HONG KONG: The Hong Kong government is considering regulating crowdfunding campaigns in a bid to prevent money being used for activities that endanger national security or other illegal purposes.
Typically using digital platforms, crowdfunding raises money from a large number of people who contribute relatively smaller amounts, with the promise of delivering products, services or equity to its funders.
Secretary for Financial Services and the Treasury Christopher Hui Ching-yu on Thursday said a public consultation was in the pipeline for later this year to examine whether such platforms needed to be registered and required to conduct due diligence ahead of campaigns.
"Should fundraisers be asked to be registered or obtain permission before raising funds, as well as providing clear, accurate and fair disclosure and reports to fund providers?" he said on his official blog.
"How to establish a reporting system to identify and report suspicious transactions to prevent the risks of various illegal acts such as endangering national security, money laundering and raising fund for terrorists?"
Hui explained that a regulatory system was needed to keep crowdfunded money from fuelling activities that "jeopardise national security", and cut off their pipeline into funds "set up by criminals that fled overseas".
Last year, the financial services chief was grilled by pro-establishment legislators about the 612 Humanitarian Relief Fund, which had offered more than HK$243 million (1.04 billion baht) to those facing criminal prosecution or financial strain in the wake of the 2019 anti-government protests.
Some accused Hui of not acting fast enough against the fundraisers. The fund had stopped collecting donations last year after national security police launched an investigation into its activities.
Hui cited four main types of crowdfunding: equity crowdfunding, which allows investors to put their money in projects or business for shares; peer-to-peer lending, which matches borrowers with lenders online who provide unsecured loans; those in the nature of payoff, when fundraisers offer products or services in exchange for funding; and lastly, charitable donations.
To a degree, crowdfunding is governed by existing laws in Hong Kong. But without regulations specifically designed to monitor the process, certain risks existed, he said. In addition to funding illegal acts, fundraisers and funders might be unable to recover their investments if platforms ceased operation due to insolvency. Funders' personal information may also be abused.
"The crowdfunding platform is not responsible for due diligence, and ongoing monitoring of the campaigns, and the funds raised may not ultimately be used for the purposes promised," he pointed out.
He said the government hopes a public consultation this year will define the scope of activities and funding thresholds, as well as establish a body responsible for regulation and enforcement, adding that they might study countries that already implement such laws.
In recent years crowdfunding often has been used by non-government organisations or individuals to bankroll their work or operations.
A civil servant from one such group had raised more than HK$4.6 million, ostensibly to help people arrested during the 2019 protests. But she allegedly spent the money on luxury handbags and investments, and last year was arrested on suspicion of money laundering.
In 2019, police froze about HK$70 million raised by fundraising platform Spark Alliance HK to support anti-government protesters and arrested four people on suspicion of money laundering.
Even so, Ivan Choy Chi-keung, a political scientist from Chinese University, believes there will not be a great reduction in crowdfunding activities even if such regulations are implemented, because the peak of crowdfunding had already passed.
"After the arrests [of people related to the 2019 government protests] in suspicion of money laundering, many groups worry that some money from crowdfunding comes from dubious sources, so they have already stopped crowdfunding," he said.
"The deterrent effect of national security law might have even a larger impact on these groups [than the regulations]."
He expected that other organisations or individuals would also become more careful when starting a crowdfunding campaign or use other methods to collect funds under the regulations.