Chinese Citizens Use Cryptocurrency to Move Funds to Japan
While the Chinese government continues to battle against cryptocurrencies, discoveries are being made of how citizens of the country use the technology to achieve their personal goals. One of such uses is in capital flight, which has seen Chinese investors use cryptocurrencies to send money abroad, especially to neighboring Japan.
This time around, the discovery of significant cross-border transactions from China to Japan was made by Japanese regulators. In the course of an investigation, it was found that Chinese investors were remitting funds to Japan using cryptocurrencies, and converting such funds to Japanese yen. This practice has been on for a couple of years already.
In the course of an investigation into corporate fund flows, Japan’s National Tax Agency, The Asahi Shimbun found a conduit via a Japanese photography company. The company opened a virtual currency trading account with the main focus on supposed customers from China. The company simply accepted virtual currency from these customers and helped in converting them to Japanese yen.
The company was discovered to have transacted up to 27 billion yen, equivalent to about USD 235 million across three years ending in 2019. In its practice, after charging fees for these transactions, the remaining balance was put in various forms of investment, including real estate based on the instruction of the Chinese investors.
In what seems like a classic case of money laundering, three investors, who now look more like intermediaries for some Chinese tycoons seeking to invest in Japan have been identified. It is these three that were directly involved with the photography company to which they sent virtual currencies.
Regulations in China do not allow Chinese citizens to exceed a remittance volume of $50,000 per individual in a year. Any need to exceed this limit will require proper auditing and going through relevant agencies for proper reporting.
These investors who have been identified to send money to Japan secretly simply explored the anonymity of transactions enabled by cryptocurrencies. They also took advantage of the peer-to-peer nature of cryptocurrency transactions, where no intermediaries like banks or clearing houses were needed to execute transactions.
These are some of the concerns that were registered by the Chinese government in the pronouncement of bans on cryptocurrency activities and their enforcement. A major reason given by the government is to enable proper supervision of its financial sector, thereby preventing or eliminating cases of money laundering and crime financing using untraceable cryptocurrencies.
While the fight against cryptocurrencies continues in China, several users continue to operate, albeit secretly within the system. Despite moving their services out of the shores of China, some crypto exchanges still serve citizens, especially big crypto dealers through offshore and over-the-counter transactions.
Enforcement exercises have led to discoveries and arrests of some of these secret crypto users. The government’s body language also shows that it is not relenting until a high level of sanity is achieved in the industry. However, how long the current momentum can be sustained is not known.
Having set out to enforce the ban, it is obvious that a complete cleanup will be difficult to achieve. The fundamentals of cryptocurrency transactions enable users to achieve certain degrees of privacy and anonymity. This has not stopped China from continuing with its clampdown process, as the government pursues a sanitized financial industry.