Vietnam has a cryptocurrency dilemma

Vietnam has yet to issue a comprehensive framework to regulate cryptocurrencies like Bitcoin, a legal ambiguity that threatens to curb the use and trade of virtual money in an economy that aspires to more technology-driven growth.

The country is at the forefront of Asia’s rising dilemma over how to regulate fast-spreading, and sometimes fraudulent, cryptocurrency exchanges without suppressing new business opportunities for tech-savvy traders and entrepreneurs.

That dilemma was underscored in September when tax authorities lost a lawsuit against a local citizen who had amassed an untaxed fortune from trading Bitcoin. Because Bitcoin is not considered an asset under Vietnamese law, the court ruled authorities had no legal authority to tax him.

The precedent-setting case pointed to the urgent need for a comprehensive legal framework as tax authorities, courts and law enforcement currently all follow different and largely muddled procedures in dealing with cryptocurrencies.

The unregulated spread of cryptocurrency raises several potentially serious issues, ranging from money laundering to drug trafficking to monetary insecurity to other criminal threats.

Several fraudulent initial coin offerings (ICOs) have been uncovered by Vietnam’s Ministry of Public Security and law enforcement officials. Bogus ICO rings in the provinces of Dong Nai and Bac Giang have reportedly already swindled billions of Vietnamese dong from investors.

Vietnamese authorities, like others in the region, are grappling for answers. Prime Minister Nguyen Xuan Phuc ordered the government to begin formulating a legal framework on cryptocurrency in August last year.

For now, the regulatory foundation is represented by a State Bank of Vietnam (SBV) decree on cryptocurrency issued on October 30, which effectively determined that Bitcoin and other virtual currencies are not legal means of payment.

That effectively also outlawed the issuance, supply and use of cryptocurrencies. Those found in violation of the decree and other relevant legal principles face fines of up to 200 million dong (around US$9,000).

The SBV’s decree was viewed as a reversal of policy, as state media had previously reported that the government aimed to recognize Bitcoin as a legitimate currency in the near future. That earlier permissiveness is now moving towards more restriction.

Nguyen Hong Hai, deputy director of the Ministry of Justice’s Department of Civil Economic Law, recently warned against electronic currency investments and endorsed SBV’s legal framework, according to state media reports on January 24.

On January 30, the Vietnamese State Securities Commission (SSC) requested security trading firms not to provide cryptocurrency services including consultancy, brokerage, issuance and transactions.

Many start-ups and other firms that have leveraged cryptocurrency into their businesses now operate in legal limbo.

Those include FPT University, which began accepting Bitcoin payments for foreign students’ tuition payments, Vietnam-based third-party cryptocurrency exchange Remitano and several other cryptocurrency-dependent businesses. State media has reported that ICOs that cause losses to investors will also be listed as illegal.

Over 7,000 Bitcoin mining rigs – computer chips that work to solve the ever-evolving algorithm that creates virtual coins – are known to have cleared Vietnamese customs in 2017.

Over 5,000 entered the country after a Ho Chi Minh City Customs Department announcement in November that said the rigs are “not part of the management functions and tasks of the State Bank” and therefore allowed because they do not constitute a form of payment. Speculation is rife that cryptocurrency mining rigs will also soon be banned.

It’s unclear if Vietnam is taking legal cues from any of its regional peers. So far, though, the country seems to be tracking trends in China and South Korea, both of which have implemented strict regulations on cryptocurrencies.

China and South Korea have issued blanket bans on ICOs, with active crackdowns now in motion. They have also clamped down on digital currency exchanges and the anonymity that enables market abuse.

Korean Bitcoin traders are now compelled to reveal themselves to authorities or face criminal prosecution. South Korea’s customs service said this week it had uncovered cryptocurrency crimes, including illegal foreign exchange trading, worth 637.5 billion won (US$594.35 million).

While speculation is rife that China is anti-cryptocurrency, a more apt reading is that Beijing is keen to develop its own virtual coins which are controlled and regulated by its central bank. Chinese cryptocurrency prototypes already exist.

Others with developed finance sectors, including Hong Kong, Singapore and Japan, have been more open and welcoming with the fast development of regulatory regimes that facilitate buying and selling of virtual money.

In Hong Kong, the Securities and Futures Commission (SFC) considers certain forms of cryptocurrency as securities to be regulated and subject to various disclosure, licensing and other laws.

In Singapore, any coins that function similarly to shares or units in a collective investment scheme or debentures will be regulated as a security and subject to disclosures and other laws. The Philippines announced this week it would have a framework in place for cryptocurrencies by year’s end.

Japan, meanwhile, has begung to issue licenses for digital currency exchanges to operate legally and dealing firmly with crime. A Tokyo-based cryptocurrency exchange, Coincheck Inc, said on January 28 that it would return about 46.3 billion yen (US$425 million) of virtual money it lost to hackers in one of the world’s biggest-ever thefts of virtual money.

The situation in Indonesia may be most similar to Vietnam. The Bank Indonesia (BI), the country’s central bank, stated that Bitcoin is not recognized as an official method of payment by the central bank, with the added vague threat that cryptocurrency adopters “who use it will be dealt with.”