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Chinese Court Sentences Group for Money Laundering Using Digital Yuan

ByDayne Lee

Jun 17, 2024

Chinese Court Sentences Group for Money Laundering Using Digital Yuan

A Chinese court has sentenced several individuals to prison for laundering money using the country’s central bank digital currency (CBDC), the digital yuan. This case underscores the complexities of digital currency use in financial crimes.

According to local media reports, the People’s Procuratorate of Yuecheng District in Shaoxing City, Zhejiang Province, handed down prison sentences ranging from seven to 16 months to three individuals involved in money laundering activities using the digital yuan. Although the exact date of the trial was not disclosed, the convictions mark a significant enforcement action against digital currency-related crime.

The individuals involved were identified only by their family names. They managed to launder approximately 200,000 Chinese yuan (about $27,580) in digital form over a span of four days in mid-September in Shaoxing, as reported by Mpaypass, a Chinese business news website. A fourth suspect was also arrested, but details regarding their fate were not provided.

The Scheme and Its Participants

The principal accused, identified as Yuan, arrived in Shaoxing in search of employment. During his stay, he encountered an advertisement in his hotel promising a 0.8% commission for cashing out digital yuan with local merchants. After initially engaging in these activities alone, Yuan recruited his girlfriend, Zhang, and their friend Kuo to assist him in the operation.

Their scheme involved offering merchants in various cities, including Shaoxing, Jinhua, Hangzhou, and Jiaxing, a commission ranging from 1% to 1.5% to convert digital yuan received from their so-called “superior” into cash. The group communicated with their superior through “overseas niche chat tools,” making their activities difficult to trace. Zhang and Kuo received a 0.5% commission for their involvement in the transactions.

Exploiting CBDC Privacy

One of the critical aspects of this case is the exploitation of the digital yuan’s privacy features. As reported by Mpaypass:

“Digital RMB [yuan] payment transactions are highly private, and overseas fraud gangs take advantage of this feature.”

Despite these privacy features, the digital yuan is designed with “controllable anonymity,” allowing authorities to monitor and prevent illicit activities when necessary. This dual nature aims to balance user privacy with the need for crime prevention, as emphasized by officials from the People’s Bank of China.

ParticipantRoleCommission EarnedActivities
YuanMain orchestrator0.8% initially, then 1%-1.5%Recruiting merchants for cashing out digital yuan
ZhangAccomplice and recruiter0.5%Assisting in operations
KuoAccomplice and recruiter0.5%Assisting in operations
Fourth PersonUnspecified roleNot disclosedInvolved in the scheme

The scheme unraveled when public security organizations received reports of unusual digital yuan transactions among merchants. The rapid response from authorities led to the swift apprehension of the group members, demonstrating the effectiveness of the monitoring mechanisms in place for the digital yuan.

Rarity of Digital Yuan-Related Crimes

While this case is significant, instances of fraud involving the digital yuan remain relatively rare. In January, Cnstock, a Chinese website dedicated to legal and financial news, reported a similar case in Shanghai from May 2023. Described as the first of its kind in the city, this earlier case involved eight individuals, including merchants, who were convicted of laundering a total of $1.379 million. Their sentences ranged from four to 54 months in prison, along with substantial fines.

LocationDateNumber of ConvictionsAmount LaunderedSentences
ShaoxingSeptember 20243 (plus 1 arrest)¥200,000 ($27,580)7 to 16 months in prison
ShanghaiMay 20238$1.379 million4 to 54 months in prison

In the Shanghai case, the ability to open digital yuan accounts using only phone numbers was a crucial element in the execution of their scheme. This simplified account creation process was exploited to facilitate the laundering activities. The illicit activities were eventually uncovered after bank staff noticed suspicious transactions and reported them to the authorities.

The sentencing of the group involved in this case highlights the ongoing challenges and opportunities presented by central bank digital currencies (CBDCs) like the digital yuan. As digital currencies become more integrated into the global financial system, regulators and law enforcement agencies will need to continuously adapt their strategies to address potential misuse.

The balance between maintaining user privacy and ensuring security will be crucial in the development and implementation of digital currencies worldwide. Cases like this one provide valuable lessons for policymakers and technology developers as they work to create secure and efficient digital financial ecosystems.

Featured image credit: Freepik

Dayne Lee

With a foundation in financial day trading, I transitioned to my current role as an editor, where I prioritize accuracy and reader engagement in our content. I excel in collaborating with writers to ensure top-quality news coverage. This shift from finance to journalism has been both challenging and rewarding, driving my commitment to editorial excellence.

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