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Chinese authorities have issued a stern directive for an enhanced crackdown on the use of cryptocurrencies, emphasizing their role in illegal foreign exchange trading as part of ongoing efforts to mitigate financial risks.
In a joint statement released on Wednesday, the Supreme People’s Procuratorate (SPP) and the State Administration of Foreign Exchange (SAFE) instructed prosecutors and forex regulators to intensify their supervision of foreign exchange activities.
The statement highlighted specific concerns regarding the use of the Tether stablecoin, commonly known as USDT, as an intermediary in trading yuan with other currencies. Notably, Tether is pegged to the US dollar, offering relative stability compared to other cryptocurrencies.
The SPP and SAFE urged their local branches to bolster coordination efforts, emphasizing the need to “punish fraudulent foreign exchange purchases, illegal foreign exchange transactions, and other foreign exchange-related illegal and criminal activities lawfully.” The goal is to efficiently handle each case, thereby preventing and resolving financial risks to uphold national financial security.
The statement emphasizes that converting yuan to cryptocurrency and vice versa is illegal in China. This includes using cryptocurrencies as a medium to convert yuan into foreign currencies or the reverse.
Furthermore, the statement also added that individuals who are not directly involved in transactions but knowingly provide technical support, such as building and maintaining a website, are regarded as “accomplices” in the eyes of the authorities.
Chinese Authorities Declare Yuan-Crypto Conversions Illegal, Cite Tether in Two Cases
The prosecutor’s office cited eight “typical cases of illegal foreign exchange crime“—two of which used the Tether stablecoin as an intermediary—and called for tighter regulation.
One highlighted case from 2019 involved a crypto trader who received over 22 million UAE dirhams (approximately US$6 million) in cash from a Chinese gambling syndicate in Dubai and transferred the corresponding yuan into their account in China. The trader, sentenced to seven years in jail and fined 2.3 million yuan (US$322,000), used the received UAE dirhams to purchase Tether stablecoin. Subsequently, the trader resold the stablecoin in mainland China for yuan, yielding profits of over 2%.
Another case outlined in the statement involved a criminal case involving Zhao Dong, the founder of the over-the-counter crypto trading desk RenrenBit, who was jailed for seven years and fined 2.3 million yuan ($322,000) for facilitating crypto and local currency trading. Zhao Dong used United Arab Emirates dirhams to buy USDT and resell it in mainland China for yuan.
China Warns Against Illegal Use of Tether and Other Stablecoins for Cross-Border Transactions
The warning comes more than two years after China enforced a major ban on cryptocurrency activities, including trading and mining. Despite the ban, cryptocurrencies like Tether apparently remained popular in China.
China’s regulatory stance on cryptocurrencies has been stringent, with periodic crackdowns and enforcement actions aimed at maintaining control over the financial system and preventing illegal activities.
The recent warning indicates continued scrutiny of cryptocurrency transactions, particularly those involving stablecoins like Tether, in the Chinese market.
Despite the intensified regulatory efforts, mainland China remains a significant market for cryptocurrencies and boasts the largest transaction turnover in East Asia.
Underground traders often use cryptocurrencies to exchange currencies, circumventing regulation. These traders capitalize on the value difference between buying cryptocurrencies with foreign currencies and reselling them in yuan.
Payments in both foreign currencies and yuan are frequently conducted in parallel with overseas and Chinese accounts, helping avoid direct, localized transactions. This method allows traders to navigate regulatory restrictions and engage in cross-border transactions.
This week, law enforcement in the eastern city of Qingdao, Shandong Province, disclosed the busting of a 15.8 billion yuan money laundering case involving illegal forex trading using cryptocurrencies. Authorities issued a warning against such illicit financial activities, emphasizing the continued crackdown on unlawful cross-border financial transactions involving digital assets.
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