[NEW] China's State Administration of Foreign Exchange warns that "cryptocurrency is an illegal tool"

On the 24th, the State Administration of Foreign Exchange of China warned that crypto assets (virtual currencies) are "a tool for illegal foreign exchange transactions."

In a recent media release, it questioned whether crypto assets really have value, once again stating that they are dubious and illegal.

The background to the warning is a money laundering case in 2022. In that case, 17 provinces and municipalities across the country were involved in Qingdao, Shandong Province, and a total of approximately 15.8 billion yuan (approximately 315 billion yen) was allegedly laundered using crypto assets.

Last November, Qingdao police observed abnormal transactions of an average of 3 million yuan (approximately 60 million yen) per day in more than 1,000 accounts. The total amount was said to be 2 billion yuan (approximately 40 billion yen).

The transactions were conducted through internet banking, etc., and the remittance destination appears to have been overseas. Although the suspect, who was the account manager, had no travel history, the investigation revealed that the remitter was a Chinese student studying abroad or someone who had entered or left the country for a short period of time.

In response to this situation, a case officer at the Economic Investigation Detachment of the Qingdao Public Security Bureau in Shandong Province issued a statement saying, "We suspect that the suspect was providing illegal currency exchange services through an account managed by him."

Case investigators from the State Administration of Foreign Exchange and the public security authorities recovered and investigated more than 20 million suspicious transaction records, and found that the suspect's transaction volume exceeded 10 billion yuan (approximately 200 billion yen). After examining the account data using various analytical tools, it was discovered that a large amount of the suspect's funds had been leaked. It was said that they were able to uncover a criminal organization illegally buying and selling cryptocurrencies.

Xu Xiao, an inspector at the Qingdao branch of the State Administration of Foreign Exchange, warned, "The underground banks collected RMB from customers, then purchased crypto assets and used overseas exchanges to sell the crypto assets to obtain the necessary foreign currency. This process realized the exchange of RMB for foreign currency, which is an illegal act of buying and selling foreign currency."

After gathering evidence, investigators carried out an operation to shut down the network. Qingdao police seized about 2 million RMB (about 40 million yen) worth of crypto assets, including Tether (USDT) and Litecoin (LTC).

Under Chinese regulations, crypto assets do not have the same legal status as legal tender, and business activities related to crypto assets are illegal financial activities. Foreign exchange transactions must be conducted at exchanges designated by the country, and any other transactions are illegal and may result in criminal liability.

On the 24th of last month, the Chinese Communist Party decided to appoint Zhu Hexin, former vice governor of the People's Bank of China, as the head of the State Administration of Foreign Exchange of China. Zhu is said to be a person who takes a particularly strict stance on crypto assets.

Ban on crypto assets, but promote Web 3.0

Meanwhile, the People's Bank of China has addressed crypto asset regulations and DeFi (decentralized finance) in its latest Financial Stability Report, and said it will cooperate globally to establish crypto asset regulations.

In addition, this month, the Ministry of Science and Technology of China announced that it will promote Web 3.0 by utilizing blockchain and NFTs. The statement mentioned that the development of Web 3.0 is "important for the country," and indicated its intention to support the development of dApps.

The statement also emphasized that there is no change in the policy of banning crypto assets.

Reference:Announcement
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