Multiple virtual currency money laundering cases have been occurring in China recently, involving vast amounts of money. Some industry insiders say this has been the mainstream way of capital flight from China for several years.
The public security bureau in Tongliao City, Inner Mongolia, has recently busted a money laundering ring that used blockchain to exchange digital virtual currencies. Authorities arrested 63 people and seized about 130 million yuan ($18.65 million) in cash, fixed assets, transfers of blockchain digital currencies, and frozen funds, according to a Dec. 11 report by Chinese state media National Business Daily. Through virtual currency transactions, the ring laundered 12 billion yuan ($1.72 billion).
In another virtual currency case, more money was involved. A ring busted by the Hengyang County police in Hunan Province in September had been laundering money through virtual currency since 2018, with the amount of money laundered reaching 40 billion yuan ($5.74 billion).
Insider: Most Capital Flight Done by Virtual Currency
A former Chinese financial executive surnamed Lu said that most of the larger illegal industries in China now transfer money through virtual currencies.“This is the mainstream way of capital flight. Even the underground banks have been doing this for years,” she told The Epoch Times on Dec. 16. “Therefore, what the bust has found is only a tiny fraction.”
On the other hand, China prohibits the issuance and exchange of virtual currencies, while other countries allow the free exchange of virtual and fiat currencies. Therefore, virtual currencies are easily used for cross-border money laundering, Guo said.
Money laundering with virtual currency can be divided into three stages. First, money laundering rings use the money to buy virtual currency. They then use virtual currency’s anonymity for multiple transactions to conceal transaction links. Finally, the “cleaned” virtual currency is cashed out in a certain address to complete the money laundering operation.
In the first of these three stages, money-laundering rings often operate through “buyers” to hide their identities. They may recruit buyers, provide training online, and then instruct them to sign up for a virtual currency exchange account via encrypted chat software.
Capital Flight Is a ‘Helpless Choice’
In September 2021, the People’s Bank of China issued a circular, banning all services related to the settlement and provision of virtual currencies.Virtual currencies are legal in the vast majority of countries around the world. The main reason for the Chinese Communist Party’s (CCP) ban on virtual currencies is that it is trying to stem capital flight, Lu said.
In official reports by the CCP, the mention of virtual currencies is often linked to various crimes, she said.
“Actually, virtual currency is just a tool, and it is neither good nor bad in itself,” Lu told The Epoch Times. Due to the CCP’s strict foreign exchange control, it is difficult for people to transfer money out of China through the usual channels, so legitimate income may be transferred through virtual currency, which is “a helpless choice,” she said.
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