China’s Raids on Forex Gangs Point to Crypto Ban Being Flouted

China’s crackdown on illegal foreign-exchange activities has revealed the persistent use of cryptocurrencies in the country, despite the government’s ban on digital-asset trading. Recent police raids have uncovered cases involving cryptocurrencies, including an underground bank involved in $1.9 billion of illegal transfers, a gang implicated in $2 billion of unauthorized conversions, and unlawful money changers handling transactions exceeding $1 billion. These busts, which occurred in Beijing, Jilin province, and Chengdu city, indicate that Chinese demand continues to have a significant impact on digital-asset markets, even after more than two years of crypto prohibition by Beijing.
The ban on Bitcoin in China was implemented due to concerns about money laundering, currency outflows, and environmental damage caused by energy-intensive mining. However, it is believed that Chinese citizens still have an interest in digital assets, either as alternative investments in the face of declining property prices or as a way to bypass overseas transfer restrictions.

Despite the ban, there is still a significant amount of cryptocurrency activity in China. This could be because the ban is not strictly enforced or because crypto activity is decentralized and often conducted peer-to-peer.

Identifying the location of digital asset traders is challenging as software can hide their locations. According to Chainalysis, an estimated $86 billion worth of crypto flowed into China between June 2022 and June 2023, significantly lower than pre-ban levels but still a substantial amount globally.
Chengdu city’s Public Security Bureau recently released a report on a case involving the illegal transfer of 13.8 billion yuan. According to the report, 193 arrests have been made for activities that date back to early 2021. The report also mentioned that the Tether stablecoin was used to facilitate the illegal transfer of funds abroad.

In a separate WeChat post by the Public Security Bureau of Panshi city in Jilin province, it was revealed that a gang involved in 2 billion yuan of illicit transfers had acquired digital tokens through over-the-counter trading. These tokens were used to convert Chinese yuan into South Korean won.

Meanwhile, Beijing police have claimed to have dismantled 11 underground gangs across the country, some of which were involved in unlawful money changing activities exceeding 1 billion yuan. These gangs were found to be using virtual currencies as a means to hide their illegal activities, according to a Xinhua report broadcasted by state broadcaster CCTV.
Throughout last year, there were several instances that shed light on the trading activity of cryptocurrencies in China. This included insights gained from examining the creditor profile of the collapsed FTX exchange, as well as testimonies from citizens who claimed to have used crypto platforms and accounts from industry insiders who revealed ways to circumvent Beijing’s restrictions.

While Hong Kong allows for digital-asset trading and has recently positioned itself as a crypto hub, experts believe that Beijing is unlikely to relax its official regulations on the mainland. Additionally, regulations make it difficult for Chinese citizens to access crypto investments in Hong Kong.

Ong, a financial expert, pointed out that historical evidence suggests that outright bans are not effective in eradicating crypto activity. Instead, they often give rise to informal, unregulated markets that are more challenging to monitor and safeguard against illicit activities.