Crypto Money Laundering Coming to China’s Policy Framework

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The People’s Bank of China, in its 2021 Financial Stability Report, stressed that its crackdown on virtual currencies was over.

A few days after the report’s publication, Zhou Xiaochuan, former governor of the Chinese central bank, commented on the conventional tools of supervision. He said traditional regulatory methods were no longer sufficient to tackle money laundering activities.

According to Chinese journalist Colin Wu, the statement signified yet another crackdown on money laundering activity involving cryptocurrencies.

Earlier in June, Chinese police reportedly arrested more than 1,100 suspects in crypto-related money laundering offenses. In 2020, the country ranked top of the two, funds sent and received from darknet markets through money laundering services. The Chainalysis Crypto Crime report in 2021 also found that darknet providers “typically launder funds through cryptocurrency services” in China.

For better supervision, Xiaochuan reiterated the use of emerging digital technologies. After achieving its supervision goal, the Chinese central bank moved cryptocurrencies to standardized supervision. However, it seemed that the administration was still trying to maintain a grip on the segment responsible for the scams. Other than that, China is unlikely to make any major political announcements on cryptocurrencies for the rest of the year.

In recent times, China’s latest political announcement to ban mining operations has led to a mass exodus of miners. After that, the Chinese administration declared victory this month, following satisfactory results in the financial report.

However, China’s upper and lower courts have handed down rulings over the past month, reflecting the continued intolerance of cryptocurrencies. The Shandong court ruled that cryptocurrencies were “not protected by law.” In another case, six Chinese nationals were reportedly arrested for conducting virtual currency transactions, violating China’s foreign exchange transfer limit. They face a prison sentence of 2 to 4 years.

All of this comes as the nation tests the launch of its digital yuan. While experts have discussed the benefits of China’s retail central bank (CBDC) digital currency, financial supervision is also raising concerns.

Other countries have also tightened their regulatory hold on DeFi and cryptocurrencies, with the US SEC now keeping stablecoins like Tether under its radar.

Meanwhile, Bitcoin’s hashrate has recovered after China’s crackdown, which hit it badly. At the time of going to press, the BTC hashrate stood at 135.09 EH / s. At the same time, the difficulty has increased by 18.42 T as Chinese miners move to other parts of the world.

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