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Taiwan intends to tighten its digital asset regulations with a proposed bill seeking to criminalize digital currency crimes and impose harsher fines and prison sentences.

The new bill targets VASPs serving Taiwanese investors and requires more stringent regulations to stamp out fraud and money laundering. Proposed by the Ministry of Justice, it heads to the Legislative Yuan in the coming weeks with the support of the Taiwanese government.

Financial regulators in the East Asian nation have been hands-off with the industry and have given VASPs a high degree of autonomy. In March, the Ministry of Interior approved an application for VASPs to form an industry association that will play a key role in formulating a regulatory framework.

Taiwanese VASPs have only had to adhere to an AML regime introduced by the Financial Supervisory Commission in 2021 and pay their taxes.

This could change with the new bill. While it reiterates the need to observe strict AML and financial crime prevention measures, it extends to new areas such as cybersecurity.

Critically, the proposed bill would change digital currency offenses from civil to criminal violations. Previously, VASPs faced civil charges that they settled financially. At most, they faced a shutdown of their companies.

Under the new bill, authorities could charge offenders with criminal offenses, which attract higher penalties and prison sentences.

Operators of unlicensed VASPs or who fail to meet the country’s standards risk imprisonment for up to two years and fines not exceeding $1.5 million. Traders who use third-party accounts to launder money could be jailed for up to five years.

The bill also requires offshore VASPs to establish local firms to serve Taiwanese investors.

In the past year, Taiwanese authorities have dealt with increasing digital asset crimes. Earlier this year, they arrested the operators of ACE Exchange, a local platform whose executives allegedly used to push worthless tokens and make millions of dollars. Last December, they arrested a suspect accused of laundering $320 million through digital assets.

Watch: It’s time for regulation to enable blockchain growth

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