China Cracks Down on $296M Crypto-Fueled Underground Banking Network

Chinese officials have taken down an underground banking network that used Bitcoin to enable illicit currency trades between the South Korean won and the Chinese yuan. With at least 2.14 billion yuan ($295.8 million) processed, the network emphasizes the continuous fight against the abuse of digital currency for illegal purposes.

Six people accused of planning these activities in both China and South Korea were arrested, according to a statement issued by the official media on Sunday by police in the Jilin region of Northeast China. The accused are said to have gotten over China's tight money control laws by using the anonymity and decentralization that come with cryptocurrencies.

Based on investigations, the criminal organization moved money via domestic banks by using over-the-counter cryptocurrency transactions to service several South Korean buying agents, international e-commerce platforms, and import-export companies. In doing so, they made it possible for these organizations to evade China's strict financial laws.

Over the last several years, China has been increasingly tightening its capital control laws, which has led some to look for other ways to get around these limitations, including cryptocurrencies. The administration is determined to plug these gaps, as the current crackdown highlights.

Directives to improve the oversight of foreign currency operations, especially those involving cryptocurrencies like Tether, were issued earlier this year by the State Administration of Foreign Currency and the Supreme People's Procuratorate. This action was a reaction to the increasing practice of converting yuan to foreign currencies using stablecoins.

Compounding matters, a Chainalysis research study from last year revealed that since 2018, crypto addresses associated with alleged chemical dealers in China have acquired assets valued at over $37.8 million. These funds were used to send a vital component of fentanyl to Mexico and Central America, where drug gangs transformed it into a deadly substance for sale in the United States.

The United States Office of Foreign Assets Control (OFAC) moved in October against a network of Chinese people and businesses engaged in the manufacture and distribution of fentanyl precursors. The U.S. Treasury Department said that some people in this network used Bitcoin wallets to make transactions easier.

Global authorities have a big dilemma when cryptocurrencies and illicit operations like drug trafficking and underground banking combine. Maintaining financial stability and reducing criminal businesses will depend heavily on the continuous efforts to crack down on illicit activity driven by cryptocurrencies as China strengthens its financial laws.