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Chinese authorities operating out of the Mongolian city of Tonglio announced the arrest of 63 people involved in a massive money laundering scheme that had netted $1.7 billion in cryptocurrency using the Tether stablecoin.
According to the statement from law enforcement, the investigation began when a significant spike in deposits totaling over 10 million yuan hit a local bank, triggering the bank’s anti-money laundering protocols. In a series of subsequent raids, a total of 130 million Chinese yuan, around $18.6 million, were confiscated by Chinese authorities.
Chinese police say the criminals organized the group on Telegram, recruiting members who would open crypto exchange accounts. These exchanges were likely overseas due to China’s harsh crackdown on cryptocurrency. The gang would reward members with a commission based on how much they could launder, converting the USDT back into Chinese yuan.
The gang started its illegal operation in May 2021, the same time the Chinese government imposed a sweeping ban on cryptocurrencies, including fines and potential jail sentences for Chinese citizens found guilty of using cryptocurrency.
Originally, the crackdown was in the guise of reducing carbon consumption. The Chinese government has since begun the rollout of its digital yuan currency.
The region of Inner Mongolia, where Tonglio is located, closed down the Bitcoin mining farms that had been operating in the area due to its cheap energy cost in April 2021. Following the crackdown, many Bitcoin miners relocated to neighboring Kazakhstan and others to the United States.
Even still, underground crypto operations continue in China using proxy servers and virtual private networks (VPNs).
“As the ban has set in and time has passed, it appears that underground miners have grown more confident and seem content with the protection offered by local proxy services,” said a May 2022 report by the Cambridge Digital Assets Programme.