China Targets Crypto-related Money Laundering Next
One of the biggest news in the cryptocurrency industry in 2021 was the clampdown by China on the novel technology and the innovations surrounding it. While the Asian giant continuously reiterated its support for blockchain technology, the other half of the innovation, cryptocurrency, was highly threatened. Beyond the threats, the government ensured that there was a follow-through, as the ban on cryptocurrency and other related activities was enforced.
Recently, in its Financial Stability Report of 2021, the People’s Bank of China (PBoC) confirmed that it had completed its clampdown on virtual currencies. By this, it suggests that what is left is normal supervision and continued regulation of the financial sector. Meaning that the existing regulatory machinery should be enough to supervise and control whatever happens in the industry henceforth.
The former governor of the Chinese central bank, Zhou Xiaochuan has expressed a slightly divergent opinion from the content of the PBoC report. Although the PBoC intends to use the existing systems to combat cryptocurrency activities, Xiaochuan does not think that it will be sufficient to tackle the money laundering challenges that could be enabled by using cryptocurrencies.
According to Xiaochuan, “the traditional regulatory methods were no longer sufficient to deal with money laundering activities”, implying that China could roll out another crackdown, this time, on money laundering activities involving cryptocurrencies.
Crypto-related money laundering activities are not strange to the Chinese community. In June 2021, 1,100 suspects were reportedly arrested by the Chinese police department over the issue. In terms of ranking in regions where cryptocurrency has been deployed for transactions on the darknet, China ranked high. Even data from Chainalysis earlier this year revealed that many cryptocurrency criminals, especially darknet vendors launder their funds through China.
Therefore, while the Chinese central bank, having completed the clampdown on cryptocurrencies as reported, has moved cryptocurrencies under normalized supervision, Xiaochuan thinks that this will not be enough to tackle crypto-related money laundering. He believes that for there to be any satisfactory achievement in this area, there is the need for the deployment of emerging digital technologies that are industry-focused.
While there are no expectations of any more policy reviewing this year from the Chinese central bank, driving further regulatory actions cannot be overlooked. If not in the remaining part of 2021, probably by 2022, it will not be surprising to see renewed efforts that will be aimed at combating money laundering activities involving cryptocurrencies. After all, before the eventual clampdown on the wider cryptocurrency industry, multiple steps were taken across several years by the Chinese government towards achieving its goal.
With the imminent implementation of the national digital currency, the Digital Yuan, China is clear on its efforts to establish increased supervision over the country’s financial industry. Hence, every effort to eradicate shady areas, which could be encouraged by the use of cryptocurrencies will most likely not be left unattended.
With the government’s openness and positive disposal towards blockchain technology, the adoption of emerging digital technologies as suggested by Xiaochuan looks even more realistic. Perhaps, as time goes on, and the industry settles, even more, we will see a new wave of Chinese clampdown towards cryptocurrencies. This time around, the target would most likely be those involved in illegal transactions that involve money laundering.