Hong Kong Police Enter Metaverse to Combat Crypto Crime

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The Hong Kong police launched a new Web3 platform known as “CyberDefender Metaverse” on Saturday.

To celebrate the launch, the force hosted its first event “Exploring the Metaverse” in the virtual space.

Cracking Down on Crypto Crime

During the launch event, Chief Inspector Ip Cheuk-yu of the Cyber Security and Technology Crime Bureau (CSTCB) discussed the dangers posed by Web3. He told attendees that crimes such as fraud, hacking, theft and sexual offenses are all threats in the metaverse.

The event also focused on the use of digital assets by contemporary cybercriminals and the progress that has been made in stamping out crypto crime.

In a press release that accompanied the launch, the Hong Kong police force said that in 2022 the city recorded 2336 virtual asset-related crimes. These led to a loss of $1.7 billion for victims.

And in the first quarter of this year, 663 such cases have already been reported. Worryingly, in just three months reported losses amounted to $570 million, a 75 percent increase compared to Q1 2022.

The release stated that most of these cases involved virtual asset investment. “Criminals took advantage of the public’s lack of knowledge about virtual assets and lured them into non-existent investments” it warns. 

Hong Kong Regulator Updates AML Rules

Alongside the new metaverse platform, this week the Hong Kong Securities Regulatory Commission (HKSRC) issued updated anti-money laundering (AML) guidelines. 

The HKSRC’s guide details how criminals use digital assets to launder money. It then expands on the steps financial institutions can take to protect themselves from being caught up in illegal activities.

The new rules will apply to all firms that deal with virtual assets. Changes include enhanced Know Your Customer (KYC) and due diligence requirements. 

Under the updated guidelines, institutions that facilitate crypto transactions valued at 8000 RMB or more must collect identifying information about both the sender and receiver.

Digital Crime Fighting Goes International

By enforcing enhanced KYC rules, Hong Kong is stepping up efforts to prevent dirty money from flowing through the city. Companies will have to carry out KYC checks regardless of where their clients are based.

Hong Kong will therefore become a less attractive destination for criminal actors using crypto to hide their identities.

Outside of Hong Kong, other jurisdictions are also adapting their AML frameworks to keep up with the use of digital assets by criminal networks. For example, this week Japan also announced stricter AML rules for crypto transfers. 

Specifically, the country will impose what is known as the “travel rule.”

With the travel rule in place, cryptocurrency exchanges will need to ensure that details about the sender are shared with other parties.

Ultimately, if they are to be effective, crime-fighting efforts must be as international as criminal networks themselves.

To that end, last month it was reported that the Internal Revenue Service (IRS) will deploy cyber agents internationally to investigate the use of crypto in financial crimes.