The Hong Kong Government warned the public again today (March 14) of consumer, money laundering and cyber-crime risks associated with any trading or dealing in virtual commodities, such as the Bitcoin.
Since mid-2013, the Government and financial regulators have been reminding the public of risks in relation to the highly speculative nature of such virtual commodities, which are not regarded as legal tender in Hong Kong.
The prices of virtual commodities may be susceptible to significant fluctuations due to individual speculative activities. Consumers may suffer significant monetary losses as a result of the volatile prices.
As virtual commodities are not currencies, it would be risky to convert, trade or hold such virtual commodities, as their value is very volatile and is not backed by any physical items, issuers or the real economy.
Consumers may not be able to obtain a refund of their monies should a virtual commodity collapse or those who deal in it cease to operate, as such commodities may not be issued by any identifiable entity. And given that such virtual commodities themselves are not securities, consumers buying them will not have the safeguards that investors in securities enjoy under the Securities and Futures Ordinance.
Money Laundering Risks
The anonymous nature of virtual commodities poses potential money laundering or terrorist financing risks on their transactions.
Financial institutions, virtual commodity dealers or operators, and individuals are reminded of their statutory duty to report suspicious transactions to the Joint Financial Intelligence Unit, if their due diligence work or transactions reveal any suspicious activities in relation to money laundering or terrorist financing, regardless of whether virtual commodities are involved.
A failure to disclose such suspicious transactions to the Joint Financial Intelligence Unit may amount to an offence under the Organised and Serious Crimes Ordinance, the Drug Trafficking (Recovery of Proceeds) Ordinance, or the United Nations (Anti-Terrorism Measures) Ordinance.
The Hong Kong Monetary Authority, the Securities and Futures Commission, the Office of the Commissioner of Insurance, and the Customs and Excise Department have issued circulars respectively to banks, securities brokers, insurers, insurance agents and brokers, and money service operators to remind them to ensure an escalated level of vigilance commensurate with money laundering and terrorist financing risks associated with virtual commodities.
These financial institutions are regulated under the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO), which requires them continuously to comply with customer due diligence and record keeping requirements to maintain an effective regime against money laundering or terrorist financing. They have been reminded to exercise caution in assessing relevant money laundering or terrorist financing risks when establishing or maintaining business relationships with customers or clients who are operators of any schemes or businesses relating to virtual commodities.
Any virtual commodity operators whose transactions involve money changing or remittance services are required to apply to the Commissioner of Customs and Excise for a "money service operator" licence under the AMLO.
Consumers or businesses dealing in virtual commodities may expose themselves to cyber-crime risks. In the past 12 months, the Police received about 20 complaints on investment scams, online deception, online blackmail and unauthorised access to computers in relation to the trading or storage of virtual commodities.
While the existing laws of Hong Kong cover acts of fraud or technology crimes involving virtual commodities, the public should take note of the broader cyber-crime risks that dealing in virtual commodities entail and should exercise the necessary extra caution.
Evolving Global Regulatory Developments
Like most jurisdictions, Hong Kong does not regulate virtual commodities specifically in terms of their safety or soundness. That said, our existing laws provide sanctions against money laundering, terrorist financing, fraud and cyber-crimes, whether or not virtual commodities are involved.
The Government and financial regulators will closely monitor further developments, including the usage of virtual commodities in Hong Kong, the evolving regulatory consensus at international platforms such as the Financial Action Task Force, and relevant regulatory and enforcement actions in comparable jurisdictions, with a view to taking further action to ensure proper protection for the public.
Ends/Friday, March 14, 2014
Issued at HKT 18:03