Crime syndicates in China launder billions of dollars using cryptocurrency
Chinese organized crime groups are laundering billions of dollars in cryptocurrency, including funds obtained from defrauding American citizens or assisting in the supply of narcotics to the United States.
These criminal organizations are evading Chinese and international authorities by taking advantage of the decentralized character of bitcoin markets. They have amassed vast fortunes through investment schemes that guarantee quick gains in the cryptocurrency markets and are laundering narcotics and illicit gambling proceeds through cryptocurrency.
In a report released last year, the research firm Chainalysis detailed the exchange of almost $37.8 million worth of assets for the shipment of a crucial constituent of fentanyl with crypto addresses associated with a network of suspected Chinese chemical merchants. Many times, these shipments end up in Mexico and Central America, where drug traffickers turn them into finished products that are then delivered back to the United States.
In October, a group of Chinese people and businesses were sanctioned by the U.S. Office of Foreign Assets Control for their involvement in the production and sale of fentanyl and other narcotics. According to the Treasury Department, some of those people used bitcoin wallets to send and receive funds.
The most recent data from the CDC show that fentanyl usage is a big public health concern in the United States, responsible for over 100,000 deaths annually. In a rare display of unity, officials from the world’s two most powerful nations have decided to collaborate on a solution to the problem this year.
These incidents demonstrate how money laundering is evolving away from traditional approaches like sending cash in suitcases and toward cryptocurrency.
Since the majority of bitcoin transactions are recorded on a public ledger, this presents investigators with both challenges and opportunities to trace money flows.
According to a joint investigation published in January by ChainArgos and Bitrace, two blockchain research groups based in China and Singapore, the scammers who preyed on multiple victims in Florida and China shared two cryptocurrency wallet addresses, suggesting they are probably affiliated. As of early 2021, at least one of those wallets handled tokens valued at $20.7 million, according to the research. The investigation revealed that two prominent cryptocurrency exchanges, OKX and Huobi (now rebranded as HTX), received the stolen cash from those two accounts.
U.S. victims often lose $10,000 or less, which is a significant sum but not big enough for organizations like the FBI to prioritize their cases, according to Jonelle Still, an adjunct professor in blockchain analytics at the Middlebury Institute of International Studies. This makes it difficult for victims to get their money back.
Proponents of anti-fraud measures argue that the international scope of these syndicates makes it more difficult to apprehend perpetrators and assist victims in recouping their losses.
Over the years, Beijing has adopted a firm stance against cryptocurrency, leading to the closure of exchanges, trading bans, and the imprisonment of executives with ties to the industry. The influential State Council said in January that it would send a new anti-money-laundering bill to the highest legislative body in the nation for consideration. The most pressing matter, according to legal experts, is addressing the role of cryptocurrency in money laundering.
According to Rory Doyle, head of financial crime policy at financial-software firm Fenergo, “having a blanket ban on cryptocurrency exchanges is one thing, but it doesn’t seem to be working.”
Chinese authorities announced in January that they had identified approximately $4 billion worth of assets based on blockchain data, examined over 800 cases, and shut down five underground banks that helped execute payments. Wallets enable the storage and movement of bitcoins, and it collaborated with blockchain analytics company OKLink to monitor them.
In a 17-province operation that began in late 2022, Chinese authorities detained 63 individuals they believed were associated with a criminal organization that had laundered almost $1.7 billion in cryptocurrency.
Notable crypto CEOs have also been indicted by Chinese prosecutors. After offering crypto-exchange services to an unlawful enterprise engaged in offshore gambling and so-called pig-butchering schemes, Zhao Dong, inventor of a prominent Chinese over-the-counter crypto platform called RenrenBit, was sentenced to seven years in jail in 2022. According to authorities, these groups have been utilizing Tether, a stablecoin tied to the US dollar, to convert between other fiat currencies.
