Qingdao police bust billion-dollar illegal cryptocurrency-fueled underground bank

In a collaborative effort between local police in Qingdao, Shandong province, and China's foreign currency regulators, a major breakthrough was announced on Sunday in the dismantling of an illegal underground banking operation involving over 15.8 billion yuan ($2.2 billion). According to China Central Television, 74 suspects have been apprehended and await prosecution.

The illicit activities of the suspects primarily centered around substantial foreign currency exchanges facilitated by purchasing cryptocurrency within the Chinese mainland and selling it on overseas transaction platforms. This attempted evasion of Chinese regulators was strictly prohibited, authorities stated.

The case first came to light in November last year when police detected thousands of accounts associated with an individual surnamed Jin, engaging in transactions exceeding 3 million yuan daily. Notably, funds were swiftly wired in and out. Investigators observed that these transactions were conducted through overseas IP addresses via internet or mobile applications, despite few of the account owners, apart from Jin's son, having traveled abroad. Furthermore, the majority of funds wired to these accounts originated from overseas students or individuals on short overseas trips.

The police deduced that Jin was orchestrating illegal foreign exchange services. Subsequent investigations revealed that a substantial portion of the funds entering Jin's accounts were being transferred to accounts owned or linked to a person surnamed Li, with minimal funds exiting Li's accounts.

Liu Gang, an official from Qingdao Police's economic crime bureau, disclosed that Li, an ordinary worker at a textile company, received over 5 billion yuan in his accounts, despite his modest employment status. Further investigation revealed Li's involvement in illegal cryptocurrency transactions. Despite awareness of Jin's illicit banking activities, Li continued to conduct numerous transactions with Jin, assisting in the purchase of cryptocurrency on overseas platforms and the subsequent reclamation of foreign currency.

This process, according to Xu Xiao from the State Administration of Foreign Exchange's Qingdao bureau, facilitated an illegal exchange between renminbi and foreign currency, as it circumvented designated venues such as banks. Such large-scale exchanges may constitute criminal activity.

A 2021 rule jointly established by several government departments, including the People's Bank of China, deemed engaging in cryptocurrency transactions illegal in China.

Following over six months of extensive investigations, law enforcement agencies across China coordinated a joint operation, resulting in the arrest of 74 suspects in approximately two weeks. Suspects have reportedly confessed to receiving a commission of around 0.4 percent through these transactions, according to the police.

Zhang Zhaohui, deputy head of the State Administration of Foreign Exchange's Qingdao bureau, cautioned the public to conduct foreign exchange transactions at authorized venues, urging them to steer clear of individuals or illegal entities that might offer "more convenient" or "better exchange rates."

The administration reported that, from January to November of the current year, 120 underground banking cases were cracked, resulting in fines or confiscations totaling nearly 1 billion yuan.