Cryptocurrency 'exchanges' implicated in $2.2 billion illicit Chinese forex network

Chinese officials recently uncovered a massive $2.2 billion illicit banking scheme that utilized international "cryptocurrency trading platforms" to help clients evade the nation's capital restrictions. On Dec. 24, Chinese social media outlets reported the detection of an illegal bank that engaged in crypto transactions to sidestep forex limitations.

Xu Xiao, an inspector from the Qingdao Branch of the State Administration of Foreign Exchange, shed light on the operation. He explained how these "underground banks" buy cryptocurrencies and then sell them on foreign trading platforms to secure the needed foreign currency. This activity, which involves converting yuan into foreign currencies, is considered an unauthorized foreign exchange trade.

During the investigation, authorities confiscated cryptocurrencies valued at approximately $28,000 (200,000 Chinese yuan), including Tether and Litecoin, among others. However, the entire network had moved over $2.2 billion (15.8 billion Chinese yuan) across a thousand bank accounts in 17 provinces and municipalities.

Under Chinese law, residents are restricted from converting more than $50,000 worth of foreign currency annually without a special permit, with any attempt to bypass these controls being deemed as money laundering. Some analysts suggest these capital controls are the primary motivation behind China's stringent anti-cryptocurrency stance, although the government attributes the ban to the use of crypto in criminal activities.

In 2016, China introduced severe foreign exchange regulations mandating all banks, companies, and individuals adhere to a "closed" capital account policy, restricting free movement of money into or out of the country. By 2017, the country had banned crypto exchanges, and in 2021, it enforced a comprehensive prohibition on all cryptocurrency activities.

Recent reports in March indicated that Binance employees and volunteers might have assisted Chinese customers in bypassing the platform's KYC procedures. Further, on Dec. 23, it was reported that some users in China accessed Binance by falsely claiming their location as Taiwan.