Chinese authorities have recently cracked down on a substantial underground banking operation valued at $2.2 billion.
This illicit operation had been utilizing foreign “virtual currency trading platforms” to enable its clients to circumvent China’s stringent capital controls.
The revelation of this unlawful scheme emerged on December 24 through Chinese social media channels, shedding light on the actions of Chinese foreign exchange police.
According to Xu Xiao, an inspector from the Qingdao Branch of the State Administration of Foreign Exchange, the modus operandi of these underground banks involved the acquisition of virtual currencies, which were subsequently sold through overseas trading platforms to acquire the necessary foreign currency.
This process effectively facilitated the conversion between yuan and foreign currencies, constituting illegal foreign exchange trading.
During the on-site investigation, authorities seized cryptocurrencies with a total value of $28,000 (equivalent to 200,000 Chinese yuan). Among the confiscated assets were Tether and Litecoin.
Astonishingly, this covert operation had managed to funnel over $2.2 billion (approximately 15.8 billion Chinese yuan) through a network spanning a thousand bank accounts across 17 provinces and municipalities.
China’s legal framework imposes strict limits on the exchange of foreign currencies by Chinese nationals, capping it at $50,000 annually unless a permit is obtained.
Attempting to evade these restrictions is classified as money laundering under the purview of the state.
Some observers argue that these capital controls are the underlying motive behind China’s adversarial stance toward cryptocurrencies.
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While the Chinese government has cited concerns about crypto’s use in money laundering and criminal activities to justify its ban, many suspect that the primary goal is to enforce capital controls more rigorously.
In 2016, China initiated stringent foreign exchange regulations, mandating that banks, companies, and individuals adhere to a “closed” capital account policy.
This policy effectively restricts the free movement of money into or out of the country, subject to tightly regulated state rules, in a bid to thwart capital flight.
Subsequently, in 2017, China banned domestic cryptocurrency exchanges, and in 2021, it enacted an outright ban on cryptocurrencies that remains in force today.
Additionally, reports have emerged suggesting that Binance employees and volunteers may have assisted Chinese customers in evading the exchange’s Know Your Customer (KYC) procedures.
On December 23, the South China Morning Post (SCMP) reported instances of Chinese users accessing Binance by falsely indicating their location as Taiwan, further highlighting the challenges faced by Chinese authorities in controlling cryptocurrency-related activities within their borders.
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