Chinese authorities have exposed a clandestine $2.2 billion underground banking operation, unveiling a sophisticated network that leveraged foreign “virtual currency trading platforms” to defy the nation’s stringent capital controls. This revelation sparks a fresh debate on whether China’s persistent ban on cryptocurrencies is primarily driven by its ongoing battle against capital flight.

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Forex Trading vs Cryptocurrency Trading. Source: CoinTelegraph

The Illicit Operation

Chinese foreign exchange police disclosed on December 24 the dismantling of an underground bank orchestrating a complex scheme involving cryptocurrencies to evade forex restrictions. Xu Xiao, an inspector from the Qingdao Branch of the State Administration of Foreign Exchange, explained that these underground banks acquired virtual currencies and then utilized overseas trading platforms to convert them into foreign currency, constituting an illegal act of buying and selling foreign exchange.

Cryptocurrency Seizures and Extent of the Operation

During on-site investigations, authorities confiscated cryptocurrencies amounting to $28,000 (200,000 Chinese yuan), including Tether, Litecoin, and others. Shockingly, the entire operation had maneuvered over $2.2 billion across a thousand bank accounts spanning 17 provinces and municipalities. This underscored the sheer scale and complexity of the illicit financial network.

Chinese authorities provide insights into the crackdown on the forex operation during interviews. Source: CoinTelegraph

Capital Controls: The Driving Force Behind China’s Anti-Crypto Stance

China’s strict laws restrict citizens from exchanging more than $50,000 worth of foreign currencies annually unless holding a permit. Evading these controls is deemed as money laundering. While the official reason for China’s anti-crypto stance has been linked to preventing the use of digital assets for criminal proceeds, some argue that the underlying motive lies in combating capital flight.


From 2016 to the Present

In 2016, China imposed rigorous foreign exchange regulations, ushering in a “closed” capital account policy to prevent unbridled movement of money into or out of the country. This laid the groundwork for subsequent crackdowns on crypto exchanges, culminating in a complete ban on cryptocurrencies in 2021. The persistence of these measures suggests an ongoing commitment to curbing capital flight.

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Allegations Against Binance and Continuing Challenges

Earlier investigations in March implicated Binance employees and volunteers for allegedly aiding Chinese customers in circumventing Know Your Customer (KYC) procedures. The recent revelation, where users in China falsely listed their location as Taiwan to access Binance, adds another layer to the challenges faced by authorities in regulating cryptocurrency platforms.



The exposure of this $2.2 billion illegal forex ring operating through cryptocurrency channels sheds light on the intricate dynamics between China’s capital controls and its stringent stance on cryptocurrencies.

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As the nation grapples with evolving financial landscapes, these revelations underscore the ongoing challenges in regulating and monitoring the crypto space.

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