China Arrests Over 1,100 Suspects in Crackdown on Crypto-Related Money Laundering

“Anonymous” for Borderland Beat

Police in China arrested over 1,100 people suspected of using cryptocurrencies to launder illegal proceeds from telephone and Internet scams in a recent crackdown, the Ministry of Public Security said.

Telecom criminals tend to use fake or stolen SIM cards and compromised bank accounts to launder their money through the traditional banking system. That has become more difficult since the Chinese police tightened surveillance on commercial banks and black markets for SIM cards and bank accounts.

The arrests came after a powerful Chinese superregulator last month pledged to “crack down on bitcoin mining and trading behavior,” as part of broader efforts to guard against financial risk and reduce energy consumption in the country. Concerns of a regulatory clampdown contributed to a strong selloff in bitcoin and other cryptocurrencies.

The public security ministry said that by Wednesday afternoon police had busted more than 170 criminal groups involved in using cryptocurrencies to launder money. The money launderers charged their criminal clients a commission of 1.5% to 5% to convert illegal proceeds into virtual currencies via crypto exchanges, the ministry said via its official Wechat account.

China’s Payment & Clearing Association said on Wednesday that the number of crimes involving the use of virtual currencies is on the rise.

Because cryptocurrencies are anonymous, convenient and global in nature, “they have increasingly become an important channel for cross-border money laundering,” the association said in a statement.

Cryptocurrencies have already become a popular means of payment in illegal gambling activities. Nearly 13% of gambling sites support the use of virtual currencies, and blockchain technology has made it more difficult for authorities to track the money, according to the association.

Many supporters of cryptocurrencies had dismissed China’s recent warnings as a reiteration of previous bans. But there are signs that Chinese authorities are now more serious about reining in crypto-related activities after months of volatile trading and mounting concerns about their carbon footprints.

“China always had a very strong stance against cryptocurrencies. Now they’re intensifying some of their narrative,” said Naeem Aslam, London-based chief market analyst at brokerage AvaTrade.

Multiple cryptocurrency mining platforms in recent weeks started blocking internet addresses in mainland China from accessing services.

On Thursday, internet searches for several major crypto exchanges including Binance, Huobi and OKEx turned up empty on Baidu Inc.’s popular search engine and Weibo, a Twitter-like microblogging service.

The exchanges had been popular choices for people in mainland China to trade virtual currencies in what is known as the over-the-counter market. Several Weibo users known for posting about cryptocurrencies also had their accounts banned last week.

The high appetite for cryptocurrency mining, an energy-intensive process in which computers compete to solve complex mathematical puzzles to unlock fresh bitcoin, has run counter to Beijing’s energy objectives. President Xi Jinping is determined to recast China as a climate champion and has set ambitious goals to reduce coal use. Regional governments have recently stepped up their campaigns against mining.

In late May, authorities in the coal-rich region of Inner Mongolia published detailed draft rules against the business. The government in the western province of Qinghai has also announced a ban on cryptocurrency mining, state-run news agency Xinhua Finance reported Thursday. It said authorities would investigate mining operations that ostensibly run as big data or supercomputing centers.

Bitcoin is still struggling to rally out of its recent trading range. It traded near $36,755.77 Thursday, having been as high as $64,802 apiece in mid-April.

Sources: Reuters; WSJ; Coindesk