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Hong Kong Says Cryptocurrencies Have No ‘visible Impact’ On Risk Of Financial Crimes

A report by the Hong Kong Financial Services and Treasury (FSTB) has stated that increased interest and investment in cryptocurrencies has no ‘visible impact’ on financial crime.

Critics of cryptocurrencies often claim they are associated with criminal networks and illicit activities due to their decentralised, unregulated nature.

However, Hong Kong’s annual Money Laundering and Terrorist Financing Risk Assessment Report provides evidence against this notion.

Details of the report

Referring to cryptocurrencies as ‘VCs’ (virtual commodities), the report states that while vulnerability exists, current laws provide enough protection against criminality:

“Although there is inherent ML/TF vulnerability related to VCs, there does not seem to be any visible impact affecting the overall risk in Hong Kong so far. The risk of VCs is assessed as medium-low. The current legal and regulatory provisions relating to ML, TF, fraud and other crimes are wide enough to catch offences involving the use of any general property, including VCs.”

The full report, which is available online, stresses that no specific regulation around cryptocurrency trading exists, and that Money Service Operators licenses only have to be obtained for money services conducted in fiat currencies.

Cryptocurrency users must use their intuition and assume that a system of payment only becomes a risk to money laundering and terrorist financing as soon as it becomes commonplace.  

Even so, it goes on to add that some tokens may qualify as securities, while others could be “Stored Value Facilities” like Paypal, where the government’s risk assessment is far higher.

The Hong Kong government also reiterated its mission to be ‘one of the world’s freest economies’ with no capital control regimes.

Report reasoning and results

One of the reasons behind producing the report was because of criticism against the city and its handling of increasing financial crime.

In the past six years, the number of suspicious transactions has quadrupled, while convictions have gone down.

Businesses in Hong Kong have also voiced concerns that they are being denied large-scale banking services due to fear of money laundering risks, which has adversely affected the cryptocurrency community by association.

Since 2013, police have received 167 Bitcoin-related reports. However, most of which related to ransomware such as WannaCry and do not touch upon financial crime.

For example, fraud on social media is commonplace, with total losses amounting to HK$6.4 million in 2015 and 2016. Thankfully, individual loss is usually only in the hundreds to thousands of Hong Kong dollars.

Despite this, police continue to monitor Bitcoin exchanges and ATMs in the actual city. Although there are as many as 15 Bitcoin ATMs in Hong Kong, the four active exchanges are not popularly used by residents according to the report.

It was only two months ago that the Hong Kong government announced new measures to tackle money laundering. Specifically aimed at company service providers and trusts, the measures include a new licensing regime as well as a higher burden on those wanting to set up shell companies.

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