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Chinese raids against Forex gangs indicate that the cryptocurrency ban has been violated
(Bloomberg) — Police raids in China to stem billions of dollars in illicit foreign currency transactions have highlighted the continued use of cryptocurrencies in the country despite Beijing’s ban on digital asset trading.
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Alleged cryptocurrency cases reported in May alone include an underground bank linked to 13.8 billion yuan ($1.9 billion) in illegal transfers, a gang implicated in around 2 billion yuan in unauthorized conversions, and illegal money exchanges that in some cases they carried out transactions worth more than 1 billion yuan.
The alleged busts – spanning Beijing, the northeastern province of Jilin and the southwestern city of Chengdu – were reported by municipal authorities and state media. This adds to signs that Chinese demand still plays an important role in digital asset markets more than two years after Beijing banned crypto transactions.
The ban reflects concerns about money laundering, currency outflows and environmental damage resulting from energy-intensive Bitcoin mining. But Chinese citizens are still believed to crave digital assets, both as alternative investments amid falling property prices and as a way to get around overseas transfer limits.
“Porous” curbs.
“A significant amount of crypto activity remains in China,” said Chengyi Ong, head of APAC policy at Chainalysis Inc. “This may be partly because the ban is porous or loosely enforced, but it is also attributable to the decentralized system and often peer-to-peer nature of crypto activity.”
Understanding where digital asset traders are based is challenging as software can mask locations. Chainalysis takes a close look at blockchains and estimates that around $86 billion worth of cryptocurrencies flowed into China in the 12 months to June 2023 – significantly down from pre-ban levels but still substantial globally.
A report on the case involving 13.8 billion yuan in transfers was publicized by the Chengdu City Public Security Bureau via WeChat, the social media platform. There have been 193 arrests for activity dating back to the start of 2021, according to the post, which adds that the Tether stablecoin has been used to help illegally send funds abroad.
According to a WeChat post from the Public Security Bureau of Panshi City, Jilin Province, the gang accused of illicit transfers of 2 billion yuan acquired digital tokens in over-the-counter trading to help convert Chinese yuan into South Korean won.
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Underground gangs
In the example of illegal money changers with some transactions exceeding 1 billion yuan, Beijing police said they had busted 11 underground gangs across the country, some of which used virtual currencies to hide their activity. This is what emerges from a Xinhua report released by state broadcaster CCTV.
Over the past year, there have been many glimpses of China’s cryptocurrency trading activity, such as from the profiles of creditors of the collapsed FTX exchange, citizens who said they use crypto platforms, and descriptions from industry insiders of alternative solutions to Beijing’s restrictions.
Digital asset trading is permitted in Hong Kong, which moved towards establishing a crypto hub in late 2022. But few, if any, commentators see Beijing easing official constraints on the mainland. The regulations also prevent Chinese citizens from easily accessing cryptocurrency investments in Hong Kong.
“What we have seen over the years is that bans are generally not effective in eliminating crypto activity, but can instead create informal gray markets that are more difficult to monitor and protect against illicit activity,” Ong said.
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