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Chinese Police Stop Illegal $1.9 Billion Tether Banking Ring – Criminals Bypassing Government Control With USDT

Last Updated 6 days ago
Teuta Franjkovic
Last Updated 6 days ago
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Chinese police dismantled a $1.9 billion underground banking network using Tether for illicit activities.
  • The ring used the stablecoin in a bid to bypass foreign exchange controls.
  • 193 suspects across 26 provinces were arrested in connection with the illegal operation.
  • Despite a nationwide crypto ban, Chinese investors remain active, holding a significant share of stablecoins.

Chinese police have dismantled a $1.9 billion underground banking network that used Tether (USDT) on foreign exchanges. The scheme allowed criminals to bypass governmental controls on currency.

Authorities arrested 193 suspects involved in the operation across 26 provinces, according to a police report .

Massive Chinese Underground Banking Network Dismantled

This illicit banking system, operational since January 2021, was mainly involved with the smuggling of medicine, cosmetics, and investment assets.

The crackdown led to the destruction  of two major underground networks in Fujian and Hunan provinces. Police also seized assets worth 149 million yuan (about $20 million) connected to these operations.

In November 2022, the Longquanyi District Branch of the Chengdu Municipal Public Security Bureau uncovered a case involving obstruction of drug management. A suspect used underground banks for fund settlements, suspected of engaging in illegal foreign exchange activities. The Bureau formed a task force to tackle the “2·27” money laundering case.

By June 1, 2023, under directives from the Ministry of Public Security and the Public Security Department, the task force carried out raids in cities including Shanghai, Changsha, Nanjing, Shenzhen, Fuzhou, and Jinhua.

They arrested a group led by individuals surnamed Lin, Weng, and Chen. Police also arrested 25 other suspects and seized with bank cards and payment devices.

Criminals Used Tether

Investigations revealed that since January 2021, this criminal network, originating from an import and export business, used the USDT to help illegal fund transfers abroad. They often worked with other firms to take part in in fraudulent activities, such as tax refund scams.

Further inquiries that the gang used USDT to bypass national foreign exchange controls,  posing significant risks to the country’s financial and foreign exchange security. The network’s activities extended to:

  • Financial fraud.
  • Job-related crimes.
  • Drug management obstruction.
  • Smuggling of restricted goods.
  • Credit card fraud.
  • Tax evasion.

In August 2023, the Ministry of Public Security initiated a nationwide crackdown, resulting in the arrest of an additional 168 suspects across 26 provinces.

Chinese Crypto Investors Defy Ban, Hold Significant Stablecoin Share

Despite China’s strict ban on all crypto-related activities, Chinese traders continue to find ways to use cryptocurrencies, particularly stablecoins, to circumvent these restrictions.

According to a report by Kyros Ventures , Chinese investors are some of the world’s largest holders of stablecoins. One-third of Chinese investors hold stablecoins, making them second in Asia, with 58.6% of Vietnamese investors having stablecoins.

Betting on crypto
Credit: Kyros Ventures

Chinese Crypto Users Persist Despite Government Crackdown

At the time of its 2021 Bitcoin mining ban, China was the largest contributor to the Bitcoin network’s hash rate. Remarkably, even after the ban, within a year, China’s contribution to the mining hash rate climbed back to second place. Following the prohibition of centralized exchanges, Chinese traders swiftly pivoted to decentralized ones (DEXes).

In response to these restrictions, there has been a significant surge in the use of decentralized finance (DeFi) protocols among Chinese traders. Additionally, some people have continued to defy the ban by using virtual private networks (VPNs) to access restricted trading platforms.

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