China Reports First CBDC Money Laundering Case


Key Takeaways

Chinese officials have cracked down on a criminal group connected to a money laundering charge.
The group scammed a person for 200,000 yuan (about $32,000) and used a digital yuan wallet to launder the funds.
11 individuals tied to the incident were detained and will now face a criminal trial.

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Chinese officials have detained 11 suspects in the first-ever money laundering case involving its central bank digital currency (CBDC).

11 Arrested For Illicit Use of Digital Yuan

Chinese investigators have reported an alleged money laundering scheme involving digital yuan, the country’s CBDC, which was introduced last year.

Chinese officials have cracked down on an unnamed group of individuals who allegedly used digital yuan, also called e-CNY, to launder funds acquired in a scam, according to digital media outlet Jiemian.

According to officials at Xinmi Public Security Bureau, the group first allegedly defrauded a person located in Xinmi province for 200,000 yuan (about $32,000) by leveraging a tech support scam. The group then used a digital yuan wallet to launder the funds and funnel it out of the country, investigators found.

The officials later pinned down a 26-year-old female suspect in Fujian province. In a follow-up investigation, 11 individuals tied to the incident were detained and will face a criminal trial.

Based on their investigation, officials allege the group used the digital yuan service to launder funds by routing the funds to an overseas fraud group hiding in Cambodia. According to the officials, the group tried to leverage the newly-introduced CBDC wallets to evade getting caught.

Even though the use of cryptocurrency is banned in China, the digital yuan is now accepted across major Chinese cities.  As of Oct. 2021, roughly 140 million people in China had signed up to open digital yuan wallets.

Rather than using blockchain, the digital yuan relies on digital signatures and encrypted storage for transactional security and to prevent double-spending. As the CBDC can be exchanged privately and in a peer-to-peer manner, it has the potential to be used in financial crime, just like physical cash.

The Chinese central bank has repeatedly expressed concerns about the use of digital assets and stablecoins for illicit activities like money laundering. In a June 2021 incident, the country’s officials arrested over 1,100 suspects for crypto-related money laundering.

Furthermore, given that Chinese authorities can presumably analyze the flow of its CBDC using data analytics, the digital yuan’s effectiveness as an instrument for money laundering may be quite limited.

This news was brought to you by Phemex, our preferred Derivatives Partner.

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