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In China, where all cryptocurrency activities were banned in 2021, developments regarding cryptocurrencies continue to occur. Accordingly, Chinese officials announced that they have busted an underground banking operation worth $2.2 billion that allegedly used foreign cryptocurrency exchange platforms to help customers bypass the country’s capital controls.
$2.2 Billion Money Laundering Operation
According to news on Chinese social media on December 24th, reports were shared that China’s foreign exchange police discovered an underground bank using crypto to circumvent forex restrictions. Inspector Xu Xiao from the State Administration of Foreign Exchange’s Qingdao Branch stated:
“Underground banks are buying cryptocurrency assets and then selling these crypto assets through overseas exchange platforms to obtain the foreign currency they need. This process completes the conversion of yuan and foreign currencies, which constitutes an illegal foreign exchange transaction.”
Inspectors reported seizing $28,000 worth of cryptocurrency, including Tether and Litecoin, equivalent to 200,000 Chinese yuan. According to the report, the entire operation moved more than $2.2 billion, involving 1,000 bank accounts across 17 provinces and municipalities, with a total value of 15.8 billion Chinese yuan.
Chinese laws limit Chinese citizens to foreign currency exchanges of more than $50,000 per year without permission. Exceeding this limit is considered money laundering by the state. Some experts believe that these capital controls are the real reason behind China’s anti-crypto stance. However, the Chinese government has stated that the ban is due to the use of the crypto sector for laundering criminal proceeds.
China and Crypto Bans
In 2016, China enforced strict foreign exchange regulations that required banks, companies, and individuals to comply with its closed capital account policy. This meant that money could not freely enter or leave the country unless strict state-controlled rules were followed to prevent capital flight.
A year later, China banned crypto exchanges within the country and in 2021, China implemented a strict ban on crypto assets that continues today. In March, an investigation claimed that Binance employees and volunteers were helping Chinese customers circumvent the exchange’s Know Your Customer (KYC) procedures. On December 23rd, SCMP reported that users in China were mistakenly listing their locations as Taiwan to access Binance.
