How a Chinese police raid on $2bn underground bank augurs new crypto clampdown in Asia

The Chinese city of Chengdu in Sichuan usually garners attention for one of three reasons: very spicy food, pandas, and the occasional politically sensitive murder.

This week police broke new ground by busting a major underground bank that had allegedly processed up to $1.9 billion in funds.

Authorities arrested 193 suspect and froze just under $21 million linked to the investigation, according to a post on the Chengdu Security Bureau’s WeChat.

Series of raids

It is the latest in a series of police raids across the country seeking to clamp down on illegal exchange services that cater to businesses and locals moving funds abroad.

Transferring money out of the country for personal reasons is strictly regulated in China and capped at US$50,000 per person per year. This has resulted in the proliferation of a number of tactics to get around the prohibition, including using illicit services.

Many underground banks which help people move money abroad have switched to using cryptocurrencies as a convenient way to transfer money across borders as opposed to moving physical cash or goods.

In 2023, total cryptocurrency received by illicit addresses fell 48% to $24.2 billion, according to Chainalysis. The research firm said that in the future the totals “will almost certainly be higher.”

In its 2024 report, Chainalysis linked use of crypto in China to the fentanyl trade, and money laundering for North Korea.

Illegal money transfers

This week police also shut down an underground bank in Panshi, a small city in Jilin Province located about 100 kilometres from the North Korean border.

The police stated the bank used cryptocurrency as part of an illegal money transfer service for yuan and Korean won. Around $296 million in funds has passed through the underground bank, according to police.

Across Asia, cases involving crypto have become a fixture in the police blotters of local newspapers.

Crystal meth

In South Korea, authorities arrested 34 people linked to a suspected drug smuggling ring that used cryptocurrency to sell crystal meth, synthetic marijuana, and ketamine to online buyers.

Authorities seized funds totalling $245,000 but did not specify if this included crypto.

All-out war

Recent reports on the use of cryptocurrency and Telegram in fueling the drug trade have led President Yoon Seok-yeol to call for an “all-out war” against drug trafficking.

In June last year, he highlighted the use of Telegram, the dark web, and cryptocurrency.

In a separate case, two South Korean police officers are on trial in Gwangju this month for taking a bribe from an alleged crypto fraudster who ran an altcoin scam that amassed an estimated $2.1 million.

North Korea is accused of laundering $147.5 million through Tornado Cash in March alone.

The funds were originally stolen from HTX. The UN Security Council is investigating almost 100 North Korea-linked attacks on cryptocurrency companies between 2017 and 2024, totaling around $3.6 billion.

In Hong Kong on May 15, police arrested three currency exchange staff members in Mong Kok who allegedly tricked a customer out of $128,000 when he tried to transfer his USDT to Hong Kong Dollars, according to the South China Morning Post.

To persuade him to send money to their wallet ahead of the trade, they showed him a stack of cash that turned out to be “hell money” — fake money printed on joss paper, burned to give to deceased relatives in the afterlife.

Criminal networks

Transnational criminal networks in Southeast Asia are raking in almost $64 billion — though not wholly in crypto — from unregulated online gambling and scamming operations, according to the United States Institute of Peace. This is considered a “conservative estimate.”

Crypto evangelists don’t like the term “crypto crime.” They say blaming crypto for wrongdoing is the same as blaming the US dollar.

Law enforcement, it appears, begs to differ. Police worldwide have been stepping up to train officers on dealing with cases involving crypto.

In April, South Korea said it would make its temporary crypto investigative unit, which was launched in July 2023, permanent.

Bitrace ran sessions for the Cyber Security and Technology Crime Bureau and Commercial Crime Bureau in Hong Kong last month which included methods for investigating crypto crime.

Earlier this year, Georgia and Armenia also ran training sessions for local officers.

Callan Quinn is DL News’ Hong Kong-based Asia Correspondent. Get in touch at callan@dlnews.com.