A report published by The Wall Street Journal revealed that Chinese crime gangs are using cryptocurrencies to launder billions of dollars, including money collected from helping to import drugs into the United States or defrauding American victims.
These gangs exploit the decentralized nature of cryptocurrency markets to evade the grip of Chinese and foreign authorities.
According to the newspaper, they use cryptocurrencies to launder profits from drug trafficking and illegal gambling, and have made huge sums from investment scams that promise easy returns in cryptocurrency markets.
A previous report by research firm Chainalysis last year found that cryptocurrency addresses linked to a group of suspected China-based chemical dealers had received more than $37.8 million in assets since 2018 in exchange for shipping a key ingredient in fentanyl.
Drug gangs
These shipments are often sent to Central America and Mexico, where drug cartels use them to manufacture the drug, which is then shipped to the United States.
In October, the U.S. Office of Foreign Assets Control sanctioned a network of China-based individuals and companies for manufacturing and distributing ingredients used in fentanyl and other drugs. Some of these individuals maintained cryptocurrency wallets to send and receive funds, the Treasury Department said.
Fentanyl use by Americans has become a major public health problem, killing more than 100,000 people a year, according to the latest figures from the Centers for Disease Control and Prevention.
China-US cooperation
Chinese and U.S. officials agreed this year to work together to address the issue.
These cases highlight the changing nature of money laundering, which is increasingly being done through cryptocurrencies rather than old-fashioned methods like shipping bags of cash.
This is a problem for investigators, but it also provides them with new ways to track money flows, as most cryptocurrency transfers are kept in a public ledger, the US newspaper reported.
Beijing has taken a hardline stance against cryptocurrencies for years, forcing exchanges to close, banning trading and jailing executives who previously worked in the industry.
In January, the powerful State Council said it would submit a revised anti-money laundering law to the country’s top legislature for review, and legal experts say addressing the role of cryptocurrencies in money laundering is the most pressing issue.
Chinese procedures
Chinese law enforcement agencies across the country have investigated more than 800 cases, shut down five underground banks used to help process payments, and uncovered about $4 billion worth of funds based on blockchain data, the police force said in January. It has worked with blockchain analytics firm OKLink to track wallets, which allow cryptocurrencies to be stored and transferred.
In late 2022, Chinese police arrested 63 suspects linked to a criminal group that used cryptocurrencies to launder the equivalent of roughly $1.7 billion in an operation spanning 17 provinces.
Chinese prosecutors have also indicted prominent crypto executives. Zhao Dong, the founder of China’s main over-the-counter cryptocurrency platform RenrenBit, was sentenced to seven years in prison in 2022 after providing cryptocurrency exchange services to an illicit offshore gambling operation.
Tether, a stablecoin pegged to the US dollar, was used as a way for these groups to switch between different fiat currencies, officials said.
