5m RMB money laundry case raises concern over regulatory compliance among Chinese altcoin exchanges
While the top 3 bitcoin exchanges are still being scrutinized by PBOC since January, a recent report of money laundry case via bter has raised concern for regulatory compliance issues in altcoin exchanges.
The author, a lawyer in Beijing, disclosed a case using bitcoin as money laundry tools to stress the importance of AML on bitcoin exchanges and a reminder for authorities of capital flight.
The suspects come from Bingyang, a small city notorious for telecom frauds in Guangxi province. There are constant demands for money laundry. With some self-education online, Xu, the laundry dealer, figured out how to clean money via bitcoin exchanges. Xu managed to hook up with Xiao, who was a committed criminal for a series of telecom crimes. They managed to pull off two jobs, laundering a total of 5.424 million RMB(~790k USD at spot rate) . The usual flow is that Xiao pull off the trick and ask the victim to wire money into the bank cards provided by Xu. Then Xu and other suspects use the funds to buy bitcoin, which will be withdrawn to their local wallet. Then the coins are converted into cash via exchanges or underground bank. Exchange mentioned in the case is “bter” and two cases happened around mid 2014.
The suspects acquired around 1,200 btc via bter exchange with the ill-gotten 5 million RMB in August, 2014. Then the bitcoin was converted into cash via underground bank in Macau. Xu and two others claimed 360,000 RMB each as payback. The suspects have been convicted guilty of criminal charges, sentence of which was not revealed.
It’s the first time that such money laundry case being disclosed via mainstream media. Just like the site-inspection to the major bitcoin exchanges, similar reports claiming that the bitcoin was a underground channel for capital flight were often spotted on the internet.
Bter lost 50 million NXT in August 2014 and another 7,170 BTC in Feb 2015 . Bitbank later released a statement to endorse the continuous operation of bter by funds injection. However, the endorsement doesn’t help much to restore faith among users, especially when there are other options in the market.
Currently the 3 altcoin exchanges in China that has been in operation since 2013 are Yuanbao, Btc38 and Jubi. BTC38 lost 1.5 million RMB worth of coins in 2016 but users seemed unaffected. In terms of ID verification, BTC38 sticks to the C1-C3 ID authentication policy. C3, the top level account, user may deposit or withdraw up to 2 million RMB a month. Beijing-based Yuanbao upgraded identity authentication policy on 7th Jan 2017, asking users to upload ID pictures or download Taiyi Creditid App to comply with new verification requirement. Otherwise withdrawal would be suspended. It also claims the new system has successfully prevented a theft case.
It’s worth noting that BTC38 allows 0 transaction fee for enterprise accounts, Yuanbao has 0.2-0.3% transaction fee while Jubi follows 0-0.1% fee policy. There are other altcoin exchanges in China, like Yunbi, Bichuang etc.