Chinese authorities have intensified efforts to regulate the use of cryptocurrencies in illegal foreign exchange (forex) trading, South China Morning Post reported.

The crackdown specifically targets the misuse of stablecoins like Tether (USDT) in unlawful transactions.

The Supreme People’s Procuratorate and the State Administration of Foreign Exchange (SAFE) issued a joint statement on Dec. 28, urging prosecutors and forex regulators to bolster supervision.

The statement highlighted recent instances where USDT was used as a medium for exchanging yuan with other currencies.

Broader crackdown on forex

The initiative is part of China’s broader strategy to combat financial fraud and maintain stability in its forex market. The statement from SPP and SAFE emphasized the need for local branches to collaborate closely to punish and lawfully handle cases related to fraudulent forex activities.

In particular, the conversion of yuan into cryptocurrency for further conversion into foreign currencies, and vice versa, has been deemed illegal in China. The authorities have clarified that even those providing technical support, such as website development and maintenance for these transactions, will be considered accomplices.

The crackdown is not just limited to direct participants in illegal transactions. In a notable 2019 case, a crypto trader in Dubai was sentenced to seven years in jail and fined 2.3 million yuan for illicitly exchanging over 22 million UAE dirhams into Chinese yuan using Tether.

Another case involved transactions exceeding 220 million yuan using Tether between 2018 and 2021, leading to five-year imprisonment and a 200,000 yuan fine for the developer of the payment websites.

Crypto black market

China’s stance on cryptocurrency has been one of the strictest globally, with trading and mining activities officially banned. However, the underground cryptocurrency market in China, particularly in East Asia, remains significant. Traders often use digital currencies to circumvent regulations and profit from the arbitrage between foreign and local currencies.

Recent police reports from Qingdao in Shandong province revealed a staggering 15.8 billion yuan money laundering case involving cryptocurrencies and illegal forex trading. These incidents underscore the urgent need for stringent regulation in this sector.

Despite the cryptocurrency ban, the Chinese government’s move to draft a national Web3 development plan signals a nuanced approach toward digital assets. It shows a willingness to explore the potential benefits of blockchain technology while clamping down on its misuse for illegal activities.

This recent directive is a clear message to those engaging in or facilitating illegal forex transactions using cryptocurrencies: the Chinese government is serious about safeguarding its financial systems and will not hesitate to take decisive action against any threats to its economic stability and security.