China Busts $2.2 Billion Underground Crypto Network

• China Cracks Down on Underground Crypto Operation
• Unearthing a Billion-Dollar Underground Scheme
• The Scheme's modus operandi
• The Cryptocurrency Ban in China
• Contrasting Views on Cryptocurrency

China Cracks Down on Underground Crypto Operation

In a leading news story out of China, a sophisticated underground banking operation was reportedly dismantled by Chinese authorities. This operation was alleged to have been using cryptocurrency to enable its clients to evade the country's strict capital controls.

Unearthing a Billion-Dollar Underground Scheme

On December 24, foreign exchange regulators in Qingdao disclosed the details of an underground banking scheme as per reports in the Chinese state media. The operation enabled transactions exceeding $2.2 billion across 17 provinces, effectively allowing clients to evade China's stringent limitations on foreign currency exchange.

The operation was leveraging cryptocurrencies via foreign trading platforms to bypass these regulations. As per Chinese law, individuals are only allowed to exchange up to $50,000 worth of foreign currency each year, barring any special permits.

The Scheme's modus operandi

Xu Xiao, an inspector with the Qingdao branch of the State Administration of Foreign Exchange, detailed the unauthorized scheme's operations. The process involved initially buying cryptocurrencies and then selling them via overseas trading platforms, subsequently acquiring foreign fiat currencies such as US dollars.

Investigators reportedly seized approximately $28,000 worth of cryptocurrencies, including Tether$1.000 -0.12%, Litecoin$75.0 0.15% among others, at the site of operation. However, the operation is estimated to have processed over 15.8 billion yuan ($2.2 billion) through thousands of bank accounts.

The Cryptocurrency Ban in China

Since 2021, all cryptocurrency trading and mining activities have been outlawed in China. The authorities cited the use of cryptocurrencies in facilitating illicit activities, such as money laundering, as justification for the ban.

Yet, some believe that the country's rigid capital controls are the actual driving force behind the prohibition of cryptocurrencies. The Chinese government introduced strict foreign exchange regulations in 2016, requiring banks, companies, and individuals to adhere to a 'closed' capital account policy that severely restricts the flow of money into and out of the country.

Contrasting Views on Cryptocurrency

While proponents of cryptocurrency argue that the technology fosters financial freedom, China perceives it as a threat to its ability to tightly regulate cross-border fund flows. This conflict underscores the ongoing tension between anti-money laundering regulations and the need for strict control over the movement of money.

Edited by Jonathan Stoker