Chinese Police Uncover $1.9B USDT Underground Banking Scheme

Authorities in China have uncovered a significant underground banking operation valued at $1.9 billion involving the widely-used stablecoin, Tether (USDT). This clandestine financial system was situated in Chengdu, a major city in China, and utilized USDT to facilitate the exchange of foreign currencies. The local police department released a detailed media report shedding light on the scope and specifics of the illegal operations. The report confirmed that 193 suspects had been apprehended across 26 different provinces in connection to the case.

The police indicated that this underground USDT operation commenced in January 2021. The primary activities conducted through this network included the smuggling of medicinal products, cosmetics, and various investment assets to overseas markets. In the course of their investigation, authorities dismantled two significant hubs of these operations located in Fujian and Hunan provinces. The police successfully froze assets worth 149 million yuan (approximately $20 million) that were linked to the illicit banking activities.

Despite a stringent national ban on cryptocurrency and related transactions in China, local traders continue to find ways to bypass these prohibitions, engaging with crypto assets through alternative means. Published insights from Kyros Ventures suggest that Chinese traders are prominent holders of stablecoins globally. Specifically, around 33.3% of Chinese investors are reported to possess substantial amounts of stablecoins, second only to Vietnam, where 58.6% of investors hold such assets, reflecting a high appetite for risk in the region.

The Chinese government has maintained a firm stance against the use of all forms of cryptocurrency and has also prohibited cryptocurrency exchanges and Bitcoin mining endeavors within its borders. This has not deterred the local populace from finding innovative methods to circumvent these restrictions. When China initially imposed a ban on Bitcoin mining, it was the world’s largest contributor to the Bitcoin network’s hash rate, which plummeted swiftly post-ban. Yet, within an elapsed period of one year, China regained its position as the second-largest contributor to Bitcoin’s hash rate, demonstrating persistent defiance among miners against regulatory constraints.

Alongside mining, China’s prohibition on centralized cryptocurrency exchanges prompted local traders to switch to decentralized trading protocols. This pivot allowed them to continue engaging in crypto transactions despite the country’s strict regulations. Subsequently, there was a sizeable increase in the utilization of decentralized finance (DeFi) protocols by Chinese traders immediately following the exchange ban.

Many Chinese traders have also leveraged virtual private networks (VPNs) to skirt around the national restrictions on cryptocurrency activities. These VPNs enable users to mask their online presence and access otherwise restricted websites, thereby facilitating ongoing engagement in crypto trading irrespective of government-imposed bans.

The resilience and resourcefulness of Chinese traders in the face of stringent regulations highlight a complex dynamic between regulatory efforts and individual pursuits in the crypto sphere. As authorities continue to crack down on illegal crypto activities, traders’ persistent adaptations underscore ongoing challenges in fully enforcing the bans on these digital assets.

The recent bust of the $1.9 billion USDT underground banking racket in Chengdu marks a notable event in China’s ongoing struggle with illicit cryptocurrency operations. While the apprehension of more than 190 suspects across numerous provinces showcases the authorities’ commitment to enforcing the ban, the sustained efforts by traders to bypass these regulations highlight a persistent regulatory challenge within the country.