n November 2022, Chinese authorities in Chengdu investigated suspicious fund settlements through underground banks. This led to the uncovering a substantial money laundering scheme spanning 26 regions. Reports indicate over 13.8 billion yuan ($1.9 billion) in illegal transactions were facilitated by the operation over multiple years.
The Scale of the Underground Network
The criminal network recruited members across industries to use underground banks for settlement activities. A special task force coordinated arrest operations on June 1, 2023, in major cities. This resulted in 193 suspects detained relating to over 58 cases. Numerous payment instruments and bank cards were also confiscated as evidence. The primary suspects, including leaders Lin, Weng and Chen, allegedly exploited Tether's USDT stablecoin to enable illegal foreign exchange and funds transfers abroad.
Allegations of USDT Misuse
The investigation claims the gang took advantage of USDT to bypass China's strict capital controls and conduct various international criminal activities. This included smuggling, drug trafficking, tax fraud and more. As a decentralized digital currency, USDT allowed the settlement of funds in a less traceable manner compared to national fiat currencies. However, Tether has consistently denied any complicity, emphasizing the stablecoin was never intended for illegal use cases.
Ongoing Enforcement and Prevention Measures
In response, Tether froze $5.2 million in USDT linked to phishing operations to protect users. New advanced monitoring systems are also deployed to detect unauthorized transactions in real time. Chinese authorities will continue cracking down on underground banking and prosecuting those exploiting cryptocurrencies for unlawful gain. This high-profile case demonstrates the need for all payment platforms and regulators to collaborate closely against money laundering.
The uncovered underground financing network highlights ongoing efforts by Chinese law enforcement to disrupt illegal activity. While decentralized digital assets offer benefits, stablecoins must not enable harms like tax evasion, drugs or human trafficking. All involved parties now have a heightened responsibility to ensure cryptocurrencies are not associated with or tempted for the wrong reasons. Continued cooperation is important to safeguard the industry's reputation and future.
