Why is Taiwan facing rising crypto crime?

Written by Kapronasia || May 07 2024

Taiwan’s Financial Supervisory Commission (FSC) has historically taken a hands-off approach to cryptocurrency focused on segregating the local digital assets ecosystem from the banking system – which it wants to protect from volatility and risk. As long as banks stay away from digital assets, the FSC is willing to let local crypto exchanges operate with a high degree of autonomy provided they pay their taxes and keep on the straight and narrow. However, Taiwan has since the collapse of FTX been dealing with a surge in crypto-related crime, both money laundering and fraud. Criminals are exploiting unsuspecting investors and taking advantage of limited knowledge of digital assets among the general public, lawmakers and regulators.

On April 26, the Taipei District Prosecutors Office on Friday indicted 32 individuals, including a prominent lawyer, who are accused of defrauding almost NT$800 million (US$2.46 million) from their victims. The defendants allegedly persuaded investors to purchase large sums of worthless crypto coins such as MoChange Token, CSO, FITC, NFTC and BNAT, promising their victims lucrative returns. The defendants are also accused of laundering their ill-gotten proceeds, including through the purchase of real estate in Taiwan’s Yilan County. They also stashed large amounts of cash in different locations around Taipei City and New Taipei City. 

Meanwhile, in late 2023, Taiwanese authorities arrested an individual surnamed Qiu suspected of laundering a record NT$10.4 billion (US$320 million) using digital assets. The case emerged from an investigation initiated last year into a bogus securities trading app. A probe led authorities to trace financial transactions, ultimately revealing Qiu’s alleged involvement in the scheme.

While the implosion of FTX in late 2022 led to significant losses among retail investors in Taiwan, Taiwanese regulators still ultimately viewed the situation as a problem originating overseas. Their most notable reaction was to remind investors of the risks one takes investing in volatile cryptocurrencies.

Yet it was only a matter of time before Taiwan faced homegrown digital assets crime. Traditionally, Taiwanese have invested in property and to a lesser degree the stock market, but the barrier to entry in crypto is much lower, while the promise of high returns in a short period of time is alluring in a society with stagnant wage growth. When we consider that there are almost no laws on the books that can specifically address digital assets, we can see how a nascent crypto investment scam can start on social media or in messaging groups. If there are no restrictions on who can sell digital assets, and they are not classified, as say, a security, then that provides an opening for scammers.

Fortunately, there are signs that the local industry is keen to work with regulators, law enforcement and lawmakers to address the problem. For instance, Taipei-based blockchain firm XREX said in February that it supported Taiwan’s Criminal Investigation Bureau (CIB) and the Judicial Reform Foundation (JRF) to track Ether funds defrauded from an investor and return them to the victim, in this case a professional trader.

Looking ahead, the FSC plans to propose a new draft of cryptocurrency regulations in September. However, from what we have observed, there still seems to be a focus on insulating the traditional financial system from associated risk. Given the inherent conservatism of Taiwanese banks, the chances that they roll out high-risk digital asset products are exceedingly low. It is more important to step up investor protection and education, and to crack down on unlicensed exchanges and other illicit sales of digital assets.