Chinese police arrested more than 1,100 people in a recent crackdown on charges of using cryptocurrency to launder illegal proceeds of phone and internet fraud, the Public Security Ministry said.
The arrest came as Chinese authorities intensified their crackdown on the cryptocurrency trade. Last month, three industry bodies banned crypto-related financial and payment services, and the Chinese cabinet, the State Council, vowed to crack down on bitcoin mining and trading.
The Department of Public Security said last Wednesday afternoon that police had arrested more than 170 criminal groups using cryptocurrencies for money laundering.
Money launderers have charged criminal clients a fee of 1.5% to 5% for converting illegal proceeds into virtual currency through cryptocurrency exchanges, the Defense Department said through an official WeChat account.
The China Payments and Compensation Association said on Wednesday that crimes related to the use of virtual currencies were on the rise.
Because cryptocurrencies are virtually anonymous, convenient, and global, “they are increasingly becoming a major channel for cross-border money laundering,” the association said in a statement.
Bitcoin Money Laundering
Cryptocurrencies have already become a popular payment method in illegal gambling activities. According to the association, nearly 13% of gambling sites support the use of virtual currency, and blockchain technology makes it difficult for authorities to track money.
Although cryptocurrencies can be used for illicit activities, the overall impact of bitcoin and other cryptocurrencies on money laundering and other crimes is small compared to cash transactions.
In 2019, only $ 882 million worth of Bitcoin was used on the Dark Web 1 (only 0.5% of all Bitcoin transactions). As blockchain technology provides a public record of all transactions, it puts you at risk of financial crime in cryptocurrencies, including bitcoin money. Bleaching is manageable.
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How do criminals use cryptocurrency for launder money?
Criminals use various cryptocurrency-related methods to hide the illegal sources of their funds. All of these methods take advantage of some or other vulnerabilities in cryptocurrencies, such as single nickname, easy cross-border transactions, and decentralized peer-to-peer payments. As with money laundering, there are three main stages in crypto money laundering.
At this point, illegal funds are flowing into the financial system through intermediaries such as financial institutions, stock exchanges, stores, and casinos. One type of cryptocurrency can be purchased with cash or another cryptocurrency. This is possible thanks to online cryptocurrency exchanges. Criminals often use exchanges with low AML compliance for this purpose.
At this point, the criminals hide the source of the illegal funds through structured transactions. This makes the tracking of illegal money difficult to decipher. Cryptocurrency exchanges allow criminals to convert one cryptocurrency to another or participate in initial coin offers in which payments for one type of digital currency are made in another. Criminals can also move their cryptocurrencies to other countries.
Here, the illegal money is returned to the economy in perfect condition. One of the most common techniques used by criminals is the use of over-the-counter (OTC) brokers which act as intermediaries between buyers and sellers of cryptocurrencies.