Chinese authorities have recently uncovered a large-scale underground banking operation, involving a staggering $2.2 billion, that was allegedly using foreign cryptocurrency trading platforms to sidestep the country's stringent capital controls. This operation came to light through social media reports on December 24, revealing that China’s foreign exchange police had identified this covert banking system.
The modus operandi of the underground bank was detailed by Xu Xiao, an inspector with the Qingdao Branch of the State Administration of Foreign Exchange. He explained that the operation involved purchasing virtual currencies and then selling them through overseas trading platforms. This method effectively facilitated the exchange of the Chinese yuan for foreign currencies, constituting illegal foreign exchange transactions.
At the scene of the investigation, authorities seized cryptocurrencies worth approximately $28,000 (200,000 yuan), including popular ones like Tether and Litecoin. The scale of this operation was vast, reportedly moving over $2.2 billion (15.8 billion yuan) across 1,000 bank accounts spanning 17 provinces and cities.
China has stringent laws regarding foreign currency exchange. Chinese citizens are limited to converting a maximum of $50,000 per year into foreign currency unless they have explicit permission. Circumventing these laws is viewed as money laundering by the Chinese government. Some analysts believe that these capital control measures significantly contribute to China's harsh stance against cryptocurrencies. However, the Chinese government asserts that its anti-crypto stance is primarily due to the use of digital currencies in money laundering activities.
In 2016, China tightened its foreign exchange controls, enforcing a policy that requires banks, companies, and individuals to adhere to a strict capital account policy, restricting the free flow of money into and out of the country. The following year, the nation banned cryptocurrency exchanges, and in 2021, it introduced a sweeping ban on cryptocurrencies. In March, a separate investigation implicated Binance employees and volunteers in allegedly assisting Chinese customers to bypass the exchange's KYC procedures. Additionally, the South China Morning Post reported on December 23 that some Chinese users were accessing Binance by falsely claiming their location as Taiwan.
