olice in Northeast China's Jilin province announced the bust of an underground banking operation conducting illegal foreign exchange between the Chinese Yuan and South Korean Won. Totaling over 2.14 billion yuan (nearly $295 million), the covert currency conversions exploited cryptocurrency attributes like anonymity and decentralization. Six suspects allegedly facilitating the scheme in China and South Korea were arrested.
How the Underground Banking Ring Worked
Authorities revealed the criminal group used domestic Chinese accounts to receive and transfer funds. They then conducted over-the-counter cryptocurrency transactions to assist companies like South Korean purchasing agents, cross-border e-commerce platforms, and import/export firms in swapping yuan for won outside regular banking channels. This allowed surveillance-wary businesses to skirt China's strict capital controls governing legitimate cross-border currency exchange.
Loopholes like cryptocurrencies' pseudonymous nature have enabled the underground banking operations to quietly facilitate billions in transactions over multiple years without raising red flags within China's financial system. The ringleaders continued eluding detection despite the massive scale of their prohibited currency swap enterprise.
Ongoing Crypto Regulation in China
China has long maintained tight restrictions on the outflow and inflow of capital across its borders. Such capital controls are a key policy tool for macroeconomic management, though they also cover illicit money movement. As cryptocurrencies mushroom worldwide, Beijing grows increasingly concerned about their potential to undermine such financial controls.
In past years China instituted a blanket ban on cryptocurrency exchanges and initial coin offerings and also discouraged all companies and citizens from engaging with digital assets. Regulators continue debating appropriate rules as some argue an outright ban isn't realistic given the industry's ongoing growth. For now, underground operations like this busted crypto-enabled currency exchange scheme will remain an obstacle to the Chinese government's aim of establishing a regulated national virtual currency framework.
In shutting down this $295 million underground banking ring, Chinese authorities have highlighted ongoing risks posed by crypto being exploited for illicit foreign exchange flows. As virtual assets rise in popularity worldwide, balancing open innovation with maintaining control over capital movement will remain a delicate balancing act for any nation with strict financial controls like China. For the suspects, though, it seems the game is finally up.
