UNODC calls for criminalizing unlicensed VASP operators in Southeast Asia

Illustration: Cinemato

The United Nations Office on Drugs and Crime (UNODC) is calling for tougher measures against unlicensed financial operations in Southeast Asia. In its report titled Transnational Organized Crime and the Convergence of Cyber-Enabled Fraud, Underground Banking, and Technological Innovation: A Shifting Threat Landscape, the organization calls on regional governments to implement tough consequences for operating unlicensed money services providers for virtual asset services . VASPs).

This push comes as UNODC recognizes the increasing danger from unregulated VASPs, which often exploit criminal groups to conduct extensive fraudulent activities, cyber-attacks and other unlawful enterprises. The agency emphasizes the need for stricter supervision to combat these illicit financial operations, which are increasingly common in Southeast Asia.

In the report, the agency uncovered troubling links between some VASPs and criminal organizations, indicating that these VASPs have processed transactions amounting to enormous sums – possibly reaching hundreds of millions of dollars – for various illegal operations.

The criminal activities associated with these transactions cover a wide and disturbing range, from narcotics and human trafficking to online crimes and the distribution of child exploitation content.

The findings are particularly worrying as they reveal that some of these VASPs have already attracted the attention of US authorities. The Office of Foreign Assets Control (OFAC) has imposed sanctions on several of these entities.

Even more alarming, the investigation has revealed links between some of these providers and the infamous Lazarus Group, a cybercrime organization believed to be operating under North Korean state sponsorship.

While Southeast Asia has long been a hotspot for various online fraud operations, the UNODC report underlines how cryptocurrencies have become a preferred means of payment for scammers. The report points out that crypto’s appeal stems from its ability to enable rapid cross-border transactions, compounded by widespread misinformation and a general lack of understanding about how these digital assets work.

This is exacerbated by gaps in international law enforcement cooperation, making it difficult to track, investigate and recover stolen assets.

While not all scams in the region involve cryptocurrency, the report notes its growing popularity among fraudsters, especially for enabling seamless cross-border financial transfers. The region has seen an explosion in online fraud operations, often housed in nondescript office buildings or casino complexes, with operators and victims hailing from different countries.

The report also highlights the increasing sophistication of fraud operations in Southeast Asia. Criminals are diversifying their methods and going beyond traditional scams such as romance fraud or pig slaughterhouses, with scammers gaining the trust of their victims before tricking them into investing in fake platforms.

Now they are using techniques such as impersonation, job fraud, asset recovery scams and phishing operations that target specific individuals.

Furthermore, the use of advanced technologies, including artificial intelligence (AI) and deepfake videos, has become increasingly common. These technologies allow scammers to enhance their deception tactics, making it more difficult for victims and law enforcement agencies to identify fraudulent activity.

In response to the growing threat, UNODC calls for better government oversight and more robust legal frameworks to tackle the growing involvement of organized crime in VASPs, casinos and cyber fraud operations. The agency also recommends better training of law enforcement officials on the intricacies of online gambling, money laundering and the exploitation of cryptocurrency in financial crimes.

Last month, the US Treasury Department sanctioned a Cambodian senator for his alleged involvement in online scams. This incident highlights the depth of the evil industry in the Southeast Asian region.

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