Tech
Chinese authorities have shut down the illegal crypto service
Chinese authorities have shut down an underground bank that facilitated the illegal exchange of currency between the Chinese yuan and the South Korean won, using cryptocurrency as a medium.
The police announced this on local social media QQ that the operation, which involved transactions worth at least $295.8 million, was discovered in Jilin province, northeast China, and led to the arrest of six suspects.
The mechanisms of the illegal operation
According to the report, the criminal group exploited the inherent characteristics of cryptocurrency, such as anonymity and decentralization, to conduct illicit foreign currency exchange activities.
They used domestic bank accounts to receive and transfer funds while making over-the-counter (OTC) cryptocurrency transactions. OTC transactions occur directly between two parties, without the involvement of a centralized exchange, making them more difficult to track and regulate.
The operation allegedly targeted various entities, including South Korean purchasing agents, cross-border e-commerce platforms and import-export trading companies, helping them exchange funds between the Chinese yuan and the South Korean won.
Using cryptocurrency as an intermediary, the criminal group aimed to circumvent China’s strict capital control policies and facilitate illegal currency trading.
China’s capital controls
China has long maintained strict capital control policies to regulate the flow of money into and out of the country. These policies are designed to prevent capital flight, maintain financial stability and protect the value of the Chinese yuan.
However, some individuals and businesses have resorted to using cryptocurrencies as a means to circumvent these regulations.
Cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH), offer a decentralized, pseudonymous way to transfer value across borders without relying on traditional financial institutions. This has made them an attractive tool for those seeking to evade capital controls and engage in illegal financial activities.
The Chinese government has been increasingly vigilant in cracking down on the use of cryptocurrencies for such purposes. In 2017, China banned initial coin offerings (ICOs) and shut down domestic cryptocurrency exchanges to curb speculative trading and prevent financial risks.
Since then, authorities have continued to monitor and crack down on many cryptocurrency-related activities, including money laundering, fraud, and illegal currency exchange.
Implications and future prospects
The failure of this clandestine financial service in Jilin province highlights ongoing efforts by Chinese authorities to combat illegal financial activities and maintain control over capital flows. As cryptocurrencies gain more mainstream attention and adoption, governments around the world are grappling with the challenges of regulating these decentralized assets and preventing their use for illicit purposes.
China’s stance on cryptocurrencies has been one of the strictest among major economies. While the country has embraced blockchain technology, the technology behind cryptocurrencies, it has taken a hard line against the use of cryptocurrencies themselves.
Despite this, local regulators do not completely expel cryptocurrencies from their jurisdiction. It seems that Chinese authorities are mostly against decentralized and uncensorable ways of using cryptocurrency.
The act highlights what Hong Kong fund managers are after sought approval for spot ETFs on Bitcoin and Ethereum in mid-April they saw them be approved a few days later. Earlier this month, both products it became available on the local exchange.