China’s Digital Asset Ban Remains Ignored With Recent Increase in Money Laundering Cases

Key Points:

• Despite China’s digital asset ban, recent police raids reveal significant illicit transactions involving digital assets.
• Cryptocurrency demand persists in China, fueled by factors such as the desire for alternative investments and evasion of capital controls.
• Traders employ sophisticated methods, including peer-to-peer platforms and overseas company setups.

According to Bloomberg, recent police raids in China targeting illicit foreign exchange transactions have exposed the ongoing use of cryptocurrencies despite China’s digital asset ban.

Persistence of Cryptocurrency Demand Despite China’s Digital Asset Ban

These actions highlight the persistent demand for cryptocurrencies in the country, driven by various factors including the desire for alternative investments and the circumvention of capital controls.

In May alone, several significant cases involving cryptocurrencies were flagged by municipal authorities and state media. These included an underground bank involved in illegal transfers amounting to 13.8 billion yuan ($1.9 billion), a gang implicated in about 2 billion yuan of unauthorized conversions, and illegal money changers with transactions exceeding 1 billion yuan. The busts spanned across Beijing, the northeastern province of Jilin, and Chengdu city in the southwest.

China’s digital asset ban was initially deployed in September 2021 due to concerns over money laundering, currency outflows, and the environmental impact of energy-intensive Bitcoin mining. Despite this, Chinese citizens continue to engage in significant volumes of underground crypto trading.

Sophisticated Evasion Tactics Enable Continued Crypto Trading in China

According to blockchain analytics firm Chainalysis, approximately $86 billion worth of cryptocurrency flowed into China in the 12 months through June 2023. While this represents a decline from pre-ban levels, it remains substantial on a global scale.

The persistence of cryptocurrency trading in China is facilitated by various methods to evade detection. Traders use software to mask their locations and peer-to-peer platforms such as WeChat and Telegram for transactions. Some individuals set up companies abroad through intermediaries to meet institutional know-your-customer (KYC) requirements on crypto exchanges, further complicating enforcement efforts.