Law enforcement became aware of the scheme when bank accounts under the suspects’ names showed “large [daily] transactions” involving a “large number of customers”. The activity had the characteristics of an illegal underground bank, according to police.
Police said the criminal group used mainland China bank accounts to receive funds, which were then used to buy cryptocurrency at over-the-counter exchanges. The crypto could then be used to facilitate foreign money exchange for cross-border business, such as
e-commerce firms and other import and export businesses.
Mainland China maintains a strict ban on commercial cryptocurrency activity, as Beijing has long regarded it as a threat to financial stability. The central government also has strict foreign exchange controls over capital flight concerns.
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Is cryptocurrency too risky for China?
Is cryptocurrency too risky for China?
Many companies in the industry have since moved much of their remaining operations out of mainland China. Exchanges also ostensibly stopped serving mainland users, although some like
Binance have maintained easy workarounds that are widely shared online.
With the crypto trade among private individuals remaining a legal grey area, mainland China
saw US$86.4 billion worth of cryptocurrency transactions from July 2022 to June 2023 – most of which took place through over-the-counter channels or grey market, peer-to-peer services, according to blockchain analytics firm Chainalysis.
In recent years, Beijing has increased its efforts in combating cryptocurrency-related money laundering. Last December,
China’s prosecutors and forex regulators released a statement pledging to crack down on the use of cryptocurrencies for illegal foreign exchange trading, with a particular focus on cases involving Tether.
In 2022, police in the northern Inner Mongolia autonomous region
arrested 63 individuals in connection with the laundering of 12 billion yuan through the use of cryptocurrency.
However, the overall volume of money in crypto-related money laundering cases has recently decreased. Illicit addresses sent US$22.2 billion worth of cryptocurrency in 2023, a 29 per cent decline from the US$31.5 billion sent in 2022, according to Chainalysis. “Both legitimate and illicit” trading activity saw an “overall decrease” in that period, the firm said.