Regulation
How a Chinese police raid on a $2 billion underground bank portends a new crackdown on cryptocurrencies in Asia – DL News
Asia shipping
- Chinese police target capital flight.
- Mainlanders often use cryptocurrencies to bring money out of the nation.
- Cryptocurrencies are under scrutiny as a $64 billion online gambling racket flourishes in Southeast Asia.
The Chinese city of Chengdu in Sichuan usually attracts attention for one of three reasons: very spicy food, pandas and the occasional politically sensitive murder.
This week the police broke new ground by arresting a large clandestine bank which allegedly processed up to $1.9 billion in funds.
According to a WeChat post from the Chengdu Security Bureau, authorities arrested 193 suspects and froze just under $21 million related to the investigation.
Raid series
It is the latest in a series of police raids across the country seeking to crack down on illegal exchange services that cater to businesses and venues moving funds abroad.
Transferring money out of the country for personal reasons is strictly regulated in China and is capped at $50,000 per person per year. This has led to the proliferation of a number of tactics to circumvent the ban, including the use of illicit services.
Many underground banks that help people move money abroad have turned to using cryptocurrencies as a convenient way to transfer money across borders instead of moving cash or physical goods.
According to Chainalysis, in 2023, the total cryptocurrency received from illicit addresses dropped 48% to $24.2 billion. The research firm said future totals “will almost certainly be higher.”
In its 2024 report, Chainalysis linked the use of cryptocurrencies in China to fentanyl trading and money laundering on behalf of North Korea.
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Illegal money transfers
This week, police also closed down an underground bank in Panshi, a small city in Jilin province located about 100 kilometers from the North Korean border.
Police declared the bank used the cryptocurrency as part of an illegal money transfer service for yuan and Korean won. According to police, approximately $296 million in funds passed through the underground bank.
Across Asia, cases involving cryptocurrencies have become a fixture in the paper police notes of local newspapers.
Crystal methamphetamine
In South Korea, authorities arrested 34 people linked to a suspected drug trafficking network that used cryptocurrency to sell methamphetamine, synthetic marijuana and ketamine to online buyers.
Authorities seized funds totaling $245,000, but did not say whether they included cryptocurrencies.
Total war
Recent reports of the use of cryptocurrency and Telegram to fuel drug trafficking have led President Yoon Seok-yeol to call for an “all-out war” against drug trafficking.
In June last year, he highlighted the use of Telegram, the dark web and cryptocurrency.
In a separate case, two South Korean police officers are on trial in Gwangju this month for accepting a bribe from an alleged cryptocurrency scammer who ran an altcoin scam that amassed about $2.1 million.
North Korea is accused of laundering $147.5 million through Tornado Cash in March alone.
The funds were originally stolen from HTX. The United Nations Security Council is investigating nearly 100 North Korea-linked attacks against cryptocurrency companies between 2017 and 2024, totaling about $3.6 billion.
In Hong Kong, on May 15, police arrested three staff members at a money exchange in Mong Kok who allegedly defrauded a customer of $128,000 as he attempted to transfer his USDT into Hong Kong dollars, according to police. South China Morning Post.
To convince him to send money to the wallet before the exchange, they showed him a pile of cash that turned out to be “hell money” – fake money printed on joss paper, burned to give to deceased relatives in the afterlife.
Criminal networks
According to the US Institute of Peace, transnational criminal networks in Southeast Asia are raking in nearly $64 billion, though not entirely in cryptocurrencies, from unregulated online gambling and scam operations. This is considered a “conservative estimate”.
Cryptocurrency evangelists don’t like the term “crypto crime.” They say blaming cryptocurrencies for wrongdoing is equivalent to blaming the US dollar.
The police, it seems, beg to differ. Police around the world have stepped up to train officers on handling cases involving cryptocurrencies.
In April, South Korea said it would make its temporary cryptocurrency investigation unit, launched in July 2023, permanent.
Bitrace held sessions for Hong Kong’s Cyber Security and Technology Crime Bureau and Commercial Crime Bureau last month, which included methods for investigating crypto crime.
Earlier this year, Georgia and Armenia also organized training sessions for local officials.
Callan Quinn is DL News’ Asian correspondent based in Hong Kong. Contact us at callan@dlnews.com.