Hong Kong anti-money laundering operation arrests more than 400 people, lawyer warns encrypted users to be careful of being implicated.

Hong Kong AML operation arrests 400+ people, lawyer warns encrypted users to be cautious of implication.

Virtual currency is increasingly becoming an important means of money laundering. The Hong Kong police recently announced their anti-money laundering achievements since August, arresting 458 people and seizing over HKD 470 million in funds, many of which were related to virtual currency.

While Hong Kong is vigorously promoting the development of Web3.0 ecology, virtual assets have also become the focus of regulatory authorities’ anti-money laundering efforts. On the one hand, Hong Kong has introduced a new licensing system for virtual asset exchanges, and on the other hand, it has formulated corresponding anti-money laundering mechanisms, including customer due diligence, record keeping, regular submission of financial information, and user registration.

In many cases related to money laundering, many people have been arrested for unknowingly assisting in money laundering. Industry professionals remind everyone to be careful and protect their privacy information such as ID cards and bank cards. They should exercise caution when exchanging fiat currency and virtual currency, and it is recommended to trade on locally compliant virtual asset exchanges.

Hong Kong police crackdown on money laundering with an involved amount exceeding HKD 13 billion

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Recently, the Hong Kong police launched an operation against money laundering, arresting 458 suspects involved in money laundering and related activities, involving 314 money laundering cases, with an involved amount of HKD 470 million and successfully intercepting over HKD 16 million in proceeds of crime.

According to the police, a criminal group lured victims to sell their bank accounts for money laundering at prices ranging from HKD 300 to HKD 1500. From October last year to June this year, the group laundered proceeds of crime amounting to as much as HKD 110 million through the buying and selling of cryptocurrencies.

According to Hong Kong Customs, they successfully cracked a money laundering case involving an amount close to HKD 900 million on August 8.

Since the beginning of this year, the Hong Kong police have strengthened their crackdown on money laundering and have solved multiple cases. According to public reports, nearly 10 money laundering cases involving amounts exceeding HKD 100 million have been solved this year, with a total amount exceeding HKD 13 billion.

In money laundering cases, virtual currency has been used in many cases, and the methods are also varied.

In a case announced by Hong Kong Customs involving over HKD 600 million in money laundering, the criminal group used overseas virtual currency trading platforms to convert virtual currency into fiat currency, and then transferred the criminal funds through traditional bank accounts.

In another case, the criminal suspect first received payments through bank cards, then purchased gold and luxury watches in Hong Kong for resale, and then used the cash proceeds from the resale to purchase virtual currency for a second round of money laundering, with an amount exceeding HKD 100 million.

In May of this year, Hong Kong Customs dismantled a money laundering syndicate involving an amount of HKD 3.5 billion. The syndicate set up multiple companies in Hong Kong to receive funds of unknown origin from foreign virtual currency trading platforms, and then transferred funds between different company bank accounts to achieve the purpose of money laundering.

Due to the characteristics of decentralization and anonymity, virtual currencies have become an important tool for criminals.

Guo Zhihao, Director of the Digital Economy Legal Affairs Department of Beijing Yingke (Shenzhen) Law Firm, said that virtual currencies have the characteristics of relative anonymity, high liquidity, and decentralization, making them easy to be used for money laundering. Criminals will transfer the stolen money to the seller’s account through platforms such as OTC trading or private transactions, and then convert it into fiat currency through OTC trading, underground banks, or private transactions. Some criminals will also use coin mixers to mix the money, which greatly increases the difficulty for law enforcement agencies to solve cases.

Industry analysts believe that money laundering, fraud, pyramid schemes, and gambling are the most common forms of virtual currency crimes, with more than half of virtual currency crimes related to money laundering. According to incomplete statistics, more than 60% of funds from telecommunications fraud are laundered through virtual currencies.

Registration of KYC is required for transfer of virtual assets exceeding HKD 8,000

Due to its low tax rates and lack of foreign exchange controls, Hong Kong used to be a haven for money laundering. Since last year, Hong Kong has strengthened its crackdown on money laundering, and many money laundering criminal groups have been arrested. Hong Kong has also enacted relevant anti-money laundering laws, and companies that facilitate money laundering in violation of the law have been heavily fined.

On August 15th of this year, the Hong Kong branch of Swiss bank EFG Bank was fined HKD 16 million by the Hong Kong Monetary Authority for violating the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (“AML Ordinance”).

The AML Ordinance came into effect in 2018, and since Hong Kong announced its embrace of Web3.0 in October last year, Hong Kong has introduced the “Revised Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance 2022” applicable to the Web3.0 field in December (“Revised Ordinance”). This amendment will take effect on June 1, 2023, along with the new licensing regime for virtual asset exchanges, the “Guideline on the Application for Virtual Asset Trading Platform Operators” (“Guideline”).

The Revised Ordinance stipulates that operators engaged in the operation of virtual asset exchanges must apply for a license from the Securities and Futures Commission (SFC), and the relevant personnel must meet appropriate candidate criteria and comply with the provisions of the AML Ordinance, including conducting customer due diligence, record keeping, and safekeeping of customer assets. In addition, the exchange must regularly submit its accounts and financial information to the SFC.

Prior to the implementation of the above-mentioned regime, the SFC updated the “Guideline on Anti-Money Laundering and Counter-Terrorist Financing” on May 25th, requiring remittance institutions to obtain and record the information of the remitter and the payee before conducting virtual asset transfers exceeding HKD 8,000. This includes the names, date of birth, addresses, and customer identification numbers of the remitter and the payee, as well as additional information such as IP addresses, along with relevant time stamps, geographical location data, and device identification codes.

This guide also lists the possible uses of virtual asset business in money laundering, including storing criminal proceeds in the form of virtual assets and using unique layering techniques of virtual assets such as stripping chains and skipping chains for money laundering. Non-custodial wallets, decentralized virtual asset exchanges, peer-to-peer platforms, etc., are particularly attractive to criminals or money launderers.

According to reports, the “Guidance on Anti-Money Laundering and Counter-Terrorist Financing” applies to licensed institutions and virtual asset service providers licensed by the Securities and Futures Commission. It was first formulated in 2012 and has undergone 6 revisions. The new revision will take effect on January 1, 2024.

In addition, Hong Kong has also increased investment in cross-border cooperation, cutting-edge technology research, and manpower to more effectively combat money laundering.

When answering questions from reporters, Hong Kong Financial Secretary Paul Chan Mo-po said that Hong Kong has a sound system for combating money laundering. Banks will conduct customer due diligence in accordance with relevant laws and regulatory requirements, submit suspicious transaction reports to the Joint Financial Intelligence Unit, and cooperate with law enforcement agencies in investigating crimes and tracking suspicious funds. The Hong Kong Monetary Authority is responsible for regulating and guiding banks to comply with relevant laws and regulatory requirements and has been closely cooperating with the Hong Kong Police Force and the banking industry.

In 2017, with the support of the Hong Kong Monetary Authority, the Hong Kong Police Force established the “Anti-Deception and Anti-Money Laundering Intelligence Task Force” to strengthen information sharing among the Hong Kong Monetary Authority, the police, and the banking industry. Paul Chan Mo-po revealed that as of the end of June this year, 28 banks have joined the task force, and banks have identified more than 21,000 previously unknown dummy bank accounts and taken immediate action.

In May of this year, the Hong Kong Monetary Authority released the “Anti-Money Laundering Compliance Technology: Network Analysis” report, promoting the application of network analysis technology to enhance the anti-money laundering capabilities of banks.

On August 1, Hong Kong Customs upgraded the previous Wealth Investigation Section to the Wealth Investigation Division, with a total establishment of 91 people, an increase of 54%.

Ye Dongjing, the Senior Superintendent of the Wealth Investigation Division, said that as an international financial center, Hong Kong is one of the freest economies in the world and needs a sound, transparent, and efficient regulatory system. The mechanism for combating money laundering is an important part of it.

Beware of unknowingly getting involved in money laundering cases

In many money laundering cases, many people are involuntarily involved, and some are even unaware.

According to reports, the Hong Kong police recently stated that among the more than 400 people arrested in anti-money laundering operations this month, some were also victims of online romance or job fraud cases. Due to their trust in online lovers, false employers, or recruitment advertisements, they handed over their online banking login passwords or even sent their bank cards to criminal gangs. In some cases, criminals claim to assist in receiving cash rebates from banks, enticing victims to hand over their ID cards and take selfies with their phones, in order to open virtual bank accounts.

According to the “Anti-Money Laundering Ordinance”, it is a crime to handle any property that is known or reasonably believed to be proceeds of crime. The maximum penalty is a fine of HK$5 million and imprisonment for 14 years. The related criminal proceeds will also be confiscated.

Currently, cooperation between Hong Kong and mainland China in combating money laundering has become the norm. On August 2nd, the China Anti-Money Laundering Monitoring and Analysis Center and the Financial Intelligence and Investigation Bureau of the Hong Kong Police held a meeting, and both sides agreed to further increase the frequency of exchange of anti-money laundering intelligence between the two regions and strengthen cooperation in cross-border money laundering.

In mainland China, ordinary cryptocurrency users often encounter frozen withdrawals and may even be taken away by the police for investigation.

An industry practitioner in the cryptocurrency industry told Techub News that several over-the-counter (OTC) merchants have been arrested for suspected money laundering this year. Recently, a well-known OTC merchant from a certain virtual asset exchange was taken away by the police for investigation. Many cryptocurrency retail investors who often withdraw money from this merchant have had their accounts frozen and even been taken away by the police for investigation.

Guo Zhihao said that caution should be exercised when exchanging fiat currency and virtual currency, and private transactions should be avoided as much as possible, especially when there is no knowledge of the counterparty’s information. Secondly, preventive measures should be taken to prevent the receipt of illicit money, such as retaining chat records, call recordings, transfer records, and other materials with the counterparty. Finally, if illicit money is indeed received and bank accounts are frozen, contact the freezing authority in a timely manner. If the case is complex, contact a professional lawyer in a timely manner and actively cooperate with the investigation by the public security organs.

Recently, licensed virtual asset exchanges in Hong Kong have opened up trading for retail investors.

On August 28th, Weng Xiaoqi, the Chief Operating Officer of Hashkey Group, stated at the “Hashkey Exchange Launch Ceremony” that retail investor trading is officially open and supports fiat currency deposits and withdrawals, providing USD and HKD fiat currency deposit and withdrawal services.

Currently, Hashkey Exchange does not support users from mainland China. Mainland users who have obtained Hong Kong resident identity cards and can provide proof of fixed residence and Hong Kong bank account information can open an account, but their accounts will be monitored when they are in mainland China.

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