Chinese authorities have recently called for a tougher crackdown on the use of cryptocurrencies as a tool for illegal foreign exchange trading, as part of their effort to fend off financial risks.
The Supreme People’s Procuratorate and State Administration of Foreign Exchange have directed prosecutors and foreign exchange regulators to strengthen supervision of foreign exchange activities, particularly those involving Tether – a US dollar-pegged virtual currency that is less volatile than other cryptocurrencies.
In Cambodia, Tether coin has become the crypto of choice for Chinese-linked activities.
The SPP and SAFE said their local branches should investigate and punish fraudulent foreign exchange purchases, illegal foreign exchange transactions and other foreign exchange-related illegal and criminal activities. Converting yuan to cryptocurrency – and thereby converting it to foreign currencies – or the other way round is illegal in China.
A “heavy-handed crackdown” on illegal cross-border financial activities is ongoing. The prosecutor’s office has highlighted eight “typical cases of illegal foreign exchange crime” – two of which used Tether as an intermediary – and called for tighter regulation.
For instance, in a 2019 case, a crypto trader received more than 22 million UAE dirhams (about US$6 million) in cash from a Chinese gambling syndicate in Dubai and transferred the corresponding yuan into their account in China. They used UAE dirhams to buy Tether stablecoin that they resold in mainland China for yuan, making gains of over 2 per cent.
Beijing is also drafting a national Web3 development plan, despite the strict cryptocurrency ban.
The use and exchange of foreign currency is subject to strict rules in mainland China, while trading and mining cryptocurrency is officially banned. However, mainland China remains a significant market for cryptocurrencies and is the largest in East Asia in terms of transaction turnover.
Underground traders use virtual coins to exchange currencies and avoid regulation. They make money on the difference in value between buying cryptocurrencies with foreign currencies and reselling the virtual assets in yuan. Payments in foreign currencies and yuan are often made in parallel to both overseas and Chinese accounts to avoid a direct, local transaction.
This week, police in the eastern city of Qingdao, in Shandong province, said they had busted a 15.8 billion yuan money laundering case that involved illegal forex trading using cryptocurrencies, and warned against the crime.
