China is increasing sanctions against the misuse of stablecoins in illegal foreign exchange trading. Recent trials emphasize a zero-tolerance policy towards violations.
According to the South China Morning Post, Chinese authorities are intensifying their efforts to regulate the use of cryptocurrencies in illegal foreign exchange (forex) trading. This effort particularly focuses on the misuse of stablecoins like Tether (USDT) in illegal transactions. The Supreme People’s Procuracy and the State Administration of Foreign Exchange (SAFE) issued a joint statement on December 28, calling on prosecutors and foreign exchange regulators to strengthen oversight. The statement highlighted recent incidents where USDT was used as a medium for exchanging yuan with other currencies.
Widespread Currency Oversight
This initiative stands out as part of the strategy to combat financial fraud and maintain stability in China’s forex market. The SPP and SAFE’s statement emphasized the necessity for local branches to closely collaborate in punishing and legally addressing forex-related fraud cases.
Specifically, the conversion of yuan into cryptocurrency and then into foreign currencies, and vice versa, is considered illegal in China. Authorities declared that those providing technical support for these transactions, such as website development and maintenance, would also be considered accomplices.
This oversight, not limited to direct participants in illegal transactions, includes a notable case where a crypto trader in Dubai was sentenced to seven years in prison and a fine of 2.3 million yuan for illegally converting 22 million UAE dirhams into Chinese yuan using Tether in 2019.
In another case, the developer of payment websites was sentenced to five years in prison and a 200,000 yuan fine for transactions exceeding 220 million yuan using Tether between 2018 and 2021.
Black Market in Cryptocurrencies
China’s stance on cryptocurrencies is one of the strictest globally; hence, trading and mining activities are officially banned. However, the underground crypto market in China, especially in East Asia, is significant. Therefore, traders often try to circumvent regulations by using digital currencies to profit from arbitrage between foreign and local currencies.
Recent police reports from Qingdao in Shandong province revealed a staggering 15.8 billion yuan money laundering case involving cryptocurrencies and illegal foreign exchange trading. These incidents highlight the urgent need for strict regulation in the sector.
Despite the cryptocurrency ban, the Chinese government’s drafting of a national Web3 development plan indicates a more nuanced approach towards digital assets. This demonstrates a willingness to explore the potential benefits of blockchain technology while maintaining a firm stance against its misuse for illegal activities.
This latest directive is a clear message to those involved in or facilitating illegal foreign exchange transactions using cryptocurrencies:
The Chinese government will not hesitate to take decisive steps to protect its financial systems and to counter any threat to its economic stability and security.
