UNODC Proposes Penalties for Unlicensed Crypto Firms in Southeast Asia to Combat Growing Cyber Fraud

A recent report by a UN body highlights the rapid rise of crypto-related cyber fraud in Southeast Asia. The United Nations Office on Drugs and Crime (UNODC) estimates that the region suffered financial losses of around $37 billion (roughly Rs. 3,10,663 crore) from scams in 2023 alone. To counter this growing trend, the UNODC has recommended penalising unlicensed crypto firms, which are being exploited by money launderers to facilitate illegal transactions.

“Building on existing underground banking infrastructure including underregulated casinos, junkets, and illegal online gambling platforms that have adopted cryptocurrency, the proliferation of high-risk virtual asset service providers (VASPs) across Southeast Asia have now emerged as a new vehicle through which this has taken place, servicing criminal industries without accountability,” the report said.

The report recommends that unregulated and unlicensed Virtual Asset Service Providers (VASPs), particularly crypto exchanges, be proactively "identified and prevented from operating" as part of the regulatory measures.

The UNODC released a report this week titled, "Transnational Organized Crime and the Convergence of Cyber-Enabled Fraud, Underground Banking, and Technological Innovation in Southeast Asia: A Shifting Threat Landscape." Based on 'extensive evidence,' the report reveals that organized crime groups are exploiting casino compounds, special economic zones, and border areas to conceal illicit activities.

Commenting on the situation, Masood Karimipour, regional representative for Southeast Asia and the Pacific, UNODC, said, “Organised crime groups are converging and exploiting vulnerabilities, and the evolving situation is rapidly outpacing governments' capacity to contain it.”

He further emphasised that cybercriminals are becoming increasingly sophisticated in leveraging advanced technologies to carry out large-scale fraud, resulting in more significant financial losses.

“This has led to the creation of a criminal service economy, and the region (Southeast Asia) has now emerged as a key testing ground for transnational criminal networks looking to expand their influence and diversify into new business lines,” Karimipour added.

The UNODC has strongly advised the governments in Southeast Asian nations to become more vigilant and to prioritise practices that can reduce the number of cyber fraud cases.

In addition to the exploitation of cryptocurrencies, the report highlights a staggering 600 percent increase in AI-driven cybercrimes, including deep fakes, in the first half of 2024 alone. The misuse of AI has been identified as a critical multiplier of financial crimes across the region, encompassing Cambodia, Indonesia, Malaysia, Singapore, Thailand, and Vietnam.

“The integration of generative AI have not only expanded the scope and efficiency of cyber-enabled fraud and cybercrime; they have also lowered the barriers to entry for criminal networks that previously lacked the technical skills to exploit more sophisticated and profitable methods,” John Wojcik, a regional analyst at the UNODC said commenting on the situation.

As per Statista, the crypto market in Southeast Asia is estimated to grow by 4.13 percent between by 2025 – making for a valuation of 4.4 billion (roughly Rs. 36,944 crore).