A government-owned and controlled corporation, Ceza oversees the development of the Cagayan Special Economic Zone and Freeport, with the aim to turn the area into the country’s cryptocurrency hub.
While in the process of building what it calls the “Crypto Valley of Asia”, Ceza has been attracting many companies to set up offshore crypto exchanges in the zone.
The special economic zone in the Philippines known for its crypto friendliness is undergoing some changes. Government-owned Cagayan Economic Zone Authority (Ceza) is investigating a case involving one of its licensed crypto exchanges after a tip from the Chinese government.
The authority has also issued new directives to all of its licensees, including 40 crypto exchange operators.
Better Due Diligence, License Suspensions
Local news agency ABS-CBN reported Tuesday that 40 firms have been licensed by Ceza to operate crypto exchanges, but only three are fully operational as of September. They are Golden Millennial Quickpay Inc. Ltd., Liannet Technology Ltd., and Asia Premier International Ltd.
The operations of all three aforementioned licensees are temporarily suspended as Ceza improves its due diligence. The move follows a scam uncovered last week, which allegedly involved one of its licensees. Ceza spokesperson Mike David reiterated to the news outlet that their operations are suspended for “due diligence.”
In Tuesday’s press release, Ceza explained that the three companies have been “authorized to temporarily operate within a short incubation period in Metro Manila … Pending the completion of the facilities in Sta. Ana, Cagayan, where development works have already started this year.” Nonetheless, Administrator and CEO Raul Lambino clarified that they are still required to run all trading transactions through LR Data, a cyberpark in Cagayan, according to the Inquirer publication.
Scam Uncovered, Tip From Chinese Government
Golden Millennial Quickpay’s license was suspended on Sept. 12 for its alleged involvement in illegal crypto operations conducted by its authorized service provider Grapefruit Service Inc., Ceza detailed on Tuesday. The suspension extends to all of the company’s related licensees, including Grapefruit, pending a full investigation by Ceza and all appropriate law and regulatory enforcement agencies.
Grapefruit’s office in Pasig City, Metro Manila, was raided on Sept. 11 by a number of Philippine authorities, ABS-CBN reported. The raid was carried out by agents of the Bureau of Immigration’s fugitive search unit, the Presidential Anti-Corruption Commission, and the Philippine National Police’s integrity monitoring and enforcement group. They were accompanied by representatives of the Chinese Ministry of Public Security.
Grapefruit’s 277 employees were arrested “on suspicion of using cryptocurrency operations to dupe unsuspecting would-be investors back in China”, the news outlet noted, adding that all are Chinese nationals. Agence France-Presse reported that the firm’s operations have cost victims in China approximately 100 million yuan (~$14 million).
Lambino reportedly told radio DZMM that the firm failed to register with Ceza two floors of its three-storey office and some 100 employees, four of whom are wanted by Chinese authorities for previous charges. Documents obtained by the Inquirer show that all 277 employees had Ceza visas which carry certain restrictions. In addition, the firm’s filing with the country’s Securities and Exchange Commission expressly prohibits it “from undertaking activities as a securities broker or dealer, or as an investment adviser or investment company”, the news outlet described, noting that it is also “barred from operating on fiat money or virtual currency exchange.”
Jaime Hermo Morente, Commissioner of the Philippine Bureau of Immigration, said the raid was prompted by a tip from the Chinese Embassy. The arrested employees will be deported since the Chinese government has canceled their passports, making them illegal workers in the Philippines, he added.
David confirmed that Golden Millennial Quickpay faces a 90-day suspension and may lose its license if found guilty of wrongdoing, ABS-CBN conveyed. Meanwhile, Ceza maintains that it is certain no Filipino citizen has been defrauded by this scheme.
New Directives for All Licensees
Ceza offers two types of “Offshore Virtual Currency Exchange” licenses: the principal license and the regular license. The former allows licensees to conduct offshore fintech and crypto exchange activities, while the latter restricts them to only crypto exchange activities. According to the Philippine Daily Inquirer, there are 25 principal licensees, which include the three suspended companies.
The authority clarified Tuesday that “Offshore virtual currency exchanges are those which are registered in a jurisdiction other than the Philippines that do not transact with any Filipino citizen or any person located in the Philippines”, elaborating:
Ceza does not allow its licensees to conduct business activities or offshore virtual currency exchanges in any foreign country like China that prohibits such business activity.
In the first week of September, Ceza “issued directives to all of its licensees for complete reports of legal, regulatory, and ethical compliance practices and standards — specifically to those operating offshore virtual currency exchanges”, its press release states. These reports are under review and will form the basis for any internal investigation. Ceza emphasized that any violations will be subject to all applicable sanctions under its rules and Philippine laws. “If need be, adjustment of regulatory standards and protocols will be made to better enable that enforcement and application of the rules of law and fair commerce.”
Companies wanting to do business with Filipinos or deal in the Philippine peso need to register with the country’s central bank, Bangko Sentral ng Pilipinas (BSP), which has registered 13 crypto exchanges so far.