The recent collapse of trading platform FTX caused cryptocurrencies to fall markedly and led to unprecedented losses for global investors. In Taiwan, as many as 500,000 people who held savings with FTX have reportedly lost entire portfolios or significant sums, with some discovering they have nowhere to turn for compensation or legal recourse.
That is because Bahamas-based FTX operated overseas with foreign registration, meaning that Taiwanese authorities could not regulate it. Although government agencies, including the Financial Supervisory Commission and the central bank, have for years reminded the public of the risks of investing in cryptocurrencies given their volatility, a frenzy of interest remained in using such tools as a hedge against possible losses in traditional assets such as stocks and bonds, with bitcoin, ethereum and dogecoin among mainstream investment targets.
However, there has been little to stop cryptocurrencies from being used in an increasing number of financial scams and money laundering activities. In several cases, cryptocurrency firms promoted handsome profits for would-be investors, with high-tier investors expecting even higher returns on their investments, but such firms had almost never made those promised returns before being caught by authorities.
There were also reports of people being defrauded when transferring bitcoin through specialized automated teller machines installed locally in shops and streetside, while criminal rings used the currency to transfer money overseas.
Some people had once claimed that cryptocurrency was a disruptive innovation to central banks and the global banking system, as blockchain and other digital technologies would help reshape how people think about money. However, cryptocurrencies were beginning to plunge amid rising global interest rates even before the FTX collapse. The FTX debacle only further emphasizes the opaque nature of cryptocurrency exchanges, with talk of suspicious accounting and clandestine financial flows emerging more commonly in the crypto world.
Taiwan in 2018 passed amendments to the Money Laundering Control Act (洗錢防制法), which enabled the government to regulate virtual currency platforms and trading businesses as financial institutions, and last year implemented new money laundering regulations that require cryptocurrency exchanges in Taiwan to report transactions exceeding NT$500,000. It was not until early this month, four years after the law was amended, that local law enforcement agencies froze cryptocurrency transactions at an exchange.
Taiwanese laws are too conservative in dealing with cryptocurrency scams, while local prosecutors and government agencies are too timid to ask exchanges to help them suspend transactions and track down recipients, lawmakers said. They have cited advances in Taiwanese criminals’ methods for illicit activities, while law enforcement agencies and their investigative capabilities continue to lag far behind international standards.
Apart from the legal foundation for cracking down on cryptocurrency fraud, the government could do more to provide agencies with investigative tools that help law enforcers uncover crimes enabled by cryptocurrency. This could include training in the ways such criminals think and behave when interacting with cryptocurrency. Considering the nation’s digital and technological capabilities, Taiwan should not be lagging so far behind other countries in fighting crimes involving cryptocurrency.
Taiwan can catch up if the top administrators in law enforcement and the judicial system find the determination and motivation to deal with these problems.
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