26 ASIAN LEGAL BUSINESS – JUNE 2024 WWW.LEGALBUSINESSONLINE.COM WHITE-COLLAR CRIME Other South Asian and Southeast Asian economies are still playing catchup when it comes to tackling modern white-collar crimes. While increased awareness and political will are pushing for reform, a lackadaisical attitude towards rampant corruption (particularly low-level corruption), poor digital infrastructure, a dearth of resources, and slow enforcement are holding back significant progress in these regions. Take the Philippines for instance. From February 2022, the country’s regulators expanded transaction reporting requirements when they required all ‘Covered Persons’ to use VA-specific transaction codes for covered/suspicious transaction report (CTR/STR) filings. But, identifying non-compliant VA-related activity remains the larger challenge. While reports suggest extensive use of foreign VASPs, coupled with domestic VASPs’ low utilisation of VA-specific transaction codes, “the cited statistics only represent a small subset of VArelated transactions passing through the Philippine financial system,” an APG report found. “Criminal actors may be moving their funds across VASPs under different regulatory frameworks in a bid to hamper the authorities’ detection of their activities and ability to trace their funds,” the report said. Vietnam is another country that takes financial crime seriously, recently sentencing real estate tycoon Truong My Lan to death for her involvement in a $12 billion fraud case – one of the most severe punishments for economic crimes worldwide. ATTITUDE PROBLEMS Experts agree that the attitude towards corruption is a key element of financial crime in Asian markets. The $4.5 billion 1MDB scandal in Malaysia, which resulted in a 12-year prison sentence for former Malaysian prime minister Najib Razak, points to the fact that even top political and bureaucrats aren’t immune from corrupt practices. A 2024 report by Transparency International found that 71 per cent of the countries across Asia and the Pacific have a CPI score below the regional average score of 45 and the global average of 43 out of 100. “Corruption is often at the heart of financial crime. In the majority of cases involving financial crime, corruption plays a crucial, if sometimes small, part. Corruption is still a major issue in Asia, with low-level corruption in particular still not really seen as criminal in nature,” Rogers says. “Domestic anti-corruption laws should be strongly enforced with appropriate investment in strong anti-corruption agencies, with more whistleblowing,” Rogers adds. Debevoise & Plimpton partner Gareth Hughes and counsel Philip Rohlik says technology and geopolitical instability are the two main drivers of increased financial crime in Asia and across the world. “Technology, especially artificial intelligence, is a real—if too often overhyped—threat insofar as it allows bad actors to evade the internal controls of private companies and vigilance mechanisms of public authorities. The second (and more important) is the increasingly polarised world we live in, in which titfor-tat sanctions, trade controls, and similar policy tools create incentives for companies and countries to engage in complicated transactions to avoid the full impact of such trade controls, thereby taxing the compliance resources of their business partners and creating new avenues for bad actors to exploit,” Hughes and Rohlik say. Rogers at Davis Polk also points to the development of what Interpol has called the “revolutionary” nature of cryptocurrency technology, which has provided an additional, new challenge to combatting financial crime. “The fast-accelerating technological developments (in areas such as cyberhacking, AI and data manipulation present potentially an overwhelming challenge,” Rogers adds. The APG’s 2023 report finds that Recent reports raise serious concerns about the Democratic People’s Republic of Korea’s (DPRK) theft and laundering of hundreds of millions of dollars worth of VA for financing the proliferation of weapons of mass destruction. “Terrorist groups, including ISIL, Al Qaeda and their affiliates, as well as extreme-right wing terrorist entities, are increasingly using virtual assets to raise and move funds globally,” the report finds. Deepfake incidents in Asia-Pacific surged 1,530 percent last year, with Vietnam and Japan seeing the most attacks, according to a report from identity verification platform Sumsub. Sumsub identified Hong Kong as one of the top five markets in Asia for identity fraud at a rate of 3.3 percent last year. Bangladesh had the highest at 5.4 percent. New data released by American consumer credit reporting agency TransUnion shows that in Hong Kong, financial services ranked second among the most targeted industries for suspected digital fraud in 2023. But both these risks can and are being addressed through proper training and compliance programs, say Hughes and Rohlik. “Regulators increasingly expect large financial services and other firms to incorporate data analytics, which can incorporate AI to identify AI, as part of their compliance programs. While there have been much-hyped news stories about deep fake video conferences, the vast majority of financial crimes, like the vast majority of cyber crimes, are not that sophisticated and rely more “The way forward domestically for the crypto industry should be to embrace regulation and licensing and then impose balanced AML requirements.” — Martin Rogers, Davis Polk & Wardwell
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