China’s War on Cryptocurrency: Cracking Down on $2.2 Billion Underground Banking Operation to Combat Capital Flight
Crypto News – In a significant development in China’s ongoing battle against capital flight, authorities have reportedly dismantled a massive underground banking network. This operation, valued at a staggering $2.2 billion, is accused of leveraging foreign virtual currency trading platforms to sidestep the nation’s stringent capital controls.
On December 24, Chinese social media buzzed with news about the discovery of this clandestine bank by the foreign exchange police. The bank allegedly exploited cryptocurrencies to evade forex regulations, a tactic increasingly scrutinized by Chinese authorities.
Xu Xiao, an inspector from the Qingdao Branch of the State Administration of Foreign Exchange, shed light on the operation’s modus operandi. “These underground banks buy virtual currencies and then sell them through international trading platforms. This is how they secure the foreign currency they require,” Xu explained. He clarified that this practice, involving the conversion of yuan to foreign currencies, is deemed an illegal foreign exchange transaction under Chinese law.
During the raid, investigators seized various cryptocurrencies, including Tether and Litecoin, collectively worth about $28,000 (200,000 Chinese yuan). However, the operation’s scope is much broader, having reportedly transferred over $2.2 billion (15.8 billion Chinese yuan) through more than a thousand bank accounts across 17 provinces and municipalities.
Under Chinese law, nationals are restricted to exchanging a maximum of $50,000 in foreign currencies annually, barring special permits. Any attempt to circumvent these rules is classified as money laundering. This recent crackdown underscores the prevailing belief that China’s rigid stance against cryptocurrencies is primarily a measure to control capital flight. The government, however, attributes the ban to concerns over cryptocurrencies being used for money laundering related to criminal activities.
China’s approach to foreign exchange has been increasingly stringent since 2016 when it imposed severe regulations that demand compliance with a “closed” capital account policy. This policy effectively restricts free money movement into or out of the country, adhering to tight state-controlled guidelines aimed at preventing capital flight.
Following these regulatory tightenings, China banned crypto exchanges in 2017 and, in 2021, escalated its measures to a comprehensive prohibition of cryptocurrencies, a policy that remains in effect.
Moreover, a 2023 investigation raised allegations that Binance employees and volunteers had been helping Chinese customers bypass the exchange’s Know Your Customer (KYC) procedures. Adding to this, a report from the South China Morning Post on December 23 indicated that Chinese users were accessing Binance by falsely claiming their location as Taiwan, further highlighting the ongoing tussle between regulatory authorities and cryptocurrency users in China.
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