperation with its South Korean counterpart. This agreement aims to strengthen intelligence sharing and enforcement collaboration to combat money laundering. Additionally, the department is preparing to assume the role of vice-chair for the Asia-Pacific region at the World Customs Organization, a position it will hold for a two-year term starting in July 2024. By assuming this role, Hong Kong aims to promote international cooperation against crimes related to cryptocurrency.

While the commissioner did not explicitly confirm ongoing involvement in reviewing crypto regulations, she expressed that there is always room for improvement in the law enforcement and surveillance regime. This suggests that the Hong Kong Customs and Excise Department is actively seeking ways to enhance its regulatory framework to address the evolving challenges posed by the crypto landscape.

The JPEX scandal, with its allegations of fraud and false claims of regulation, has significantly impacted the trust of Hong Kong investors in the entire asset class. JPEX had employed aggressive marketing strategies, including billboards and influencer marketing, to attract customers, but this eventually led to the arrest of some of the influencers involved. The police investigation into the alleged fraud is still ongoing, and so far, 28 individuals linked to the case have been arrested following over 2,500 complaints from victims.

Bitrace, a blockchain analytics firm, reported last month that some Tether tokens processed in online wallets associated with JPEX were linked to money laundering and online gambling. These findings raise concerns about the potential contamination of the tokens and highlight the need for stricter regulations to prevent illicit activities from infiltrating the cryptocurrency ecosystem.

As Hong Kong’s Customs and Excise Department seeks to tighten regulatory measures, the focus on addressing money-laundering risks associated with cash-for-crypto shops reflects a growing concern within the industry. By considering both the need for combatting money laundering and ensuring investor protection, the department aims to refine Hong Kong’s crypto regulatory framework. Through international cooperation and the pursuit of stronger law enforcement and surveillance, Hong Kong strives to create an environment that safeguards investors and promotes the integrity of the cryptocurrency market.


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