Despite various regulations introduced by the Chinese Communist Party authorities to crack down and tighten controls on the use of cryptocurrencies such as Bitcoin to transfer funds offshore and launder money, including fixing commercial banks such as CITIC Bank and other financial institutions and platforms that do not do enough to fight money laundering, the amount of money walking and laundering in China is instead growing. Pictured is a bitcoin retail store in Hong Kong.
The Chinese Communist Party authorities have been making moves recently to strictly scrutinize several major commercial banks and online financial platforms owned by tech giants such as Alibaba and Tencent, in addition to making it clear that they want to impose stricter regulations and crack down on related financial crimes when it comes to laundering money or transferring huge amounts of money overseas through cryptocurrencies.
Chinese media reported on May 8 that CITIC Bank, a large state-owned joint-stock bank in China, issued an announcement on April 22 stating that any of the bank’s accounts used for transactions such as Bitcoin and Litecoin would be cancelled to prevent money laundering risks.
The announcement comes after the Communist Party’s central bank handed CITIC Bank its first fine of the year of 28.9 million yuan ($4.49 million) for anti-money laundering, along with 14 other officials, mainly for cryptocurrency-related money laundering.
As of April 12, the Communist Party’s central bank has fined financial institutions and principals a total of 178 million yuan ($27.67 million) this year, the vast majority of which relate to money laundering and cross-border transfers through cryptocurrencies.
China’s cumulative anti-money laundering fines for the whole of last year amounted to 628 million yuan ($97.63 million).
Li Bo, deputy governor of the Communist Party of China’s central bank, made clear at the Boao Forum for Asia annual meeting on April 18 that the bank is studying rules to regulate cryptocurrencies such as bitcoin.
He began by defining cryptocurrencies not as legal tender but as crypto assets, and stressed the need to “ensure that crypto assets do not cause serious financial risks.
In December 2013, the Communist Party’s central bank and five other ministries jointly issued a notice requiring financial institutions and payment institutions not to conduct business related to bitcoin, and in April 2014, 13 banks, including China’s five largest banks, announced they were banning their accounts from trading bitcoin and Litecoin, among other things. At the time, cryptocurrencies were in their early stages, unlike today when they have high liquidity and trillions of dollars of market cap space.
Chinese media have repeatedly reported before that cryptocurrencies are being used by individuals and businesses to transfer huge amounts of assets overseas and as a money laundering tool, and that it is difficult to track and regulate in this way. Cryptocurrencies (also known as virtual currencies) are also listed as one of the illegal fundraising methods to be prevented and disposed of in the Regulations on the Prevention and Disposal of Illegal Fundraising, which became effective on May 1.
China’s massive capital flight through cryptocurrencies
According to blockchain security firm PeckShield’s “2020 Annual Digital Currency Anti-Money Laundering Report,” the value of unregulated cross-border liquid virtual currencies (cryptocurrencies) in China reached $17.5 billion in 2020, up 51 percent from $11.4 billion in 2019, and is still growing rapidly. Due to the secretive and hard-to-track nature of cryptocurrencies, it may be difficult to judge the comprehensiveness of these data from the outflow side of funds alone.
The change in the size of global digital funds under management can provide a more comprehensive picture of the development of the speed and size of traditional capital flows into the crypto asset market.
According to Liang Xinjun, one of the founders of China’s Fosun Group, the size of global digital funds under management was only about $25.1 billion as of October 2020; as of April 23, 2021, the size of cryptocurrency trust fund company Greyscale’s bitcoin trust products alone was as high as $35.3 billion, and when added to its ethereum ETH fund, Greyscale alone If you add in its ethereum ETH fund, Greyscale alone has nearly $50 billion in cryptocurrencies under management, more than double the $22 billion the company had in two cryptocurrencies as of Jan. 7 of this year.
China’s Communist Party Crackdown on Cryptocurrency Money Laundering Grows
According to Yu Jianing, the rotating chairman of the Blockchain Special Committee of the China Communications Industry Association, virtual currencies are characterized by anonymity, complexity and transnationality, and both the black industry, such as money laundering and underground money laundering, and the gray industry, such as “running platforms,” are beginning to enter the cryptocurrency sector.
The Chinese Communist authorities have taken various measures to combat and prevent the use of cryptocurrencies for money laundering and outward transfer of funds. In addition to strengthening the supervision of banks and other financial institutions, a nationwide crackdown was launched in October last year, known as the “Card Breaking” campaign. The “cards” include bank cards and third-party payments such as WeChat and Alipay, as well as cell phone cards and phone cards of virtual operators.
According to Chinese media reports, the transfer of assets from China to foreign countries through virtual currencies and the laundering of illegal funds through virtual currencies are increasing rather than decreasing as authorities embark on the “card-cutting” campaign.
According to PeckShield’s calculations of financial flows, the number of bitcoins flowing abroad from China’s domestic virtual currency exchanges ranged from 89,400 to 166,900 per month from January to October 2020, prior to the “card-cutting” operation, to November and December of last year, after the operation began. The number of bitcoins flowing abroad increased to 231,700 and 254,100 respectively, up nearly 40% from the previous high.
If we calculate the price of Bitcoin at $50,000 per unit, the amount of money flowing overseas in Bitcoin from China in November and December of last year was $10.58 billion and $12.7 billion, respectively, a huge amount of money involved, and it continues to rise.
The “running score” that Yu Jianing refers to is the use of users’ WeChat and Alipay payment codes or bank cards to collect money for others and earn commissions from them. The “score-running platform” uses virtual currency as a settlement method, which can be used to launder money across borders in a very stealthy manner.
In September 2019, a “score-running platform” investigated in Hangzhou, China, was found to have flowed more than 50 billion yuan ($7.77 billion) of funds in the previous three months alone, providing an average of nearly 10 billion yuan ($1.56 billion) of “laundered” funds per month. ($1.56 billion) per month.
Guo Wengui: The Chinese Communist Party is afraid of money escaping
Guo Wengui, a Chinese tycoon in exile in the United States, said in a May 7 webcast that many Chinese people, especially powerful Communist Party members, feel that their money is not safe in China and are using various means to transfer assets abroad, including cryptocurrencies such as Bitcoin, one of the key means. These people buy cryptocurrencies, he said, not for investment, but wealth hedging.
Guo Wengui said that the world is now trying to suppress virtual currencies, including the United States, Britain, Switzerland and China. Several other countries are afraid that virtual currencies will challenge their own credit currency status, but only the Chinese Communist Party is afraid that domestic money will run out.
He said that in Hong Kong and Asia, a lot of money used for production or loans has gone into cryptocurrencies, which is devastating to the CCP’s financial system. A large amount of Chinese wealth goes into virtual currencies, which the CCP cannot find or get back, and is the safest for the holders.
Cryptocurrencies such as Bitcoin are highly liquid and cannot be matched by the general stock market. According to Fosun Group co-founder Liang Xinjun, in April 2020, Bitcoin’s market capitalization was only $158.9 billion, or 3.5% of the HKEx’s market capitalization of $4,517.9 billion, but Bitcoin’s annual trading volume is three times that of the HKEx, and exceeds that of the SSE, which has a market capitalization of $4,923 billion, by about $1,500 billion.
This high liquidity of cryptocurrencies provides very convenient conditions for huge amounts of money to be transferred across borders. The latest data as of May 8 shows that Bitcoin has a 24-hour liquidity of $66.7 billion, with a unit price of $58,580 and a market cap of $1.1 trillion. This compares to a total global cryptocurrency market cap of $2.44 trillion.
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