Risk In:Review #53 - 14 April 2024
Anthony Hope
Risk & Compliance Executive | Fintech Founder & Innovator | Strategic Leader | Expert Speaker
Welcome to Risk In:Review, your weekly newsletter curating the best of the week’s news stories from the crossroads between risk management and technology in Asia Pacific.
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This Week In:Review
Australia
China
Hong Kong
India
Best of the Rest
Australia In:Review
Australian minerals billionaire Andrew Forrest, with an estimated net worth of USD 18.7 billion, faced a setback in his legal battle against Meta over scam cryptocurrency ads featuring his image.
The Commonwealth Director of Public Prosecutions (CDPP) dropped three criminal charges Forrest had initiated, citing insufficient evidence. This decision was ratified by Chief Judge Julie Wager of the Western Australia District Court.
Forrest criticised Facebook, a Meta platform, for allowing fraudulent advertisements and ignoring Australia’s money laundering laws, highlighting the tech giant's apparent immunity to local laws. He expressed concerns that scams would continue to thrive on social media without accountability.
Forrest vowed to pursue legal reforms that would enable actions against foreign-owned social media companies. He is also pursuing a separate civil lawsuit against Meta in California, addressing the same issue.
His broader concern is the lack of responsibility taken by social media platforms for deceptive content that leads to financial losses for ordinary people.
Two Australian cryptocurrency schemes face severe legal and financial troubles, leaving investors in a precarious position.
In one case, Ash Balanian, a former NASA mission scientist according to the fund’s documents, had his assets frozen by the Federal Court totalling up to AUD 55 million. The court also ordered him to surrender his passport.
KordaMentha were appointed as liquidators for three of Balanian's companies—DCA Capital, Digital Commodity Assets, and the Digital Commodity Assets Fund—after investors raised concerns about the management and legality of the fund. Potential creditor claims could reach up to AUD 100 million with possibly 100 investors affected.
Separately, the Australian Securities and Investments Commission (ASIC) has taken action against another group involving blockchain mining companies NGS Crypto, NGS Digital, and NGS Group Ltd.
Receivers from McGrathNicol were appointed following allegations of encouraging Australians to invest in blockchain mining packages through self-managed superannuation funds. The early investigations indicate over 450 Australians invested approximately AUD 62 million in these businesses.
The Reserve Bank of Australia's (RBA) research paper, "Valuing Safety and Privacy in Retail Central Bank Digital Currency," explores the potential introduction of a retail central bank digital currency (CBDC) in Australia, focusing on consumer valuations of safety and privacy.
A discrete choice experiment was conducted to determine how much Australians value a digital currency issued by the RBA compared to commercial bank money. The study found that Australians generally perceive bank deposits as safe and are not willing to pay extra for the added safety of a CBDC.
However, privacy considerations appear more significant, with some willingness to pay for transaction anonymity and control over who accesses transaction data.
The paper reveals that Australian consumers would pay approximately USD 3 per year for a CBDC account that limits data sharing to the RBA rather than a commercial bank, translating to about USD 60 million per year across the adult population.
The findings suggest that while safety is not a significant concern due to existing protections like deposit insurance and RBA's role as a lender of last resort, privacy could be a compelling aspect of the CBDC's value proposition.
China In:Review
Thousands of Chinese investors affected by a GBP 5 billion scam orchestrated by Tianjin Lantian Gerui Electronic Technology are seeking the return of over GBP 3 billion in bitcoin, currently held in the UK.
This request comes after the conviction of Jian Wen by Southwark Crown Court for converting some of the bitcoin into cash, jewellery, and property on behalf of her employer, Zhimin Qian, who fled with funds from over 128,000 investors between 2014 and 2017.
The Metropolitan Police seized 61,000 bitcoin during a 2018 raid, one of the largest crypto confiscations globally.
A group representing the victims has sent a letter to the Chinese foreign and public security ministries, urging them to negotiate with the UK for the recovery of the seized assets, asserting their rights as the legitimate owners.
The Crown Prosecution Service mentioned a property freezing order against Wen and the possibility of civil recovery for the bulk of the bitcoin, with potential forfeiture discussions pending.
The victims have faced severe economic hardships, with many experiencing family breakdowns and financial ruin. A task force in Tianjin has begun compensating victims, albeit minimally, with two payments amounting to a total of GBP 309 million recovered so far.
The UK’s plans for the confiscated bitcoin remain unclear, as the Chinese authorities have yet to formally request its return.
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Hong Kong In:Review
Bitrace, a blockchain data analysis firm, has partnered with the Hong Kong Police Force to enhance the capabilities of the Cypher Security and Technology Crime Bureau (CSTCB) and Commercial Crime Bureau (CCB) in tackling cryptocurrency-related crimes.
This collaboration includes providing specialised training to law enforcement on tracking and analysing cryptocurrency transactions, specifically addressing their use in cybercrime, online betting, black market dealings, funds laundering, and fraud.
The training, led by Bitrace CEO Isabel, focused on the unique challenges posed by the decentralised and permissionless nature of cryptocurrencies. A new tool developed by co-founder Quan and technical experts, enables detailed visualisation of cryptocurrency flows involved in illegal activities, enhancing investigative capabilities.
This initiative is part of a broader effort by Hong Kong to maintain its status as a leading cryptocurrency hub in Asia, ensuring a robust regulatory framework and efficient crime detection and prevention methods.
Bitrace's contribution extends beyond training to developing advanced machine learning tools and a comprehensive library of over 400 million address tags. These tools and data help in pre-emptively identifying risks and regulatory gaps, aiding in the development of informed measures against cryptocurrency misuse.
Livio Weng, CEO of HashKey Exchange, criticised Hong Kong's new cryptocurrency trading regulations for potentially limiting access to global clients.
The city's regulations require crypto exchanges to obtain approval to operate, with 24 companies applying for licenses. Weng's concerns have led HashKey to launch a licensed exchange in Bermuda, fearing that the new rules would restrict overseas investors and shrink the local market.
The situation is complicated by competition for licenses due to the city's proximity to China and its reputation as a top-tier financial hub. Industry professionals believe the limited size of the Hong Kong market might not support the large number of companies seeking licenses.
Despite these challenges, local authorities continue to court international crypto exchanges to establish a comprehensive ecosystem that includes market makers and tech developers.
Significant costs are involved in obtaining licenses, with legal and regulatory advice fees ranging from HKD 2 million to HKD 8 million. Additional expenses for compliance with regulatory assessments could add another HKD 5 million to HKD 6 million.
These high costs, combined with the competitive and restricted licensing environment, raise doubts about the long-term viability of operating under the city’s stringent crypto standards.
Hong Kong's Securities and Futures Commission (SFC) has recently intensified its actions against fraudulent activities in the cryptocurrency sector, placing two platforms, BitCloud and TCAME, on its Suspicious Virtual Asset Trading Platforms Alert List.
This follows the addition of Sure X to the list last week, which was accused of offering unauthorised crypto trading services under the pretence of blockchain education.
The SFC's latest warning, issued on 12 April, arises from investor complaints about withdrawal difficulties on these platforms. BitCloud and TCAME allegedly lured users via social media and instant messaging, subsequently making withdrawals problematic by demanding additional "deposits" and freezing some accounts.
Both platforms are accused of making false claims about their regulatory status to attract investors. BitCloud falsely claimed certifications from the Financial Crimes Enforcement Network and the National Futures Association, while TCAME was accused of wrongly asserting possession of licenses from regulatory bodies in St Vincent, Canada, and the Philippines.
India In:Review
The Directorate General of GST Intelligence (DGGI) has reported a significant increase in Goods and Service Tax (GST) evasion cases during the fiscal year 2023-24, with 6,074 cases detected involving a duty evasion of INR 201,931 crore.
This represents a 99% increase from the previous year, which saw 4,872 cases amounting to INR 101,354 crore. Of the total evasion detected, taxpayers voluntarily paid INR 26,598 crore, which is about 1.4% of the total GST collections for the year.
The DGGI made 147 arrests in connection to these evasion cases, up from 92 in the previous year. Significant evasion was noted particularly in sectors like online gaming and casinos, which topped the list with INR 83,588 crore evaded, followed by the co-insurance or re-insurance sectors with INR 16,305 crore.
In addition, the DGGI detected 2,197 cases of Input Tax Credit (ITC) fraud, involving INR 21,089 crore, leading to 113 arrests.
The agency is enhancing its investigative capabilities by integrating technologies such as Big Data Analytics and Artificial Intelligence, and is setting up five digital forensic laboratories across major cities to bolster its efforts against tax evasion.
Best of the Rest In:Review
Taiwanese prosecutors have indicted David Pan, the founder of Ace Exchange, a cryptocurrency trading platform, along with six others for money laundering and fraud, resulting in losses of USD 10.6 million.
The Taipei City police arrested Pan and 14 others in January 2024 after raids on various locations, including Ace’s headquarters. These actions relate to their involvement with a fraudulent service named "Alfred" or "Afu wallet" and an associated crypto card, which deceived customers by promising high rewards through offline exchanges and fictitious investment groups.
The scheme left investors unable to withdraw funds or with blocked accounts. A court has since ordered the seizure of assets worth at least USD 110,000.
In response, Ace Exchange clarified that Pan's activities were independent of the platform, noting his operational disengagement since 2022. The company assured its customers of the normal functioning of its trading operations and the security of their assets.
Ace also refuted claims of operating franchise stores and enabling cash transactions through ATMs, emphasising its cooperation with local authorities. Ace Exchange, which started in late 2018, handles about USD 14 million in trades daily but is considered high-risk, with a trust score of 2.78 out of 10.
Federal prosecutors in Manhattan have charged KuCoin, a major Seychelles-based cryptocurrency exchange, with violating US anti-money laundering regulations.
The charges, announced on Tuesday, accuse KuCoin of failing to implement necessary customer verification processes, allowing the transfer of billions of USD in illicit funds since its inception in 2017. The exchange allegedly operated without registering with the US Treasury Department, despite actively seeking business from U.S. customers.
KuCoin's founders, Chun Gan and Ke Tang, both Chinese nationals, have been charged with conspiracy and remain at large. In response to the allegations, KuCoin affirmed on social media that customer assets remain secure and that their legal team is addressing the situation.
Separately, the US Commodity Futures Trading Commission has filed a civil lawsuit against KuCoin for failing to register its futures and swaps activities. In a recent related legal action, KuCoin agreed to pay USD 22 million in December to settle a New York state lawsuit for failing to register in the state.
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