China formalizes crypto crackdown, police seize $1.7 billion in Tether laundering case

China is ramping up its efforts to combat cryptocurrency-related crime, with institutions and prosecutors outlining new frameworks for prosecution and asset disposal as police continue to break up large money laundering rings.

Prosecutors seek new rules for crypto money laundering cases

An opinion article published in the Procuratorate Daily, the official newspaper of the Supreme People’s Procuratorate, presents a detailed approach to tackling crypto-related money laundering in China. Authored by two district prosecutors from Hunan province and a university law professor, the article suggests that prosecutors often rely on broad “concealment” charges, as China’s existing money-laundering laws cover only seven predicate crimes, leaving crypto cases in a legal grey area.

The authors recommend adopting a “double investigation of one case” approach. This would involve screening every underlying crime for possible crypto-related laundering and mapping the flow of any digital assets involved. This proposal builds on a 2024 judicial interpretation from China’s Supreme People’s Court, which treats virtual-asset transactions used for moving criminal proceeds as a form of laundering.

To strengthen the evidentiary process, the article introduces the idea of using “blockchain data self-verification.” Under this principle, on-chain records that match public block explorer data would be regarded as legitimate unless proven otherwise. Reports from blockchain analytics companies, including fund tracing and address clustering, would serve as expert evidence. The article also supports the idea that circumstantial and fragmentary evidence can be acceptable if it presents a coherent narrative, even when not every coin is traced to its origin.

They propose that blockchain data, when verified using on-chain hash values and public explorers, should be assumed genuine unless disputed, while reports from blockchain analytics firms could serve as expert evidence in court.

Mini dictionary: Supreme People’s Procuratorate — This is China’s highest national agency responsible for legal prosecution and investigation of criminal offenses.

The article further addresses the challenge authorities face after seizing crypto assets. With China’s ban on trading, there is no legal method to convert seized tokens to fiat currency, leaving large sums effectively stranded.

Authorities push for official platform to manage seized cryptocurrencies

To resolve the dilemma of disposing of seized digital assets, the article calls for the creation of a national platform dedicated to the custody and sale of confiscated cryptocurrencies through officially recognized channels, such as directed auctions. This system would rely on an expert committee to value assets accurately using both on-chain data and global exchange prices, and would potentially support cross-border cooperation to trace and recover assets moved abroad.

Currently, local government agencies have circumvented domestic trading bans by discreetly liquidating seized cryptocurrencies through external partners operating in overseas markets, a process previously documented by international agencies.

In 2024 alone, China’s prosecution authorities charged over 3,000 individuals with crypto-related money laundering activities, highlighting the scale of the issue and the urgency for legal reform.

China intensifies crackdown on yuan stablecoins and RWA tokenization

In a separate move, China’s central bank and nine regulatory agencies issued a joint directive reaffirming the country’s tough stance against crypto activity. The notice, published on Friday, prohibits the creation of any yuan-linked stablecoin without regulatory approval and classifies most projects involving the tokenization of real-world assets as illegal. The statement warns that virtual currencies, stablecoins, and tokenized assets present systemic dangers to financial stability, repeating that cryptocurrencies have no status as legal tender and that trading, issuance, and brokerage activities tied to them are prohibited.

The new notice from China’s central bank, together with other regulators, explicitly bans the issuance of unapproved yuan-backed stablecoins and categorizes most real-world asset tokenization as unlawful.

Chinese police arrest group in $1.7 billion Tether laundering case

Chinese law enforcement in Tonglio, a city in Inner Mongolia, announced the arrest of 63 suspects linked to a major Tether-based money laundering network. Authorities began their investigation when they detected unexplained deposits exceeding 10 million yuan at a local bank, prompting anti-money laundering procedures. Subsequent raids resulted in the seizure of 130 million yuan in cash and payment cards potentially connected to the laundering operations.

According to the official statement, the criminal group laundered around $1.7 billion in cryptocurrency, mostly using the Tether (USDT) stablecoin. Tether is a widely used US dollar-pegged digital asset, often used for cross-border transactions but also attracting scrutiny because of its utility in illicit activities.

Mini dictionary: Tether (USDT) — A leading stablecoin designed to maintain a 1-to-1 value with the US dollar, facilitating easy exchange and transfer of value across digital platforms.

Despite banning cryptocurrency trading and mining in 2021, China remains a global hotspot for crypto-based money laundering. Chainalysis, a blockchain analytics firm, estimates that Chinese-language laundering networks processed $16 billion worth of cryptocurrency in 2025 and now account for about 20% of global crypto money laundering. The company’s analysis links the continued prominence of such networks to China’s strict capital controls, as wealthy individuals looking to move assets offshore indirectly fuel laundering operations that also serve international crime syndicates.