Chinese Police Bust $1.9bn Underground Banking Scheme

Chinese authorities have uncovered a vast underground banking network valued at $1.9 billion, utilising the popular stablecoin Tether (USDT), operating in the city of Chengdu. According to a report released by local police, the illegal operations facilitated the exchange of foreign currencies and involved 193 arrests spanning 26 provinces.

The illicit USDT banking operations commenced in January 2021, primarily serving as a conduit for smuggling medicine, cosmetics, and investment assets overseas. Law enforcement agencies dismantled two underground facilities in Fujian and Hunan provinces, while also freezing assets worth 149 million yuan ($20 million) linked to these operations.

Despite China’s strict regulations prohibiting cryptocurrency-related activities, traders continue to find ways to bypass the ban and leverage crypto assets for alternative purposes. A recent report by Kyros Ventures revealed that Chinese investors rank among the largest holders of stablecoins globally, with 33.3% of them holding multiple stablecoins, second only to Vietnam’s 58.6%.

The Chinese government’s crackdown on cryptocurrencies and mining operations has not deterred the local population from engaging in crypto-related activities. Despite banning Bitcoin mining, China’s contribution to the Bitcoin network hash rate rose to second place within a year of the ban.

Similarly, following the prohibition of centralised exchanges, Chinese traders shifted their focus to decentralised exchanges (DEXs). This shift led to a notable surge in the use of decentralised finance (DeFi) protocols among Chinese traders, with some resorting to virtual private networks (VPNs) to bypass restrictions.

The ongoing resilience of Chinese traders in navigating regulatory hurdles underscores the challenges faced by authorities in enforcing crypto-related bans effectively. Despite concerted efforts to curb crypto activities, the allure of digital assets continues to fuel innovative methods of circumvention among the crypto community in China.