China cracks down on “crypto-fueled” underground bank

abdelaziz Fathi

Chinese authorities have cracked down on an underground bank that used cryptocurrency to conduct currency exchange operations between the Chinese yuan and the South Korean won, involving at least 2.14 billion yuan ($295.8 million).

In a state media report released on Sunday, local police in Northeast China’s Jilin province announced the arrest of six suspects who allegedly facilitated these operations in both China and South Korea. The suspects are accused of exploiting the anonymity and decentralization features of cryptocurrency to carry out illegal foreign currency exchanges.

The investigation revealed that the criminal group used domestic accounts to receive and transfer funds, conducting over-the-counter cryptocurrency transactions to service various companies. These included South Korean purchasing agents, cross-border e-commerce platforms, and import-export trade firms, enabling them to bypass China’s stringent capital control policies.

China has consistently tightened its capital control policies over the years, prompting some to turn to cryptocurrency to circumvent these regulations.

Earlier this year, the Supreme People’s Procuratorate and the State Administration of Foreign Exchange instructed prosecutors and forex regulators to strengthen their supervision of foreign exchange activities. The statement specifically highlighted cases where the Tether stablecoin was used as an intermediary to trade yuan with other currencies.

Crypto addresses linked to a group of suspected chemical traders based in China have received over $37.8 million worth of assets since 2018 in exchange for shipping a key ingredient of fentanyl, according to a report by research firm Chainalysis last year. These shipments are often sent to Central America and Mexico, where drug cartels use them to manufacture the drug, which is then transported to the U.S.

In October, the U.S. Office of Foreign Assets Control sanctioned a network of individuals and companies in China for their involvement in the manufacturing and distribution of ingredients used in fentanyl and other drugs. The Treasury Department noted that some of these individuals used cryptocurrency wallets to send and receive funds.

 

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