Police in the northern Chinese region of Inner Mongolia have arrested 63 people for laundering 12 billion yuan (S$2.3 billion) of cryptocurrency, in the latest case highlighting the opaque nature of China’s crypto market, which ranks No 4 worldwide despite an official ban on trading by the central government.
Starting in May 2021, the crypto gang collected illicit funds from online pyramid schemes, fraud and gambling, and converted the proceeds into Tether, a stable coin pegged 1:1 to the US dollar.
The funds were distributed across multiple, anonymous crypto accounts before being transacted into renminbi, according to a statement issued by the Public Security Bureau of Inner Mongolia’s Tongliao city over the weekend.
China, once the world’s largest crypto investment market, still has a large underground community even though participants have little regulatory or legal protection. Court papers from the case of collapsed crypto exchange FTX revealed that 8 per cent of its clients were from mainland China.
In the Inner Mongolia case, police alleged that the group used Telegram, an encrypted messaging app blocked in China, to communicate and hire people to set up crypto accounts. Each participant received a commission based on the amount of crypto transactions they processed. The police seized profits amounting to about 130 million yuan from the illicit business, according to the police statement.
The involvement of cryptocurrency in the money laundering case made it more difficult for authorities to track. “Trading cryptocurrency via anonymous accounts was equal to establishing a physical barrier so that the cash flow and recipient cannot be tracked using traditional methods,” an unnamed officer at the Tongliao public security bureau was quoted as saying in the statement.
More than 200 police officers were assigned to the case. They also worked with overseas crypto exchanges and traced crypto blockchain records as part of the investigation, the officer said.
The police also traced two suspects to Bangkok, Thailand and had them extradited to China.
The police were alerted in July, when a local bank account was used to deposit more than 10 million yuan in cash a month, prompting an investigation into “suspected money laundering crimes”, according to the security bureau’s announcement.
It is not the first major crypto-related crime in China. In September, police in Hengyang, Hunan province, arrested a gang of 93 people involved in a similar money laundering scheme that involved 40 billion yuan. In March, Shanghai police busted an online pyramid scheme that involved cryptocurrencies worth more than 100 million yuan.
Despite Beijing’s ban on trading and mining of cryptocurrencies, China recorded more than US$220 billion in total crypto transactions between June 2021 and July 2022, topping East Asia and ranking the fourth worldwide, according to American blockchain research firm Chainalysis.
China-based investors use tools like virtual private networks to connect to foreign exchanges and register companies overseas to hide their identities.
However, as governments around the world have stepped up enforcement of crypto-related criminal activity, illicit use of virtual tokens has dropped. In the first seven months of this year, global revenue from crypto scams was down 65 per cent from the same period a year earlier, according to Chainalysis.