China continues to experience developments in cryptocurrency-related activities despite the nation’s ban on all crypto operations in 2021. Chinese authorities have recently dismantled an underground banking operation accused of using foreign crypto exchange platforms to help customers bypass the country’s capital controls, involving an alleged $2.2 billion.
Reports on Chinese social media on December 24 indicated that the country’s foreign exchange police uncovered an underground bank utilizing cryptocurrencies to circumvent forex restrictions. Inspector Xu Xiao from the State Administration of Foreign Exchange’s Qingdao branch stated that these underground banks purchase crypto assets and then sell them through overseas exchange platforms to obtain the required foreign currency, completing the conversion between the yuan and foreign currencies, thus constituting illegal foreign exchange transactions.
Investigators seized crypto assets worth 28,000 dollars, equivalent to 200,000 Chinese yuan, including Tether and Litecoin. The entire operation reportedly moved over 2.2 billion dollars, equivalent to 15.8 billion Chinese yuan, across a thousand bank accounts in 17 provinces and municipalities.
Chinese laws limit citizens to foreign currency exchanges of no more than 50,000 dollars annually without permission. Exceeding this limit is considered money laundering by the state. Some experts believe that these capital controls are the real reason behind China’s anti-crypto stance, though the Chinese government claims the ban is to prevent the crypto sector from laundering criminal proceeds.
In 2016, China enforced strict foreign exchange regulations that required banks, companies, and individuals to comply with a closed capital account policy, meaning money could not freely enter or leave the country without adherence to strict state-controlled rules to prevent capital flight.
A year later, China banned crypto exchanges within the country and, in 2021, imposed a strict ban on crypto assets that continues to this day. An investigation in March alleged that Binance employees and volunteers helped Chinese customers circumvent the exchange’s Know Your Customer (KYC) procedures. On December 23, SCMP reported that Chinese users were accessing Binance by mistakenly listing their locations as Taiwan.
