Chinese authorities reportedly cracked down on a $2.2 billion underground banking operation that allegedly used foreign “virtual currency trading platforms” to help its clients bypass the country's capital controls.

On Dec. 24, news was shared on Chinese social media that reported that Chinese foreign exchange police discovered an underground bank using crypto to bypass forex restrictions.

“Underground banks purchase virtual currencies and then sell the virtual currencies through overseas trading platforms to obtain the foreign currency they need,” explained Xu Xiao, the inspector from the Qingdao Branch of the State Administration of Foreign Exchange.

Chinese authorities are interviewed regarding the crackdown on the forex operation. Source: CCTV

“This process completes the conversion of yuan and foreign currencies, which constitutes the illegal act of buying and selling foreign exchange,” he said.

Investigators on site reportedly seized cryptocurrencies worth $28,000 (200,000 Chinese yuan), including Tether, Litecoin (LTC), and others, though the entire operation has moved over $2.2 billion (15.8 billion Chinese yuan) over a thousand bank accounts across 17 provinces and municipalities, according to the report.

China’s laws limit Chinese nationals from exchanging more than $50,000 worth of foreign currencies yearly unless they have a permit. Circumventing them is considered money laundering by the state.

Some believe these capital controls are the real reason behind China’s anti-crypto stance. The Chinese government has said the ban was due to crypto being used to launder the proceeds of crime, however.

Officials investigating the alleged underground foreign exchange ring. Source: CCTV

In 2016, China imposed strict foreign exchange regulations whereby banks, companies, and individuals must comply with a “closed” capital account policy.

This means that money cannot be freely moved into or out of the country unless it abides by these tight state-controlled rules to prevent capital flight.

A year later, China outlawed crypto exchanges in the country. In 2021, China implemented a strict ban on cryptocurrencies, which persists today.

Related: Chinese central bank urges the world to jointly regulate crypto

In March, an investigation suggested that Binance employees and volunteers allegedly assisted customers in China to circumvent the exchange’s Know Your Customer (KYC) procedures.

On Dec. 23, the SCMP reported that users in China accessed Binance by falsely listing their location as Taiwan.

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