Over 1100 Detained in China for Money Laundering Via Cryptocurrencies

Published: 15 June 2021

China BitcoinArrests in China for money laundering via cryptocurrency. (Photo: RABAUZ, Pixabay, License)

By Emily Tian

In the latest crackdown on cryptocurrency fraud, China said last week that it rounded up more than 1,100 suspects and dismantled over 170 criminal groups believed to have used virtual currencies to provide money transfer and laundering services for telenetwork scams.

A press release published by the Ministry of Public Security said that police in 23 provinces, autonomous regions and municipalities carried out the simultaneous operations on June 9.

The ministry explained that fraudulent networks usually transferred stolen money into the bank account of a “coin farmer,” who then would purchase and transfer virtual currency on a trading platform to a designated wallet address.

According to the statement, the commission obtained by the “coin farmers,” usually between 1.5 and 5%  “attracts a large number of people to participate, causing serious social harm.”

The press release did not indicate how much money had been transacted via cryptocurrencies in the alleged cases of fraud.

“In order to avoid investigation and crackdown, fraudsters turn to use virtual currency to transfer the funds involved in the case,” the press release reported.

However, Dr. Garrick Hileman, the Head of Research at Blockchain.com, said that he’s skeptical if concerns over money laundering are the central driving force behind the recent governmental crackdown.

“The bigger concern of the Chinese authorities is maintaining financial control,” Hileman said. “People who are worried about currency devaluation might move funds into cryptocurrency,  which could potentially undermine Chinese monetary policy.”

Although China has banned domestic cryptocurrency exchanges in 2017, “over the counter” transfers between parties looking to trade Chinese yuan and Bitcoin and VPN-enabled access to offshore cryptocurrency exchanges have made it challenging for regulatory agencies to enforce cryptocurrency regulations.

Meanwhile, the government left mining — the complex computational process where blocks of cryptocurrency payments are verified and inputted into a public ledger, also entering new virtual coinage into circulation — more or less unregulated. Bitcoin mining in China accounted for about 75% of all Bitcoin mining activities worldwide as of April 2020.

The crypto-related arrests made last week come after the government’s recently announced plans to clamp down on mining as well.

On May 21, the financial committee of the State Council — the government’s chief administrative authority — outlined a “prudent” financial policy that prevents financial risks by cracking down on Bitcoin mining and training behavior.

In the days and weeks following, officials in Xinjiang, Inner Mongolia, Qinghai and Yunnan — resource-abundant provinces where power-draining crypto mining has largely been clustered — have all announced new regulations against mining.