May 29, 2024
Illegal Forex Scheme Exposed: Crypto Trading Platforms in $2.2B Chinese Scandal
Policy & Regulation

Illegal Forex Scheme Exposed: Crypto Trading Platforms in $2.2B Chinese Scandal

In a major move against financial malfeasance, Chinese authorities have reportedly dismantled a $2.2 billion underground banking operation that exploited foreign “virtual currency trading platforms” to help clients evade the country’s capital controls. The crackdown, announced on December 24, uncovered a sophisticated network employing cryptocurrencies to facilitate illegal foreign exchange transactions.

Xu Xiao, an inspector from the Qingdao Branch of the State Administration of Foreign Exchange, explained, “Underground banks purchase virtual currencies and then sell the virtual currencies through overseas trading platforms to obtain the foreign currency they need. This process completes the conversion of yuan and foreign currencies, which constitutes the illegal act of buying and selling foreign exchange.”

During on-site investigations, authorities seized cryptocurrencies valued at $28,000 (200,000 Chinese yuan), including Tether, Litecoin, and others. The operation allegedly moved over $2.2 billion across a thousand bank accounts spanning 17 provinces and municipalities.

China’s strict laws restrict nationals from exchanging more than $50,000 worth of foreign currencies annually without a permit. Violating these restrictions is deemed money laundering by the state. Some observers speculate that such capital controls might be a driving force behind China’s anti-crypto stance.

While the Chinese government has cited concerns about crypto being used for money laundering, others point to the stringent capital controls implemented in 2016. This policy restricts the movement of money in and out of the country to prevent capital flight, necessitating compliance with state-controlled rules.

In response to these measures, China outlawed domestic crypto exchanges in 2017. The regulatory environment intensified in 2021 with a comprehensive ban on cryptocurrencies that persists to this day.

The recent crackdown sheds light on the intricate ways in which underground operations leverage cryptocurrencies to navigate these stringent financial regulations. This revelation adds fuel to the ongoing debate about the motivations behind China’s crypto restrictions.

In a related development earlier this year, there were allegations that Binance employees and volunteers assisted Chinese customers in circumventing the exchange’s Know Your Customer (KYC) procedures. Furthermore, a report on December 23 by the South China Morning Post revealed that users in China accessed Binance by falsely listing their location as Taiwan.

As the investigation unfolds, the crackdown on the $2.2 billion underground banking operation underscores the challenges authorities face in curbing illicit financial activities leveraging the decentralized and global nature of cryptocurrencies.


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