In September, the government of Laos authorized six companies to mine and trade cryptocurrency. This last week they announced that as part of the country’s expansion into the cryptocurrency markets, they anticipate to include nearly 200 million USD in their 2022 national budget from Bitcoin mining. The theory is that, using the massive amounts of hydroelectric power that the country is capable of producing, they can connect the computing power necessary to mine cryptocurrency to those power sources and thus have a near limitless ability to mine cryptocurrency.
According to an article in the 3 November 2021 issue of The Vientiane Times, the government of Laos intends to use this 2,000 billion Kip boon to support officials, support the Covid-19 fight, and to repay debts of the government. It is unclear whether the government will itself get involved in the mining of Bitcoin or whether it anticipates that this additional revenue will come from taxes and other fees generated by the companies authorized to mine and trade cryptocurrency.
Looking at this development from Laos’ neighbor Vietnam, one has to ask a couple of linked questions. First, what are the rules and how will this mining of cryptocurrency be converted into fiat money or otherwise converted into currency capable of paying international loans? And second, will the government of Laos be able to prevent cryptocurrency miners from using their mined cryptocurrency to conduct activities that are illegal or dangerous?
The trial is proceeding without a legal framework in place. Six companies have been authorized to start mining cryptocurrency while half a dozen ministries scramble to try to come up with regulations to control the mining and trading of the currency. Whatever the rules end up looking like, it will be difficult for the government to convert 200 million USD worth of Bitcoin into fiat currency and bring that cash within its borders. If it is anticipating the revenue to come from taxes on companies authorized to mine cryptocurrency, they will face the additional problem of trying to control foreign exchange with a currency that they don’t recognize as official. Bitcoin and other cryptocurrencies are borderless and the companies mining them may be able to convert their Bitcoin to fiat currency in any jurisdiction that will have them. Monitoring and then taxing the Bitcoin will create a major problem for the Laos government. As an aside, it could create problems for Vietnam’s foreign exchange as well.
As I’ve stated before, multiple times, Vietnam has prohibited cryptocurrency. But that has not stopped Vietnam from rising to the top of the list of global adopters of the currency (see Vietnam Leads Cryptocurrency Adoption). As the largest holder of cryptocurrency in the world, and with China stamping down on its use, Vietnamese buyers are poised to buy into the cryptocurrency that will be coming out of Laos. Especially as there are so many informal networks connecting the two countries already and migrants in both countries to refer sellers and buyers. As Vietnam has not authorized the use of cryptocurrency, these Vietnamese purchasers have to buy USD or other foreign currencies to conduct their transactions, which depletes Vietnam’s dollar stocks. If Vietnam becomes a transit nation for Laos mined cryptocurrency then there are definitely possibilities for the flight of foreign currency.
In a September article by Sebastian Strangio on thediplomat.com, he stated that in Laos
Chinese organized crime syndicates have become deeply enmeshed with the various illicit trades – everything from gambling and smuggling to wildlife and narcotics trafficking – that flourish along the porous and loosely policed borderlands stretching across eastern Myanmar, southern China, and the northern reaches of Thailand and Laos.
Laos has is also becoming an increasingly important node in the networks of international drug trafficking syndicates that reap tens of billions of dollars per year from the sale of narcotics – mostly methamphetamine – produced in rebel- and militia-held regions of Myanmar’s Shan State, with which Laos shares a porous and loosely policed border.
Those borders exist with Vietnam as well. Just last week the police in Laos seized over seven tons of drugs from smugglers in the north of the country. While there is much to be said about the idea of sovereign nations, Vietnam and Laos share a border that is over two thousand kilometers long. There is a great deal of cooperation between the two governments. Vietnam, both officially and commercially, is a top donor to Laos behind China, Japan, and Thailand. The financial dealings between the two countries are deeply enmeshed, almost a billion dollars of two-way trade occurred in the first nine months of this year, and that’s considering the borders were largely closed due to Covid-19. As I mentioned, Vietnam and Laos share several informal networks and the high adoption rates of cryptocurrency in Vietnam could provide an outlet for illegal payments and unmonitored transactions.
Especially in light of China’s crackdown on cryptocurrency. Much of the Bitcoin will probably transit through Thailand, which allows cryptocurrency to a certain extent, but much of it will flow through the already questionable networks that extend through Vietnam. This could present a challenge to Vietnam in the global fight against terrorism and money laundering as Laos is already notorious for its lax legal regulations and by allowing a currency that is completely anonymous, they are only opening the door to additional violations of international standards. That Vietnam might be implicated through the natural outflows of cryptocurrency from Laos to Vietnamese citizens, is just one more reason why Vietnam needs to make a move to legislate cryptocurrency.
Up to this point, Vietnam’s primary concerns with cryptocurrency have been with financial fraud. They have stated multiple times that cryptocurrency schemes are used to defraud individuals of large amounts of money and that is the reason that they have prohibited their use in the country. But they are sitting on a situation that is ripe for much greater crimes. With such a large percentage of the population adopting cryptocurrency, including surely a few Bitcoin whales, there is a possibility that they could be funneling this money into terrorism or using the anonymity of cryptocurrency to launder money from illegal activities both in and out of Vietnam. If Vietnam is serious about its commitments under multiple treaties to prevent money laundering and the funding of terrorism, then they need to put in place mechanisms to monitor and regulate the purchase, use, mining, and trading of cryptocurrency.
While Vietnam has gone a long way towards its goals of becoming a middle-class economy, it is still close enough to its developing roots to be at a heightened risk for hosting corruption and criminals who are more than willing to take advantage of loopholes in the existing regulations and lax enforcement to move monies in such a way as to implicate Vietnam in deleterious ways. To avoid becoming a haven for crypto-crime, Vietnam needs to make a move to bring the owners of cryptocurrency within the ambit of the law and provide legal means for its use.