China Takes Down $295M Crypto Underground Bank: Beginning Of A Bigger Crackdown?

Chinese
law
enforcement
has

disrupted
a
covert
banking
network
that
leveraged
cryptocurrencies
to
execute
unauthorized
foreign
exchange
transactions
totaling
around
2.14
billion
yuan
($295.8
million).

This
illicit
operation
mainly
converted
the
Chinese
yuan
into
the
South
Korean
won,
evading
the
established
legal
frameworks
for
currency
exchange.

Uncovering
The
Shadow
Crypto
Banking
Network 

In
Jilin
province,
police
apprehended
six
people
connected
to
this
operation,
underscoring
the
growing
role
of
digital
currencies
in
bypassing
standard
financial
regulations.

According
to
official
statements,
this
clandestine
banking
entity
utilized
cryptocurrencies’
inherent
“anonymity
and
decentralization”
to
carry
out
these
unlawful
transactions.

It
was
reported
that
the
accused
managed
domestic

bank
accounts
to
receive
and
channel
funds
and
conduct
over-the-counter
cryptocurrency
trades.

These
activities
primarily
served
several
business
types,
including
South
Korean
purchasing
agents,
cross-border
e-commerce
entities,
and
firms
engaged
in
import-export
trade.
This
setup
enabled
the
illegal
exchange
of
currencies
between
the
yuan
and
the
won,
violating
regulatory
norms.

Notably,
the
busting
of
this
underground
bank
is
part
of
a
broader
crackdown
by
Chinese
authorities
on
crypto-related
activities.
Despite
banning
cryptocurrencies
and
related
operations
like

Bitcoin
mining,
China
remains
active
in

policing
the
sector.

This
action
follows
the
recent
investigation
of
Yao
Qian,
a
former
pro-blockchain
official,

under
suspicions
of
“serious
violations
of
discipline
and
law.”
However,
details
of
the
allegations
against
Qian
remain
unclear,
with
authorities
only
citing
vague
violations.
The
report
noted:

Yao
Qian,
Director
of
the
Science
and
Technology
Supervision
Department
and
Director
of
the
Information
Center
of
the
China
Securities
Regulatory
Commission,
is
suspected
of
serious
violations
of
discipline
and
law
and
is
currently
under
investigation
by
the
Central
Committee.

Challenges
Facing
China’s
Digital
Currency
Initiatives

While
China
combats
illegal
crypto
operations,
it

faces
challenges
in
promoting
its
central
bank
digital
currency
(CBDC),
the
e-CNY,
or
digital
yuan.

Despite
government
efforts
to
pilot
the
e-CNY
in
various
cities
and
reports
of
billions
in
transactions,
public
reception
remains
tepid.

For
instance,
state
employees
in
some
regions
are
paid
partly
in
digital
yuan.
Due
to
the
lack
of
incentives
and
limited
merchant
adoption,
they
frequently
convert
their
holdings
back
to
cash.

The
digital
yuan
struggles
to
compete
with
well-established
digital
payment
platforms
like
Alipay
and
WeChat
Pay,
which
dominate
online
and
offline
transactions.

Sammy
Lin,
an
account
manager
at
a
Chinese
state
bank,
noted
the
absence
of
benefits
in
holding
the
digital
yuan,
stating,
“There’s
no
interest
if
I
leave
it
there,
and
there
aren’t
many
places
where
I
can
use
it.”

This
sentiment
reflects
broader
concerns
about
the
e-CNY’s
practicality
and
the
need
for
more
compelling
use
cases
to
ensure

widespread
adoption.

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