The Police Force established the "Technology Crime Policing Advisory Group" ("the Group") in December 2022, bringing together 12 experts and leaders from the technology industry to share the latest developments in information technology to help the police gain early insight into the challenges and potential threats brought about by the rapidly changing technological developments. The Group held its 12th meeting in March this year to discuss the development trends of the third-generation Internet ("Web 3") technology and related risks. The Group believes that Hong Kong has actively promoted the application of Web 5 and blockchain technology in recent years, including not only the familiar virtual asset market, but also electronic games, financial investment, art and culture, and even historical conservation. However, the number of virtual currency-related fraud cases continues to rise. Hong Kong must establish an appropriate and effective regulatory system in a timely manner to proactively identify and eliminate risks in order to reduce the opportunities for criminals to use blockchain technology to commit crimes or use the virtual asset market to launder money, while allowing companies to continue to develop in a compliant and legal manner.
Virtual asset-related fraud cases are divided into two categories
According to police data,The number of crimes involving virtual assets in Hong Kong has increased significantly from 2022 in 2336 to more than 2023 in 3415, involving a total amount of up to HK$43 billion, of which more than XNUMX% are fraud cases. According to analysis by team members, virtual asset-related frauds are mainly divided into two categories: the first category is that scammers will use various reasons to trick victims into transferring cryptocurrencies with anonymity characteristics to the scammers' virtual wallets. Since cryptocurrencies do not rely on central banks or governments to issue or manage them, users do not need to submit personal information when setting up private cryptocurrency addresses ("private wallets"), so it is difficult for the police to trace the identity of users. In addition, overseas platforms are also regulated by the Hong Kong system, which greatly increases the difficulty for the police to track and intercept funds.
The other type is that the fraudsters simply use virtual asset investment as a cover to deceive the victims. Since virtual assets are one of the hottest investment products in the market, victims are easily deceived by the fraudsters' sweet talk without knowing much about them. Even though the government has reminded citizens on various media to be cautious before transactions or remittances, and the police have launched the "Anti-Fraud Detector" and "Anti-Fraud Detector APP" to help the public identify fraud and online traps, it is still difficult to eliminate virtual asset-related frauds. The group believes that in addition to strengthening the education of citizens on virtual assets, it is more important to ensure that virtual asset platforms are properly regulated to combat criminals who use cryptocurrencies to defraud or launder money.
Ensuring that virtual asset platforms are properly regulated
However, the team believes that one of the major challenges in promoting the development of Web 3 is that the concepts of "blockchain" and "cryptocurrency" have been "labeled" and "stigmatized", and the misunderstanding of the coexistence of the black and gray industrial chains. In fact, due to the anonymity and decentralized characteristics of cryptocurrency, it has become a tool for criminals to launder money or a payment method for illegal transactions on the dark web. At the same time, many large-scale virtual asset collapses, trading platforms have experienced operational interruptions, closures, hacking and fraud cases in the past, and online scammers have used Web 3 as a cover to deceive citizens into making false investments, which have seriously hit the public's confidence in Web 3. For example, in November 2022, FTX, one of the world's largest virtual asset trading platforms, became insolvent and misappropriated assets, and eventually collapsed, with a total loss of billions of dollars, exposing the virtual asset platform's deficiencies in fund custody, account management, risk control, and financial reserves. In the FTX scam, in addition to a large number of individual investors, there are also large enterprises, financial institutions and funds. There was also a similar JPEX scam in Hong Kong, involving more than 11 victims and defrauding more than HK$2600 billion.
Therefore, the group believes that in addition to raising the public's awareness of virtual assets and strengthening risk awareness, it is also imperative to continuously optimize the regulatory system of the virtual asset market so that ordinary citizens and businesses can regain confidence in Web 3 related concepts.
Laying the foundation for the sustainable development of Web 3 in Hong Kong
The group hopes that the government will continue to study how to improve legislative regulations and management of Web 3-related applications other than virtual assets, provide a solid legal basis for its development, and lay the foundation for the sustainable development of Web 3 in Hong Kong.