Hong Kong plans to regulate cryptocurrency exchanges amid money-laundering alert

Ng, a technology entrepreneur, said the December cases involved several tens of millions of dollars each.

“We have received some cases that asked for help, they were all similar and involved young people and virtual assets,” he added. “They were suspected of conspiracy to commit money laundering.

"We found that these cases have something in common, while society has relatively little understanding of the problem."

Ng said the victims had entrusted friends with personal information and identity details, which were used to open offshore virtual asset accounts and deposit virtual assets of unknown origin.

They subsequently withdrew a large amount of cash through their personal bank accounts in Hong Kong and gave the money to offline cryptocurrency exchange shops.

The city's regular exchangers are under the supervision of the Customs and Excise Department, but their OTC virtual asset counterparts are not subject to any regulatory or licensing regime.

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In response to the Post, a spokesperson for the Financial Services and Treasury Office said Thursday that the public and investors had been reminded of the risks associated with unlicensed virtual asset trading platforms, and authorities urged residents to use exchanges licensed by the Bureau of Securities and Futures Commission.

"With regard to over-the-counter trading of virtual assets, we plan to introduce legislative amendments to establish a regulatory system," the spokesperson said. "We are developing the regulatory framework in coordination with relevant departments and regulators for public consultation."

Lawyer Gilbert Ng Man-him said one of the recent cases involved a man in his twenties, who was asked by someone he trusted to open accounts on licensed exchanges outside Hong Kong to sell virtual assets given to him by his friend.

The man subsequently transferred the proceeds from the sale to his personal Hong Kong bank accounts, withdrew them and handed them over to OTC exchanges.

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“Then the cycle would start again… the person would earn a very small price difference in the process, while in fact most of the profits went to the OTC [shops]Ng said.

He added that the process lasted several months, involved more than HK$100 million and that police were investigating the case as one of alleged money laundering.

“From the victim's perspective, these were transactions, but the problem is that from a money laundering perspective, if the person has doubts about these virtual assets or the origin of the cash, they will have to report it to the police and if If you do not report it, you may commit the crime of money laundering,” he stated.

Derek Kwan Yat-chiu, senior director of operations at HashKey Group, a licensed virtual asset exchange, said accredited traders had a number of safeguards for verification and evaluation before people could open an account.

These included registering contact information, submitting identification documents and financial and tax information, and signing an account opening agreement.

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He said licensed platforms would assess whether a person had sufficient knowledge of virtual asset trading and verify their investment experience through questionnaires.

Kwan added that unlicensed operators did not conduct an evaluation process.

"When it comes to money laundering, we definitely have oversight," he said. "Licensed exchanges have many more processes than unlicensed ones."

Johnny Ng urged young people to remain vigilant to avoid accidentally breaking the law.

He also called on the government to regulate offline virtual asset exchanges and step up advertising and education on anti-money laundering.