Chinese police in Qingdao, Shandong province recently cracked a major underground bank case that spanned across 17 provinces and municipalities in China, involving a total amount of 15.8 billion Chinese yuan (approximately 69.9 billion New Taiwan dollars). They also arrested an exchange operator who collaborated with this underground bank and engaged in illegal buying and selling of virtual currencies.
According to a report by China Central Television News, in November 2022, the Qingdao police discovered that thousands of accounts belonging to individuals including a person named Jin exhibited abnormal activities. The average daily transfer amount for these accounts exceeded 3 million Chinese yuan, with a total transaction amount of over 2 billion Chinese yuan. These accounts showed abnormal characteristics such as round-the-clock high-frequency operations and quick in-and-out transactions.
These accounts were operated through online banking or mobile banking, and the network operation addresses were displayed as overseas. However, the account holders did not leave the country, except for Jin’s son who has been residing overseas for a long time and his network operation address matches. Therefore, the police suspect that Jin is the actual controller of these accounts.
The police stated that most of the individuals who transferred money to Jin’s controlled accounts had experiences of studying abroad or frequently entering and exiting the country. Furthermore, there were fund transactions between these related accounts and other suspected underground banks within China. Therefore, it was determined that Jin was suspected of providing illegal foreign exchange services through his controlled bank accounts, and also engaging in transactions with other domestic underground banks, constituting illegal business activities.
Textile industry employee becomes illegal virtual currency exchange operator
According to investigations by the National Foreign Exchange Administration and public security authorities, more than 20 million suspicious bank transaction records related to Jin were found, with a transaction volume of over 10 billion Chinese yuan. However, the account situation was extremely abnormal. A large amount of Jin’s funds were concentrated and transferred to multiple bank accounts controlled by Li in China, but the funds only flowed in and not out.
Interestingly, Li is an ordinary employee of a textile enterprise in a county-level city. The transfer amounts of funds associated with her affiliated and controlled third-party bank cards amounted to over 5 billion Chinese yuan. It turns out that her other identity is an exchange operator specializing in illegal buying and selling of virtual currencies. She helped Jin convert a large amount of funds into virtual currencies such as USDT through a foreign virtual currency trading platform.
The State Administration of Foreign Exchange of China pointed out that underground banks collect Chinese yuan from customers and then purchase virtual currencies, which are subsequently sold through overseas trading platforms to obtain the required foreign currency funds. This process realizes the conversion between Chinese yuan and foreign currencies, constituting illegal foreign exchange transactions.
After obtaining solid evidence, law enforcement officers carried out a coordinated operation. The Qingdao police seized virtual currencies such as USDT and Litecoin, which were equivalent to approximately 2 million Chinese yuan, at the scene. Currently, the case has been transferred to the procuratorate for examination and prosecution.
Trading virtual currencies is considered illegal foreign exchange transactions
The report pointed out that in China, virtual currencies do not have the same legal status as legal tender, and engaging in activities related to virtual currencies is considered illegal financial activities. At the same time, trading foreign exchange in China must be conducted at designated locations designated by the state; otherwise, it is considered illegal foreign exchange transactions. Those with serious circumstances may also face criminal liability.
Previously, the Guangdong Provincial Higher People’s Court in China also shared a precedent, stating that it is possible to violate the law in China by buying USDT at a low price and then reselling it for a profit. There have been cases where individuals used cash to purchase USDT from individual investors in the cryptocurrency market at a price lower than the platform’s price, and then resold it at the current exchange rate to earn the price difference, constituting illegal business operations.