‘I conducted four transactions, and my bank card was frozen three times. The last time, I chose Alipay, but it was also frozen due to being flagged as an abnormal transaction by the system.’
Having bought but not daring to sell, and profits becoming difficult to convert into tangible wealth, as Bitcoin prices reach new historical highs, similar experiences cast a shadow over every cryptocurrency trader.
Since its inception, despite frequent drastic price fluctuations, Bitcoin has become a well-known alternative asset recognized and traded by more and more people, with prices continually rising. On the other hand, the semi-anonymity of Bitcoin has become a breeding ground for certain criminals to hide their identities, transfer funds, and evade foreign exchange controls. Especially since 2017, when multiple countries, including China, severed the routes for purchasing Bitcoin and other digital assets with fiat currency, various stablecoins pegged to the US dollar, such as USDT and USDC, have become essential tools in the cryptocurrency space, providing more convenient and risk-free channels for the aforementioned activities.
Since 2020, with the joint efforts of multiple departments such as the Ministry of Public Security and the Central Bank to crack down on cross-border gambling money chains, the behavior of using virtual assets such as Bitcoin and stablecoins for money laundering and fund transfers has been under closer scrutiny. Once involved in certain illegal money transmission chains, such as selling virtual currency at suspected OTC merchants or being identified as abnormal transactions by banks, it will trigger bank card freezes, with durations ranging from three days to two years. In more severe cases, law enforcement may require individuals to cooperate with investigations to explain the source of funds.
Amid the wave of card freezes, although cryptocurrency prices are rising towards the end of the year, the atmosphere within the community is tense, and OTC merchants are on edge. An experienced player lamented to Tencent News (Qianwang) that he started buying aggressively since Bitcoin prices hit a low in March, later betting on some DeFi assets and earning over 10 million yuan this year, but the widespread experience of friends facing card freezes has made him hesitant to cash out, opting instead to hold stablecoins on exchanges.
‘A few years ago, the cryptocurrency space wasn't as chaotic, so KYC (Know Your Customer) was easier to implement, but in the past two years, there have been various scams, gambling, and even drug-related funds trying to use virtual currencies to launder money, and a slight mistake can lead to involvement.’ An OTC merchant specializing in virtual asset over-the-counter transactions described to Tencent News (Qianwang) that although this portion of funds represents a very small percentage, once involved, the upstream and downstream of the entire money transmission chain will be implicated, leading to card freezes or even more severe consequences.
Tencent News (Qianwang) learned from regulatory sources that the Central Bank and the Foreign Exchange Bureau already have comprehensive regulatory measures for the aforementioned risks, with dedicated departments responsible. 'For example, on the day the stablecoin Libra released its white paper, we asked them to explain the associated risks.' As the regulation on anti-money laundering and the crackdown on cross-border gambling funds intensifies, future efforts against gray behaviors in the cryptocurrency space will only become stricter.
This also means that the wave of card freezes may just be the beginning. 'Compliance is the only way forward in the future,' said a co-founder of a leading exchange to Tencent News (Qianwang), stating that exchanges need to ensure strict checks on OTC merchant qualifications from the source.
Stablecoins have become an excellent vehicle for money laundering.
Since its inception in 2009, Bitcoin has rapidly gained global popularity due to its limited supply, decentralization, and semi-anonymity, attracting considerable attention.
However, these characteristics have also led to Bitcoin being used by a minority of criminals for various gray areas. Using Bitcoin to circumvent the Central Bank's foreign exchange controls and transfer capital out of the country has also become one of its uses.
An extreme case occurred during the abnormal fluctuations in the A-share market in 2015, when the trading company Yishidun sought to transfer a massive amount of funds through Bitcoin after profiting over 2 billion yuan from high-frequency trading.
Tencent News (Qianwang) learned that Yishidun had approached the trading platform Bitcoin China, but related personnel from Bitcoin China revealed that Yishidun did not undergo the corresponding real-name verification, and the transaction amounts were enormous, which raised the platform's alertness, leading to the rejection of Yishidun's transaction request.
However, the significant price volatility and slow transaction speeds of Bitcoin do not provide a sufficient safety net for money laundering activities. As the market for virtual assets develops, stablecoins that connect fiat and virtual assets are viewed by criminals as more efficient and safer vehicles for money laundering, as they provide value preservation properties in the dramatically fluctuating virtual asset market, and have become the basic currency in the cryptocurrency space.
Among them, USDT (known as 'Tether') is the most widely used stablecoin, with a current market capitalization exceeding $19 billion. This stablecoin was launched by Tether, where 1 USDT is equivalent to 1 USD, and users can exchange USDT for USD on a 1:1 basis. Tether also claims to adhere to a 1:1 reserve guarantee, meaning that for every USDT token issued, there is $1 in its bank account.
The domestic regulators have long been alert to the risks posed by stablecoins. Mu Changchun, director of the Central Bank's Digital Currency Research Institute, has repeatedly stated that global stablecoins pose various risks to public policy and regulation, such as legal certainty, governance, anti-money laundering, anti-terrorist financing, anti-proliferation of weapons of mass destruction, payment system security, market stability, personal privacy and information protection, consumer and investor protection, and tax compliance challenges, and could very likely lead to the complete opening of underground economic channels and become tools for illegal transactions.
The Financial Action Task Force (FATF), an international anti-money laundering authority, also pointed out that stablecoins can cause changes in the virtual asset ecosystem and pose significant risks of money laundering and terrorist financing.
‘All kinds of people have come in.’
The money laundering risks triggered by virtual assets, especially stablecoins, are the fundamental reasons behind the ongoing wave of card freezes in the entire cryptocurrency space.
A founder of a virtual asset wallet told Tencent News (Qianwang), 'The biggest problem in the past two years is that all kinds of people have entered the cryptocurrency space, and we must avoid these individuals.' Another merchant with years of experience in OTC lamented that when they first started, client audits mainly aimed to prevent telecom fraud funds, but with the rise of offshore gambling and scams, these 'people' often have funds related to gambling or even drugs, attempting to use over-the-counter transactions for cross-border fund transfers or money laundering.
‘A slight mistake can lead to a 37-day package waiting for you, or even a direct criminal charge.’ The merchant described that a colleague was treated as a mediator for gambling funds due to inadequate KYC compliance and was detained for 37 days to prove their innocence before being released, while the bank cards of cryptocurrency traders conducting transactions with him were also frozen.
At a conference held in September, Liao Jinrong, director of the International Cooperation Bureau of the Ministry of Public Security, introduced the situation regarding the crackdown on cross-border gambling crimes. He revealed that preliminary statistics show that over a trillion yuan in gambling-related funds flow out of the country every year. Against the backdrop of increasing economic pressure, this exacerbates economic and financial security risks. In terms of criminal patterns, some gambling gangs use virtual currencies to collect and transfer gambling funds, even engaging in online gambling under the guise of investment in some regions of Myanmar. Such new channels are untraceable and anonymous, presenting significant challenges for law enforcement.
In October, the Central Bank disclosed that the Huizhou Central Branch of the People's Bank of China assisted local police in cracking a cross-border online gambling case involving the use of virtual currency Tether (USDT). A total of 77 suspects were arrested, three gambling websites were shut down, and the amount involved was nearly 120 million yuan. This case involved not only transactions in bank accounts but also virtual currencies, and through multiple rounds of money laundering, the flow of funds was extremely concealed.
‘We are now trying to conduct pure transactions, which simply means that every single amount of money and every single cryptocurrency we handle must be audited separately, but this is just an ideal. If every transaction flow needs to be audited, it essentially blocks 99% of users from participating,’ said the aforementioned virtual asset wallet founder, indicating that under increasing regulatory pressure, it is becoming increasingly difficult for OTC merchants to operate.
To avoid having their bank cards frozen, cryptocurrency traders have summarized many internal experiences, such as not using salary cards or commonly used cards for transactions, as freezing would disrupt housing and car loans, and also cause credit problems. They also advise against using cards from large banks, as their risk controls are stricter.
Similar experiences include that fund flows need to be overnighted, and a more sophisticated approach is to use different bank cards for buying and selling, immediately converting the proceeds from selling cryptocurrency into financial products before cashing out.
The crackdown will only become stricter.
However, regardless of how merchants and players try to avoid risks, constrained by the gray identity of virtual currencies and the difficult-to-sever ties to illicit funds, the wave of card freezes may just be the beginning.
Regulatory sources close to the Central Bank told Tencent News (Qianwang) that the current regulatory approach remains 'to handle everything according to the notices from the seven ministries.' In 2017, the Central Bank and six other ministries announced that the exchange of 'virtual currencies' among themselves is strictly prohibited, and the buying and selling of tokens or 'virtual currencies' is not allowed as a central counterparty, nor can services such as pricing and information intermediary for tokens or 'virtual currencies' be provided.
The crackdown on cross-border gambling money chains has always been under high pressure. Recently, Deputy Governor of the Central Bank Fan Yifei pointed out that cutting off the cross-border gambling money chain is an important task in the fight against and resolution of major financial risks. It is necessary to be highly vigilant, accurately grasp the difficulties and challenges faced in combating and managing cross-border gambling financial supervision, continue to strengthen research, understand the methods of money flow and criminal acts in cross-border gambling, accurately grasp the actual situation of gambling-related money chains, and timely and effectively adjust prevention and control strategies and tactics to effectively intercept them.
FYF emphasized the need to strengthen overall coordination, enhance information sharing, and fully mobilize the strength of grassroots branches. At the same time, it is essential to strengthen the main responsibility, and continue to operate under the principles of 'whoever opens an account (card) is responsible,' 'whoever's user (merchant) is responsible,' and 'whoever's cooperative client is responsible,' and to seriously hold licensed payment service providers accountable. Additionally, there is a need to enhance customer identity verification, large and suspicious transaction reporting, and account cash withdrawal identity verification as part of risk prevention efforts.
A relevant person from the Foreign Exchange Bureau also stated that the current situation of cracking down on and regulating cross-border gambling remains very severe and complex, and the pressure to combat the illegal transfer of cross-border gambling funds will be maintained. They will cooperate with law enforcement agencies to continuously crack down on underground banks, firmly sever the illegal remittance and circulation channels of gambling funds, and investigate banks and payment institutions that provide payment settlement services for cross-border gambling funds in violation of the law.
Under the high-pressure situation, the shadow hanging over cryptocurrency traders is hard to dispel. An insider predicted that players participating in cryptocurrency trading may experience their first bank card freeze in the next one or two years.
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