Risk In:Review #69 - 25 August 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.
Keep updated with the latest news and insights by clicking on subscribe.
Perspectives
This week’s Perspectives focuses on three headlines from across Asia-Pacific, two relating to scams, and one on extradition.
The first headline relates to news from the Australian Securities and Investment Commission (ASIC) that it has proactively taken down over 7,300 scam websites in just one year.
This was achieved with the support of Netcraft, a disruption and takedown service based out of London that has blocked over 173 million unique phishing sites since its launch in 2005.
Interestingly, the majority of the 7,300 scams fell into three categories: 5,530 (75.8%) fake investment platforms; 1,065 (14.6%) phishing scams; and 615 (8.4%) crypto investment scams.
ASIC and Netcraft’s response is part of a broader set of initiatives that has contributed to a 13.1% reduction in scam-related losses in Australia, despite a rise in reported scams.
The second headline comes from Singapore, where the Ministry of Home Affairs (MHA) is considering granting the police additional powers to temporarily restrict scam victims’ banking transactions, when it is suspected that they are about to transfer money to scammers.
This would allow authorities to intervene, freeze accounts, and prevent further financial loss, while law enforcement or banks persuade victims that they have been scammed.
It is well understood that convincing scam victims that they have been victims is a significant challenge, especially when they are emotionally invested in love or investment scams.
Formalising the law behind restriction of accounts would help enshrine the primacy of measures to protect customers over consumer legislation allowing customers to access their funds.
The MHA is expected to conduct public consultations on the proposed measures in coming months.
The final headline marks a remarkable milestone in international cooperation. Malaysian businessman, Zhang Yufa, was extradited from Thailand to China for allegedly masterminded a USD 14 billion cryptocurrency scam.
Extraditions are rare at the best of times, but extraditions to China are rarer still, given political sensitivities, the lack of extradition treaties, and concerns over China’s record on human rights.
The extradition follows an extensive investigation initiated by authorities in Chongqing in 2020, leading to an international wanted notice issued by Interpol.
Zhang’s extradition highlights the deepening of law enforcement and judicial cooperation between China and Thailand. I think it is unlikely however that this will trigger a wider trend of expatriating the targets of law enforcement across Asia-Pacific.
This Week In:Review
Australia
China
Hong Kong
India
Korea
Singapore
Best of the Rest
Australia In:Review
The Australian Securities and Investment Commission (ASIC) has successfully taken down over 7,300 websites in its first year of operations targeting investment scams.
Launched in July 2023, the initiative focuses on shutting down fake investment trading platforms and cryptocurrency scams, often spread through social media with false celebrity endorsements.
According to ASIC Deputy Chair Sarah Court, this effort, while akin to a "whack-a-mole" game, is making a significant impact.
The London-based firm Netcraft, in partnership with ASIC, is able to remove scam sites within hours after being reported. The majority of the takedowns (5,530) were fake investment platforms, followed by phishing scams (1,065), and cryptocurrency investment scams (615).
Court emphasised the importance of consumer vigilance, advising the public to be cautious when encountering investment offers online.
Despite the challenges posed by sophisticated scams, the initiative has contributed to a broader industry effort, which helped reduce scam-related losses by 13.1% in 2023, even as reported scams increased by 18.5%.
The combined efforts of banks, telcos, government bodies, and heightened public awareness are credited for this success.
Kraken, one of the leading global cryptocurrency exchanges, has faced a significant legal setback in Australia after its local operator, Bit Trade Pty Ltd, was found guilty of breaching regulatory requirements.
On 23 August 2024, the Australian Securities and Investments Commission (ASIC) announced that the Federal Court ruled in its favour, concluding a year-long legal battle centred on Kraken’s failure to comply with Australian laws governing the sale of financial products.
The case hinged on whether Kraken’s margin trading product qualified as a credit facility under Australian law. These products, which allow traders to borrow funds to leverage their positions, increase both potential gains and risks.
The court found that Bit Trade violated the design and distribution obligations (DDO) by failing to issue a “target market determination” (TMD), a legal requirement intended to protect consumers from unsuitable or high-risk financial products.
Justice Nicholas ruled that while repaying debt in digital assets like Bitcoin (BTC) does not count as repaying “money” under Australian law, repayment in national currencies does create a deferred debt, classifying the product as a credit facility. This distinction was pivotal in securing ASIC’s victory.
ASIC Deputy Chair Sarah Court described the outcome as a significant win, reinforcing the regulator’s commitment to enforcing compliance within the crypto industry. ASIC plans to seek financial penalties against Bit Trade, with a hearing to determine the appropriate punishment to be scheduled.
China In:Review
China’s highest court has issued a judicial interpretation that heightens the legal risks for cryptocurrency traders on the mainland, particularly concerning money laundering activities involving virtual assets.
This new directive, published by the Supreme People’s Court and the Supreme People’s Procuratorate, categorises the use of virtual assets, such as cryptocurrencies, to transfer or convert criminal proceeds as a violation of China’s criminal law.
Legal experts, like Shao Shiwei from Shanghai-based Mankun Law Firm, warn that this interpretation significantly increases the risk of prosecution for Chinese investors trading cryptocurrencies, including stablecoins like Tether’s USDT.
Shao highlighted that even ordinary investors could face legal repercussions if they inadvertently receive proceeds from criminal activities during transactions.
This move underscores the growing urgency with which Chinese authorities are addressing money laundering concerns, especially as innovative methods, including the use of cryptocurrencies, have made financial crimes harder to detect and prosecute.
The interpretation is intended to guide courts in handling related cases, although it does not equate all cryptocurrency trading with money laundering, nor does it alter China’s existing ban on crypto-related activities like mining and initial coin offerings.
While mainland China maintains strict controls, Hong Kong has been given the authority to regulate and support virtual-asset businesses, reflecting a differentiated approach within the country.
Despite the legal challenges, Chinese investors remain active in the global cryptocurrency market, ranking fourth in total cryptocurrency gains in 2023, with an estimated USD 1.15 billion in earnings.
A Malaysian businessman, Zhang Yufa, also known as Tedy Teow Wooi Huat, has been extradited from Thailand to China, marking the first instance of an economic crime suspect being transferred under the 1999 extradition treaty between the two nations.
Zhang, the founder of MBI Group, is accused of orchestrating a large-scale fraud scheme that swindled over USD 14 billion from more than 10 million investors, primarily through an unlicensed and unrecognised cryptocurrency linked to his conglomerate.
China's public security ministry hailed the extradition as a "landmark" event, highlighting the deepening of law enforcement and judicial cooperation between China and Thailand. The extradition follows an extensive investigation initiated by authorities in Chongqing in 2020, leading to an international wanted notice issued by Interpol.
Zhang was apprehended by Thai police in July 2022 after fleeing Malaysia. While Malaysia also sought his extradition, China's earlier request took precedence, resulting in a Thai court ruling in May 2023 to transfer him to China.
The case has drawn significant attention, particularly following a protest by Chinese nationals in Malaysia in 2019, who claimed to have lost their life savings to MBI Group.
China has characterised Zhang's extradition as "extraordinary" and anticipates it will set a positive example for future international cooperation on cross-border crimes.
In recent discussions at the Lancang-Mekong Cooperation forum, China’s top diplomat, Wang Yi, called for increased collaboration among regional countries to combat online gambling and telecoms fraud, highlighting the arrest of over 50,000 suspects in related cases since the previous year.
Hong Kong In:Review
The Hong Kong Monetary Authority (HKMA) has introduced new guiding principles for the use of generative artificial intelligence (AI) in consumer-facing applications within the banking sector.
These principles were added to the HKMA's existing four pillars of guidance on big data analytics and AI, which include governance and accountability, fairness, transparency and disclosure, and data privacy and protection, first established in November 2019.
According to Alan Au, the executive director of the HKMA’s banking conduct department, applications such as customer chatbots, personalised product development, targeted sales, marketing, and robo-advisors in wealth management and insurance are becoming increasingly prevalent.
To ensure consumer protection, the HKMA has recommended that banks provide clear and understandable disclosures to end-users, ensuring transparency. The authority also emphasised that senior management must be accountable for decisions involving generative AI, and that AI models should produce fair and consistent outcomes. Additionally, special attention must be given to safeguarding customer data.
In conjunction with these new principles, the HKMA has launched the "Generative Artificial Intelligence (GenAI) Sandbox" in collaboration with Cyberport, a government-run technology company.
This sandbox provides a platform for banks to test AI applications in areas like risk management, anti-fraud measures, customer services, and process reengineering. The initiative is designed to support banks in piloting innovative AI use cases within a controlled, risk-managed environment, with technical support and supervisory feedback from the HKMA.
领英推荐
In a landmark decision, Mantra Dao Inc. and Another v John Patrick Mullin and Others [2024] HKCFI 2099, Mr Justice Lok of the Hong Kong Court of First Instance mandated the disclosure of financial records and books related to a decentralised autonomous organisation (DAO) finance platform.
This ruling emphasises the necessity of financial transparency within cryptocurrency platforms and confirms that DAOs, despite their decentralised nature, remain subject to judicial oversight to protect the legitimate interests of stakeholders.
The case arose from a dispute between the Plaintiffs—two cryptocurrency companies—and the Defendants over control and ownership of a DAO finance project (the "Project").
The Plaintiffs sought an interim relief order compelling the Defendants to disclose financial records from January 2021 onwards. The Court granted this order, recognising the serious issues at hand and the need for financial transparency given the fast-moving and anonymous nature of cryptocurrency transactions.
The Defendants contended that complying with the disclosure order would cause undue hardship, but the Court dismissed this argument, stating that the Defendants were already obligated to maintain proper accounts for the cryptocurrency trading business under the Project.
This decision highlights the growing importance of transparency and governance in the blockchain and decentralised finance sectors. It also signals that legal accountability will continue to evolve alongside the complexities of new digital and financial technologies.
India In:Review
The Indian government is in the process of drafting a consultation paper aimed at addressing key concerns surrounding cryptocurrency, as part of its broader effort to establish clearer regulatory frameworks for the asset class.
The Secretary of the Department of Economic Affairs is leading this initiative, with the consultation paper expected to be released between September and October 2024. This move signals India's attempt to balance innovation with regulatory oversight, inviting stakeholders to contribute feedback to the policy-making process.
This development follows a call by Indian Prime Minister Narendra Modi during the G20 Summit for a global framework to regulate cryptocurrencies, artificial intelligence, and other emerging technologies.
India's history with crypto has been complex, highlighted by the Reserve Bank of India's 2018 ban on financial institutions dealing with cryptocurrencies, a decision later overturned by the Supreme Court in 2020.
Despite the resumption of crypto trading, the government remains concerned about the macroeconomic risks posed by privately issued cryptocurrencies, particularly stablecoins, leading the Reserve Bank of India to advocate for a ban on digital assets pegged to fiat currencies or commodities like gold.
The proposed consultation paper comes after decisive actions against non-compliant offshore crypto exchanges. In December 2023, the Financial Intelligence Unit of India banned nine major platforms, including Binance, KuCoin, and Kraken, for failing to adhere to anti-money laundering regulations.
Indian authorities have arrested Shailesh Babulal Bhatt in connection with the kidnapping and extortion of two individuals linked to BitConnect, a notorious cryptocurrency platform that has been identified as a global Ponzi scheme.
Bhatt, who allegedly lost a significant amount of money by investing in BitConnect Coin (BCC), resorted to kidnapping two employees associated with BitConnect's creator, Satish Kumbhani, in an effort to recover his losses.
According to the Enforcement Directorate (ED) in Ahmedabad, Bhatt demanded a ransom of 2,091 Bitcoin (BTC), 11,000 Litecoin (LTC), and approximately INR 145 million for the release of the victims.
It was further revealed that Bhatt paid his accomplices INR 2.9 billion for their involvement in the crime, with the extorted funds allegedly used to purchase real estate, gold, and other valuable assets.
Bhatt was arrested on 13 August 2024 under the Prevention of Money-Laundering Act (PMLA) and is currently in custody following his appearance before a special court in Ahmedabad.
BitConnect, launched in 2016, collapsed in 2018, causing an estimated USD 2.4 billion in losses for around 4,000 investors from 95 countries. The platform has been widely recognised as a global Ponzi scheme, and its founder, Satish Kumbhani, was indicted by the US Department of Justice in February 2022 for running a Ponzi scheme through BitConnect's loan programme.
The Enforcement Directorate has so far recovered assets worth INR 4.4 billion related to the BitConnect case, and the investigation continues as Indian authorities intensify their efforts to address the fallout from the platform's collapse.
Korea In:Review
A South Korean civil servant has been charged with embezzling approximately USD 438,000 in public funds, which were allegedly diverted for personal cryptocurrency investments. This case has exposed significant vulnerabilities within the South Korean administrative system, underscoring the urgent need for stronger oversight mechanisms.
The accused, a grade six civil servant from Cheongju City Hall, reportedly forged official documents over a seven-year period starting in January 2017. These funds, intended for government initiatives such as student work placements and support projects for North Korean defectors, were misappropriated for personal financial gain.
According to the prosecution, the funds were used not only for cryptocurrency and stock market investments, but also to settle personal debts.
This incident is part of a broader pattern of crypto-related misconduct among South Korean civil servants. Previous cases include a Seoul official arrested for crypto fraud and voice phishing, and another who fled abroad after converting national health insurance funds into cryptocurrency.
These cases collectively highlight the increasing intersection of public sector corruption and cryptocurrency misuse in South Korea.
In response to the latest scandal, the Cheongju District Prosecutors’ Office has moved swiftly to seize assets, including apartments and vehicles, connected to the embezzled funds. A spokesperson for the prosecution affirmed their commitment to ensuring a thorough investigation and securing a sentence that reflects the gravity of the crime.
The case has sparked calls for enhanced regulatory measures and more robust financial oversight to prevent similar incidents in the future, as the misuse of public funds for speculative investments continues to pose a significant challenge to the integrity of public administration in South Korea.
Singapore In:Review
According to the Ministry of Home Affairs (MHA), scam victims in Singapore lost over SGD 385.6 million in the first six months of 2024, a 24.6% increase from the SGD 309.4 million lost during the same period in 2023. The number of scam cases also rose by 16.3%, reaching 26,587 incidents.
To combat this growing issue, the MHA is considering granting the police additional powers to temporarily restrict scam victims’ banking transactions when it is suspected that they are about to transfer money to scammers. This would allow authorities to intervene, freeze accounts, and prevent further financial loss while persuading victims of the scam.
The police revealed that convincing scam victims is a significant challenge, especially when they are emotionally invested in love or investment scams. In one case, it took two months of persuasion involving the victim's family, police, and psychologists before she realised she had been scammed, by which time she had lost over SGD 3.6 million.
In response to the escalating scam threat, the Monetary Authority of Singapore (MAS) has supported the implementation of the "Money Lock" feature, now available at major retail banks.
This feature allows customers to lock a portion of their funds, which can only be accessed in person at an ATM or bank branch, thereby protecting against digital transaction scams. Since its introduction in November 2023, over 114,000 customers have used Money Lock, securing over SGD 9 billion.
As of June 2024, those aged 50 and above constitute 42% of Money Lock users, with another 43% aged between 30 and 49. Despite its success, there are currently no plans to make the Money Lock feature mandatory for all banking institutions.
The MHA is expected to conduct public consultations on the proposed measures to enhance consumer protection further.
DBS Bank has initiated a pilot project using blockchain technology to enhance the disbursement of government grants in Singapore. This project, conducted in collaboration with Enterprise Singapore (EnterpriseSG) and the Singapore Fintech Association (SFA), aims to improve the efficiency, governance, and user experience of grant disbursements through programmable conditions.
The pilot leverages a protocol known as Purpose-Bound Money (PBM), which ensures that funds are released only when specific predetermined conditions are met. These conditions are verified through smart contracts, automating the disbursement process and significantly reducing the need for manual oversight. This approach not only speeds up the distribution of funds but also enhances the efficiency and security of the allocation process.
The pilot was showcased during the Singapore Fintech Festival 2023, involving 27 local fintech companies, including prominent names like Advance Intelligence, Aspire, and Experian Singapore. Using DBS’s permissioned blockchain, the system ensured that only authorised recipients received the grants once the specified criteria were fulfilled.
Han Kwee Juan, Country Head of DBS Singapore, emphasised that smart contract technology automates and streamlines the disbursement process, allowing government agencies to execute faster and more secure payments.
DBS’s involvement in this project extends its participation in Project Orchid, a broader initiative led by the Monetary Authority of Singapore (MAS) to develop infrastructure for a digital Singapore dollar.
DBS plans to explore further applications of programmable disbursements in collaboration with other government agencies, as part of the ongoing efforts to advance Singapore’s Smart Nation objectives.
Best of the Rest In:Review
Despite prohibiting its citizens from engaging in cryptocurrency transactions, China has been found to use digital assets as payment for foreign espionage activities.
This revelation follows the sentencing of eight current and former Taiwanese military officers, who received prison terms ranging from 18 months to 13 years for violating Taiwan's National Security Act and the Criminal Code of the Armed Forces.
These individuals were recruited to establish a spy network for Beijing and were paid in cryptocurrency, although it remains unclear if this was the sole payment method.
The Taoyuan City Investigation Office uncovered this operation, highlighting the Chinese Communist Party's new tactic of using virtual currency to bribe and recruit spies. While the exact amount of cryptocurrency involved in these bribes is unknown, the case has prompted Taiwan to intensify its efforts to curb espionage activities involving digital currencies.
This incident is part of a broader trend of increasing crypto-related crime in Taiwan. For example, in March, Ma Chih-wei, a candidate for the Taoyuan City legislative committee, was indicted for allegedly receiving over USD 30,000 in Tether from Chinese sources to fund her political campaign.
The rise in such activities has led to growing calls for stricter regulations and crackdowns on crypto-related fraud ahead of the upcoming elections.
Bank Negara Malaysia (BNM) and the National Scam Response Centre (NSRC) have successfully frozen MYR 72 million in suspected fraud-related funds as of June 2024. This achievement was highlighted during the launch of the National Fraud Portal (NFP).
The NFP, developed through collaboration between BNM, Payments Network Malaysia Sdn Bhd (PayNet), and financial industry participants, aims to leverage technology and data analytics to combat financial fraud more effectively.
It automates the NSRC’s operations, including fraud report management, fund tracking, and early warning sharing among financial institutions, allowing for quicker and more efficient responses to fraudulent activities.
BNM Governor Datuk Seri Abdul Rasheed Ghaffour noted that the NSRC has initiated over 12,000 investigations by mid-2024, leading to the freezing of MYR 72 million through enforcement orders issued by the Royal Malaysia Police (PDRM).
The NFP's automation capabilities are expected to significantly enhance the NSRC's effectiveness in detecting and preventing fraud.
Finance Minister II Datuk Seri Amir Hamzah Azizan underscored the NFP's importance in Malaysia’s broader strategy to combat online fraud. He highlighted that since the NFP's pilot stage, it has reduced the time required to track fraudulent transactions by up to 75% and increased the average monthly amount of funds frozen by 28%, equivalent to MYR 4 million.
Currently, 16 financial institutions are participating in the NFP, with more expected to join. The initiative is part of a comprehensive approach to fighting financial fraud in Malaysia, which also includes preventive measures, enforcement actions, and consumer awareness programs.
Since its establishment, the NSRC has managed over 41,000 cases, demonstrating the ongoing efforts to protect Malaysians from financial scams.
The Philippine National Police (PNP) arrested 99 individuals during a raid on a suspected scam hub in Para?aque City, exposing a fraudulent cryptocurrency and romance scheme involving both foreign and local workers.
The raid, carried out by the National Capital Region Police Office (NCRPO), targeted the office of AIA Company in Centrium Tower 1, Barangay Baclaran, following intelligence reports of illegal activities.
Among those arrested were three key figures in the operation: Nan Shan, the manager; Detu Su, the owner; and Wu Jian Bin, the supervisor. The raid also led to the detention of 64 foreign nationals, including Chinese and Malaysians, and 32 Filipinos who were allegedly working as customer service representatives (CSRs) in the fraudulent operation.
According to Maj. Gen. Jose Melencio Nartatez, chief of the NCRPO, the company was involved in cryptocurrency and romance scams, where CSRs were used to fraudulently portray wealthy models to entice victims into investing in manipulated cryptocurrency exchanges or trading platforms.
The operation was uncovered as part of a broader investigation, revealing that the company was not registered with the Philippine Securities and Exchange Commission.
The Filipino employees disclosed that they were coerced into participating in the scams and forced into compromising roles. They reported being made to work as scammers, with some forced to dress provocatively and perform lascivious acts to lure victims.
I hope you find Risk In:Review informative and helpful.