According to South China Morning Post, Chinese regulators are working harder to control the use of cryptocurrencies in illicit foreign exchange (FX) transactions.
The misuse of stablecoins, such as Tether (USDT), in illegal transactions is the specific objective of the crackdown.
In a joint statement released on December 28, the State Administration of Foreign Exchange (SAFE) and the Supreme People’s Procuratorate urged forex regulators and prosecutors to increase oversight.
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The statement outlined recent occurrences in which yuan exchanges with foreign currencies had been facilitated by USDT.
Broader prohibitions on foreign exchange
The program is a component of China’s larger plan to fight financial crime and keep the country’s FX market stable. In order to prosecute and lawfully handle cases related to fraudulent FX activities, local branches must work closely with one another, as stated in the joint statement from SPP and SAFE.
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Specifically, it has been declared unlawful in China to convert yuan into cryptocurrencies and then back into foreign currencies. The police have made it clear that anybody offering technical assistance for illegal transactions, like website building and maintenance, will also be regarded as an accomplice.
The scope of the crackdown extends beyond those who directly engage in illicit transactions. A prominent 2019 case included a crypto trader in Dubai who used Tether to illegally convert over 22 million UAE dirhams into Chinese yuan. The dealer was fined 2.3 million yuan and given a seven-year prison sentence.
Another case included Tether transactions totaling more than 220 million yuan between 2018 and 2021; the developer of the payment websites was sentenced to five years in prison and a fine of 200,000 yuan.
Cryptocurrency underground market
China has one of the strongest laws against cryptocurrencies in the world; mining and trade are outright prohibited. Still, there is a sizable underground cryptocurrency market in China, especially in East Asia. Digital currencies are frequently used by traders as a way to get around laws and take advantage of the difference in value between international and local currencies.
A 15.8 billion yuan money laundering case involving cryptocurrency and illicit forex trading was the subject of recent police reports from Qingdao, in Shandong province.
The Chinese government’s decision to create a national Web3 development plan suggests a more nuanced view of digital assets despite the country’s ban on cryptocurrencies. It demonstrates a readiness to investigate the possible advantages of blockchain technology while strictly prohibiting its exploitation for illicit purposes.
With this recent directive, the Chinese government is sending a strong message to anyone involved in or assisting with illicit cryptocurrency-based forex transactions: it takes the security of its financial systems seriously and will not hesitate to take decisive action against any threats to its economic stability and security.
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