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Chinese Raids on Forex Gangs Indicate Crypto Ban Being Violated
(Bloomberg) — Police raids in China to stem billions of dollars in illicit currency transactions have highlighted the continued use of cryptocurrencies there despite Beijing’s ban on digital asset trading.
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Alleged cases involving cryptocurrencies reported in May alone include an underground bank linked to 13.8 billion yuan ($1.9 billion) in illegal transfers, a gang involved in around 2 billion yuan in unauthorized conversions and illegal money changers who, in some cases, made transactions worth more than a billion yuan. .
The claimed arrests – covering Beijing, the northeastern province of Jilin and the southwestern city of Chengdu – were reported by municipal authorities and state media. They add signs that Chinese demand still plays a major role in digital asset markets, more than two years after Beijing banned crypto trading.
The ban reflects concerns about money laundering, currency outflows and environmental damage linked to energy-intensive Bitcoin mining. But Chinese citizens are still believed to covet digital assets, whether as alternative investments amid falling property prices or as a way to get around overseas transfer limits.
“Porous” edges
“A significant amount of crypto activity remains in China,” said Chengyi Ong, head of APAC policy at Chainalysis Inc. “This may be partly due to the ban being porous or poorly enforced, but is also attributable to to the decentralized and often peer-to-peer system – homologous nature of cryptographic activity.
It is difficult to determine where digital asset traders are based because software can hide locations. Chainalysis examines blockchains and estimates that around $86 billion worth of crypto flowed into China in the 12 months through June 2023 – a significant decline from pre-ban levels, but still substantial at worldwide.
A report on the case involving 13.8 billion yuan in transfers was made public by the Chengdu City Public Security Bureau via WeChat, the social media platform. There have been 193 arrests for activities dating back to early 2021, according to the post, which adds that the stablecoin Tether has been used to help illegally send funds abroad.
The gang accused of 2 billion yuan in illicit transfers acquired digital tokens in over-the-counter exchanges to help convert Chinese yuan into South Korean won, according to a WeChat message from the Public Security Bureau of Panshi City, Jilin Province.
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Underground gangs
In the example of illegal money changers whose transactions exceed a billion yuan, Beijing police claimed to have dismantled 11 underground gangs across the country, some using virtual currencies to hide their activities. This is based on a Xinhua report broadcast by state broadcaster CCTV.
Last year, there were numerous glimpses of crypto trading activity in China, for example from the profile of creditors of the collapsed FTX exchange, citizens who reported using crypto platforms and industry insiders’ descriptions of workarounds to Beijing’s restrictions.
Trading in digital assets is authorized in Hong Kong, which moved towards the creation of a crypto hub at the end of 2022. But few, if any, commentators see Beijing easing official restrictions on the continent. The regulations also prevent Chinese citizens from easily accessing crypto investments in Hong Kong.
“What we have seen over the years is that bans are generally not effective in eradicating crypto activity, but can conversely create informal gray markets that are harder to track and protect against. illicit,” Ong said.
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