ILLEGAL $2.2 BILLION FOREX OPERATION IN CHINA LINKED TO CRYPTO TRADING PLATFORMS

Chinese authorities have recently dismantled a $2.2 billion illegal foreign exchange network, highlighting ongoing efforts to curb capital flight. This operation reportedly involved the use of foreign virtual currency trading platforms to circumvent China’s strict capital controls.

Details of the Underground Forex Operation

On December 24, reports emerged on Chinese social media about an underground banking system that utilized cryptocurrencies to bypass forex limitations. According to Xu Xiao, an inspector from the Qingdao Branch of the State Administration of Foreign Exchange, the scheme involved buying virtual currencies and selling them through overseas platforms to obtain foreign currency.

This method facilitated the conversion between the yuan and foreign currencies, constituting an illegal foreign exchange transaction. During the investigation, authorities seized cryptocurrencies worth approximately $28,000, including Tether and Litecoin, among others. The operation reportedly involved over $2.2 billion across thousands of bank accounts in 17 provinces and municipalities.

China’s Capital Controls and Crypto Ban

China imposes a yearly limit of $50,000 on foreign currency exchanges for its citizens unless they hold a specific permit. Circumventing these controls is considered money laundering under Chinese law.

Many speculate that these strict capital control measures are the underlying reason for China’s strong stance against cryptocurrencies. The government maintains that the crypto ban is due to its use in laundering criminal proceeds.

In 2016, China introduced stringent foreign exchange regulations, requiring banks, companies, and individuals to adhere to a “closed” capital account policy, restricting free movement of money into or out of the country. The goal of these regulations is to prevent capital flight.

Following these regulations, China banned crypto exchanges in 2017 and implemented a comprehensive ban on cryptocurrencies in 2021, which remains in effect.

Regulatory Scrutiny of Crypto Exchanges

In March, an investigation alleged that Binance staff and volunteers helped Chinese customers evade the exchange’s Know Your Customer (KYC) processes. On December 23, the SCMP reported that users in China were accessing Binance by falsely claiming their location as Taiwan, further highlighting the challenges in regulating and enforcing cryptocurrency use in the context of China’s stringent financial controls. In summary, DeFi in 2024 is anticipated to be a year of resurgence, regulatory evolution, and significant advancements in tokenization, with a positive outlook from industry leaders.

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