Here’s What We Might Learn.
To effectively pursue POGOs, Filipino authorities must be able to investigate, seize, and supervise cryptocurrency. This may aid in the Philippines’ removal from FATF’s “grey list” and prove the competence of its law enforcement and judicial organs.
A TELLING OMISSION
The Philippines had come to the international spotlight for POGO hubs hosting cryptocurrency scams, human trafficking, drugs, and plain barbarity. Evidently, the POGOs are no different from the sprawling scam sweatshops in Cambodia, Laos, and Myanmar, where Chinese cyber-scam syndicates have enslaved thousands. Cryptocurrency scamming is highly lucrative for those syndicates. It was probably the most profitable business in Bamban, Tarlac, Porac, and Pampanga before the raids.
It is remarkable that while PAOCC investigators reported seizing jewelry, cash, bank documents, and passbooks, they did not report seizing cryptocurrency assets. This omission shows the gaps remaining in the Philippines’ ability to fight cybercrime syndicates in the 21st century.
Contrast this to their Malaysian counterparts who could freeze cryptocurrency worth 3.5M MR (44M PHP) during a much smaller raid of a Chinese cyber-scam gang, around the same time as the Bamban raid in May. In a record-breaking money laundering case last year, Singaporean police initially found and froze 38M SGD (1.6B PHP) in cryptocurrencies from the over 3B SGD (130B PHP) of assets linked to Chinese gambling and cyber-scamming activities. Two of the ten now-convicted money launderers, Baoying Lin and Ruijin Zhang, are co-incorporators of Baofu Land Development Corporation, which had developed the Bamban POGO, Alice Guo, and two others.
According to the UN Office of Drugs and Crime (UNODC) and the United States Institute of Peace (USIP), Chinese syndicates in Southeast Asia are earning tens of billions of USD annually from cyber-scamming, rivaling small countries’ GDP. One pernicious form of romance/investment scam perfected by Chinese cyber-scammers called the “pig butchering scam,” has been estimated by one study to have netted 75 billion USD (4.4 trillion PHP) worldwide, counting only cryptocurrency.
In part of that study, a couple of cryptocurrency scammers were geolocated to near Angeles, Pampanga.
While POGO owners may not directly handle cryptocurrency, it is almost inconceivable that the raided compounds have no cryptocurrency assets. The PAOCC should give a good second look at the materials they were able to sweep for all evidence of cryptocurrency, e.g., QR codes, written recovery seed phrases, and crypto hard wallets (which may appear as thumb drives). Authorities might be sitting on the biggest trove yet of loot and evidence.
WHAT CAN WE LEARN
Investigations of the Bamban and Porac POGOs will only be thorough if their cryptocurrency dimension is addressed. Actionable insights could be gleaned from tracing any cryptocurrency addresses (accounts) found in the raided POGOs, aside from more undiscovered money. Do their cryptocurrencies touch any cryptocurrency exchanges in the Philippines? Recently, a Cambodian conglomerate was exposed as a major conduit for Chinese criminals and North Korean hackers cashing out illicit cryptocurrency from all over the world, laundering at least 11B USD (640B PHP). Does the Philippines have similar vulnerabilities that would allow the laundering of cryptocurrencies into cash at that scale? It will be important for regulated exchanges to be alert to POGO-tainted cryptocurrency and scrutinize account holders that receive such funds.
Finding out how criminals may be using cryptocurrency in the Philippines may aid in the legislation and regulation of the nascent Philippine cryptocurrency industry. The most common cryptocurrency usage now is for cross-border money transfers; hence, money laundering risks through cryptocurrency will only grow. As of June 2024, the Philippines is still on the ‘grey list’ of the Financial Action Task Force, an international anti-money laundering coordinating body, citing the remaining risks with casino junkets, a.k.a. POGOs. Getting out of FATF’s grey list will greatly ease overseas remittances to the Philippines, a consistent lifeblood for its economy, and deepen its integration with the international banking system.
Are there any ‘TRON’ cryptocurrency addresses among the seized digital media? TRON is, by far, the preferred blockchain network among Chinese gambling, scamming, and alternative money circles. TRON, along with USDT, has been heavily identified with Chinese cyber-scamming, gambling, and drug trafficking by the UNODC. It will be incumbent among Philippine-licensed cryptocurrency exchanges to subject suspicious cryptocurrency deposits to heightened monitoring, i.e., Know-Your-Transaction. Note that TRON is barely used in the Filipino cryptocurrency scene. To my knowledge, only one SEC-registered cryptocurrency exchange in the Philippines processes TRON cryptocurrency.
Another reason to examine the cryptocurrency activities of POGOs is to combat tax evasion. How much POGO business takes place on a cryptocurrency blockchain? This will be important for accurate tax reporting of POGOs as they wind down. The BIR can follow in the footsteps of other countries that are currently studying how local tax rules may apply to crypto assets.
WHAT MUST BE DONE
Reportedly, Filipinos are the 6th biggest adopters of cryptocurrency per capita globally. However, Filipino police still need to develop SOPs to recognize, capture, and process cryptocurrency evidence. Showing that Filipino authorities can handle cryptocurrency will signal to Filipino and foreign users that there is a cop on the crypto beat here, and, along with well-thought cryptocurrency regulations, can inspire development in the local fintech sector.
Filipino law enforcement’s approach to cyber- and crypto-native crimes should keep up with evolving technology, especially since Southeast Asia is, unfortunately, home to a burgeoning cyber-scams industry targeting rich and poor countries worldwide. Cryptocurrency frauds committed on Philippine soil should be prosecutable by themselves, even if all their victims are people overseas. Successfully prosecuting them on the Philippines’ own accord, under its laws, should bolster the international image of the Philippines and show that it has functional law enforcement and judiciary systems, something the Marcos administration is eager to prove to the International Criminal Court.
The Philippines must upgrade the technical skills and capabilities of its national police with respect to digital assets, as well as review its regulations on cryptocurrency. Having many POGOs, the Philippines cannot remain a country that cannot supervise, freeze, and seize crypto assets, lest it continue to attract and serve as a base for foreign cybercrime syndicates. This is not the kind of foreign direct investment President Marcos may want.
Bio about the author:
Initially, a biomedical scientist, Jan Santiago, has been researching and blogging about the Chinese cyber-scams cottage industry and cryptocurrency regulations since 2021. While in the US, he co-founded a non-profit, PICDO.org, which advocates for scam and human trafficking victims of cyber-scam syndicates. He has consulted on these topics for the United States Institute of Peace (USIP) and the Global Initiative against Transnational Organized Crime (GITOC). He is a senior research consultant for Norwegian blockchain forensics firm Chainbrium.com and is on the advisory board of a startup currently in stealth mode.
He can be reached at [email protected].
